Employers often create complicated payroll formulas to calculate overtime pay for employees who work under public work contracts to comply with Massachusetts’ prevailing wage law. The prevailing wage law (M.G.L. c. 149, § 26-27) governs public works contracts in Massachusetts and mandates a wage rate established by the director of the Massachusetts Department of Labor, the “prevailing wage,” which must be paid.

 Waste Management of Massachusetts, Inc., provided solid-waste disposal services to various municipalities and employed waste disposal truck drivers and laborers to perform the work. Waste Management used a complicated formula to calculate overtime pay but the employee’s base pay rate was actually below the applicable prevailing wage rate. It was only after Waste Management added in the overtime worked and divided the total pay by the number of hours worked, that the final number met or exceeded the prevailing wage. When an employee’s average hourly rate fell below the prevailing wage rate the company supplemented their income to bring the earnings into compliance with the statute. Employees at Waste Management filed a complaint alleging the formula violated both the prevailing wage statute and the overtime pay statute. Waste Management argued that paying an hourly wage that is no less than the prevailing wage for all hours worked, including overtime, satisfies the requirements of the prevailing wage statute.

The SJC weighed in on the issue and ruled that the “Waste Management’s use of a base pay rate below the prevailing wage rate frustrated the purposes of the overtime law.” The Court reasoned when the rate of pay was the same regardless of whether the employee worked any overtime, it frustrated the purpose of creating an economic disincentive to having employees work only 40 hours in a week. Further, the SJC concluded that Waste Management’s formula frustrated the purposes of the statute by offering its services for less than what was customarily charged by its competitors for nonpublic works.

This case reinforces that employers must comply with the prevailing wage law for all hours worked on municipal contracts as well as overtime pay. Violations of the Massachusetts’ wage and hour laws carry extensive damage penalties.