By: Heather Frisch, Christopher Bouquet, and Ashley Stein
Seyfarth Synopsis: As of January 1, 2026, AB 889 bulldozed California’s Prevailing Wage law, which impacts public works employers—including public agencies, the contractors that work for them, and private owners and developers whose projects may be subject to public works requirements. The amended law reframes the calculation of fringe benefits for individuals who work on public works project and mandates annualization of such benefits, demolishes the practice of frontloading these benefits, and requires employers to maintain inspection-ready records of compliance.
This year, AB 889 significantly revised California’s prevailing wage law, codified at Labor Code section 1773.1, to clarify the state’s prevailing wage regulations and streamline enforcement. Accordingly, as of January 1, 2026, California public works employers are required to annualize employees’ fringe benefits and maintain specific documentation demonstrating statutory compliance. These new obligations impact public agencies and their contractors, as well as private owners and developers whose projects may be subject to public works requirements. Continue reading for the blueprint of how to comply with the state’s amended prevailing wage law.
The Foundation: What is the Prevailing Wage?
“Prevailing wage” consists of the minimum per‑hour wage rate and the fringe benefit rate set by the Department of Industrial Relations (DIR) that must be paid to qualifying workers. Fringe benefits can be credited to employees only if they meet the requirements of section 1773.1, which includes contributions for health, pension, vacation, travel, and apprenticeship benefits.
The Workforce Roster: Who is Entitled to the Prevailing Wage?
All workers employed on public works projects must be paid the DIR-determined prevailing wage for the areas in which the project is located.
The Specs: What is a “Public Work” Under California Law?
The Labor Code broadly defines “public works” as including: construction, alteration, demolition, installation, or repair work done under contract and paid in whole or part from public funds. But, this definition can be misleading because the definition of “public funds” encompasses more than monetary payments.
“Public funds” include not only direct payments, but also fee waivers, land conveyed below market value, tax credits, and government loans or grants. Thus, even indirect forms of public support can trigger prevailing wage requirements. For example, developer-funded projects may qualify as public works if the project is tied to a public agency requirement (e.g., conditions of approval), and public-private partnerships may also qualify if the public agency retains control or provides financial assistance to the private company.
The Renovation: What Prevailing Wage Requirements Did AB 889 Change?
California’s amended law retrofitted the state’s prevailing wage practices as follows:
- Mandatory Annualization of Fringe Benefits
Prior to January 1, 2026, the annualization calculation applied only to certain benefits. AB 889 mandated that all employer-paid fringe benefits credited toward the prevailing wage be computed on an annualized basis, using any consistent 12-month period, and account for employee’s public and private hours worked for the same employer. This is the same method adopted by the federal Department of Labor in enforcing the Davis-Bacon Act for crediting contributions made to fringe benefit plans.Contractors may still choose whether or not to provide fringe benefits on prevailing wage jobs, and there are a few narrow exceptions to the amount of credit an employer may seek for fringe benefit payments that are included in the annualization requirement. However, the most critical exception has been retroactively revoked. Prior to January 1, 2026, the Director of the DIR was authorized to waive an annualization calculation method if it was deemed not to serve the purpose of the law. AB 889 not only removed this exemption, but immediately revoked any exemptions issued by the Director prior to the bill’s effective date.
- Prohibition of Frontloading Fringe Benefits
Some employers previously allocated 100% of fringe benefit contributions to employees’ public project hours to maximize the fringe benefit credit. AB 889 eliminated this practice. - Recordkeeping and Document Production Requirements
Covered employers must maintain records of each worker’s total annual hours across public and private projects, benefit contribution schedules, and employee-specific annualized calculations. This documentation must be produced to the Division of Labor Standards Enforcement (DLSE) upon request. Failure to comply with such a request could lead to denial of the employer credit.
The Inspectors: How are the DIR and DLSE Enforcing the Prevailing Wage Law?
Recently, the DIR and DLSE have significantly expanded prevailing wage enforcement efforts. These agencies’ audits tend to focus on underpayment, employee misclassification, improper apprentice ratios, and inaccurate certified payroll. Penalties for noncompliant practices can include withholding contract funds and issuing civil wage and penalty assessments.
Contractors can also face other collateral consequences, including but not limited to California Contractors State Licensing Board disciplinary actions and/or debarment for willful violations or apprenticeship misuse or ratio violations
The Winning Blueprint: Start Building Compliance from the Ground Up!
The amended requirements under AB 889 create new job site hazards for public works employers in California relating to cash wage obligations, unbudgeted labor cost overruns, subcontractor non-compliance, and possible DLSE enforcement actions.
The following early compliance efforts can help protect employers from prevailing wage potholes:
- Conduct internal fringe-benefit audits;
- Update payroll systems to perform annualization automatically;
- Train payroll and field supervisors on proactive compliance;
- Ensure that the compliance clauses in applicable construction contracts and subcontracts are strong, and include flow-down obligations;
- Review public funding triggers, including fee waivers, land conveyances, or tax credits that might subject a project to public works requirements; and
- Restructure benefits to ensure that only bona fide contributions receive prevailing wage credit.
Workplace Solutions
If you have questions about AB 889 compliance, or other construction industry employment issues, contact the authors of this article or your favorite Seyfarth lawyer for more information.
Edited by Catherine Feldman