| Update Applicable to: | Effective Date |
| Employers and Contractors on Public Works Projects | January 1, 2026 |
What happened?
On October 10, 2025, Governor Gavin Newsom signed Senate Bill (SB) 889 into law to clarify how prevailing wage and fringe benefit contributions must be calculated for public works projects.
Overview:
The law amends Section 1773.1 of the California Labor Code to ensure a fair and transparent calculation of prevailing wages and associated benefits for workers on public works projects by introducing the principle of annualization for employer contributions.
What is the Principle of Annualization? It is a method used to calculate the hourly credit a contractor may claim for contributions to bona fide fringe benefit plans under the Davis-Bacon Act (DBA). It ensures that the fringe benefit contributions are fairly distributed across all hours worked by an employee, not just those worked on Davis-Bacon-covered projects.
- For additional information: DOL – Davis-Bacon Compliance Principles
What is the New Calculation Process?
- Employers must divide total fringe benefit contributions by the total number of hours worked across all projects (public and private) in a year. This prevents contractors from using prevailing wage work as the primary source of funding for benefits.
- Employers may take full credit for hourly contributions to defined contribution pension plans with immediate participation and vesting, even if rates differ between projects.
Why it matters?
- Previous exemptions to annualization are revoked as of January 1, 2026.
- Employers must maintain accurate records and prove benefits calculation upon request.
- The Labor Commissioner can deny credits if proper documentation is not provided.
Source References
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