Labor Relations
California Reworks Prevailing-Wage Annualization for Benefit Credits
Updated
Assembly Bill 889, authored by Assembly Member Hadwick, amends Labor Code section 1773.1 to update how employers credit fringe-benefit contributions against the general prevailing rate of per diem wages on public works. The measure removes an exception that let the Director of the Department of Industrial Relations excuse annualization, revokes annualization exemptions the director issued before January 1, 2026, and places the burden of proving proper credit calculation on the employer. It takes effect January 1, 2026.
Background
California requires workers on public works to be paid at least the general prevailing rate of per diem wages for similar work in the locality. Under Labor Code section 1773.1, per diem wages include certain employer payments, such as health and welfare, pension, and training contributions, and those payments count as a credit against the prevailing-wage obligation.
Existing law required that credit to be computed on an annualized basis when an employer’s payments were higher for public works than for private construction. Annualization spreads a benefit contribution across all hours worked in a year, public and private, so that prevailing-wage jobs do not disproportionately fund benefits. Before this bill, the director could exempt an employer from annualization after finding it would not serve the statute’s purposes.
What the Law Changes
Assembly Bill 889 removes the director’s authority to grant an annualization exception based on that purpose finding, and it revokes any annualization exemptions the director issued before January 1, 2026. Employers seeking credit for payments that are higher on public works must again compute those credits on an annualized basis, subject to the existing statutory circumstances that remain in section 1773.1.
The bill also addresses defined contribution pension plans. An employer may take full credit for hourly amounts contributed to defined contribution pension plans that provide for both immediate participation and essentially immediate vesting, even if the employer contributes at a lower rate, or makes no contributions, for private construction. The statute defines “essentially immediate vesting” to mean the benefit vests within the first 500 hours worked.
Assembly Bill 889 eliminates the director’s annualization exception under Labor Code section 1773.1, revokes annualization exemptions issued before January 1, 2026, and requires employers to prove that their prevailing-wage benefit credits were calculated properly.
Recordkeeping and Burden of Proof
Under the amended statute, the employer bears the burden of demonstrating that the credit for employer payments was properly calculated. On the Labor Commissioner’s request, the employer must produce records of employee hours and employer payments on private construction sufficient to verify that the credit was annualized correctly.
If the employer does not produce those records, the Labor Commissioner may deny the employer credit for the employer payments. The bill also adds legislative findings describing annualization, drawn in part from the federal Davis–Bacon Act framework, and states an intent to update and clarify the state’s public works annualization process.
What This Means for You
Assembly Bill 889 changes how employers on California public works projects credit fringe-benefit contributions against prevailing wages by requiring annualization, ending prior exemptions, and shifting the burden of proof to the employer. It touches wage disputes over public works and the records employers keep on hours and benefit payments.
I write these summaries as general information about developments in California employment law. They are not legal advice and don’t create a mediator–client relationship. For guidance on a specific matter, consult a qualified attorney.