The prevailing wage is the average wage for similarly employed workers in the same geographical area. Employers must pay the higher of the actual wage (average wage that employer pays similar workers) and the prevailing wage (the average wage employers generally pay similar workers).

The regulatory scheme at 20 CFR 655.10-11 and 20 CFR 656.40-41 govern the prevailing wage requirements for H-1B, E-3 (Australian H-1B) and PERM cases.  The Department of Labor published prevailing wage policy guidelines in November 2009.  You can read the guidelines by clicking here.

The wage must be for the geographical area of intended employment, which is the area within normal commuting distance, usually a metropolitian statistical area.

Similarly employed workers are ones who have substantially comparable jobs, or if there are no substantially comparable jobs in the area of intended employment, then jobs requiring a substantially similar level of skill within the area of intended employment.

There are four wage levels for each job in a particular geographical area.

• Level I (entry level) is for entry level employees who perform routine tasks that require limited, if any, exercise of judgment.  Level I employees work under close supervision and receive specific instructions on required tasks and the results expected.  Level I work is closely reviewed by supervisors for accuracy.
   
• Level II (qualified) is a qualified worker who has attained through education or experience a "good understanding" of the job.  Level II workers perform moderately complex tasks requiring limited judgment.  Level II jobs generally require years of education and or experience equal to the general requirement in the O*NET job zone.
   
• Level III (experienced) is a worker who has attained through education or experience a "sound understanding" of the job and performs tasks that require exercising judgment and also may coordinate the activities of other staff.  Requiring years of experience or education that is at the "higher ranges" reflected in the O*NET job zone indicates that a Level III wage should be used.
   
• Level IV (fully competent) is a worker who has sufficient experience to plan and conduct work requiring judgment and the independent evaluation, selection, modification and application of standard procedures and techniques.  Level IV workers receive only technical guidance and their work is reviewed only for the application of "sound judgment" and effectiveness in meeting the company's procedures and expectations.  Level IV workers generally have management and/or supervisory responsibilities.

Let's take the examples of a software engineer and a computer programmer.

According to BLS, a software applications engineer is a "JobZone Four" and an Education Code Five.  This means the job requires "a minimum of two to four years of experience" (except obviously a minimum cannot be a range, but no matter).  So here an employer that requires more than two years of experience in addition to a bachelor's degree will get a "1" written in that row raising the the wage level above Level I to at least Level II.  If the worker has supervisory duties that raises the wage level up one.  If the worker has supervisory duties, that raises the wage level up one.  If the employer requires a degree higher than a bachelor's degree, that will raise the wage level up one.