Publicly funded construction in California requires a laundry list of legal obligations. Intended to ensure fairness in the procurement process and equity in wage treatment of workers, public works laws strive to balance bid-award opportunities for contractors.
Sometimes missed in the discussion are sole proprietors, those one-person business entities working, often, at the periphery of the process. This article is a response to the question, “Are sole proprietors exempt from prevailing wage requirements?”
The short answer is no. Here’s why.
One requirement, as spelled out in California’s labor code at §1774, is pretty clear: The contractor to whom the contract is awarded, and any subcontractor under him, shall pay not less than the specified prevailing rates of wages to all workmen employed in the execution of the contract.
The contractor (every subcontractor is, in fact, a contractor, but in a subordinate position to the prime contractor) must pay prevailing wages to its employees. The entity type, whether a corporation, partnership, limited liability company, or sole proprietorship, is irrelevant to that requirement.
What often confuses some is that, many times, the sole proprietor is also the only worker, or one of a handful of its workers, representing the company on the public works site. As the company owner, the sole proprietor might argue for exemption based on the erroneous notion that “management is exempt.” Once the “manager “ dons tools and engages in the tasks of a worker, that manager disappears and is, for all practical purposes, a worker as defined by the labor code. At that point, prevailing wages apply.
The labor code addresses this at §1771.5 (b) (3), where it states: Project contractors and subcontractors shall maintain and furnish, at a designated time, a certified copy of each weekly payroll containing a statement of compliance signed under penalty of perjury.
And “All workers, including the sole proprietor as reflected in his/her worker capacity, must be represented in those certified payroll records,” shared Bambille Ayala, a labor compliance specialist, based in Southern California, with considerable experience in prevailing wage monitoring. Ms. Ayala added, “Further, contractors must certify, under penalty of perjury, the accuracy of the certified payroll reports.”
California’s Division of Labor Standards Enforcement (DLSE) publishes a public works manual. It states, in relevant part: An individual who performs skilled or unskilled labor on a public works project is entitled to be paid the applicable prevailing wage rate for the time the work is performed, regardless of whether the individual holds a particular status such as partner, owner, owner-operator, independent contractor or sole proprietor, or holds a particular title with the employer such as president, vice-president, superintendent or foreman…
Much of California law covering public works can be found on its legislative information web site. The Department of Industrial Relations (DIR) maintains a site that includes its recently revised (May 2013) public works manual, along with guides, forms, and other information vital in complying with prevailing wage requirements. Again, Ms. Ayala: “Research is key to preparation; preparation is key to compliance.”