Certified payroll for construction is a type of payroll for construction companies that do prevailing wage work. The term “certified payroll” is generally used to refer collectively to the payroll and reporting requirements placed on government contractors. At the federal level, these requirements come from the Davis-Bacon and Related Acts(DBRA) and the McNamara-O’Hara Service Contract Act (SCA). Additionally, many states have prevailing wage laws that require certified payroll on state-funded projects as well.
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The Lowdown on Certified Payroll for Construction: Unveiling Requirements and Benefits
Leveling the Playing Field: Unveiling the Purpose of Prevailing Wage Laws
The original goal of these types of laws, often called prevailing wage laws, was to prevent cheap labor from outside markets from undercutting local wages. Prevailing wage laws are said to even the playing field, stabilize local wages, and level out competition by preventing outside companies from sweeping up local businesses with sub-market wages.
Deciphering Prevailing Wage Rates and Wage Determinations
Projects that fall under these laws must pay workers pre-determined prevailing wages based on the classification of work being done. These wages are published through wage determinations, which the Department of Labor establishes. State prevailing wages are set through state agencies, such as the California Department of Industrial Relations.
Contractors that work on qualifying government contracts are required to do certified payroll for construction. The Davis-Bacon Act applies to federally funded contracts over $2,000 for the construction, alteration, or repair of public buildings or public works. SCA applies to prime contracts over $2,500. Contracts under this amount fall under the federal minimum wage. There are also federally assisted contracts, where federal and local dollars are combined, which are governed by these laws.
Navigating the Compliance Maze: How Certified Payroll for Construction Works
The main difference between payroll and certified payroll is the reporting requirements that must be followed by prevailing wage laws. Certified payroll reports must show detailed information showing each worker’s work classification, prevailing, and fringe rate. This information must be reported every week to the Department of Labor for federal contracts.
Form WH-347: Your Guide to Federal Certified Payroll Reporting
Federal contractors can use form WH-347 to ensure that they are reporting everything they need to under the law. States have their own set of reporting requirements that must be followed for eligible state contracts. Submitting reports that are correct and on time is an important part of staying compliant.
While processing regular payroll requires a good deal of admin work, staying ahead of certified payroll requirements can be overwhelming. This is because you must make sure that you are using the correct wage determinations, paying the correct prevailing and fringe rates, and submitting weekly reports. This can quickly dominate a payroll team’s time and even limit a company’s ability to grow. This makes certified payroll software an important strategy for government contractors.
The Cost of Missteps: Avoiding Certified Payroll Violations
The laws that create the regulations for prevailing wage work include penalties for violations. Federal agencies that award contracts have daily enforcement responsibilities to ensure that contractors working on their projects are complying with the law. The Department of Labor’s Wage and Hour Division is responsible for investigating and enforcing the law. This includes issuing penalties for violations.
Facing the Consequences
Potential violations may be reported by workers who think a company is doing something wrong, like paying the wrong prevailing wage rate. At other times it could be a compliance officer or other official that visits a job site to check for compliance. No matter how the violation is found, however, it is followed up with an investigation.
Under the Microscope
Investigations often include a close look at all certified payroll records to make sure everything is in order. This includes checking to see if the correct wage determinations and work classifications were used and if the reported hours are accurate. They will look at how the fringe is being handled and may even talk to employees to dig into alleged violations.
Real-World Cases
The penalties vary based on the type and size of violation but often include paying back wages and fringes along with a penalty. For example, this federal contractor had to pay $293K in back wages and fringe benefits after failing to pay the correct prevailing wage rate. These two contractors had to pay back wages, and one had to pay an additional penalty for failing to keep adequate employee records.
Additionally, companies can also face debarment from future contracts under certain circumstances.
Resource Hub: Deepening Your Knowledge of Certified Payroll and Prevailing Wages
Learn more about certified payroll, prevailing wages and payroll for construction by visiting our resource hub.
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Helpful FAQ Regarding Certified Payroll Tracking
How long should you keep certified payroll records?
The duration for which you should retain certified payroll records can vary based on federal and state regulations. However, as a general guideline, it’s advisable to keep certified payroll records for a minimum of three to four years. This duration allows for compliance with various statutes of limitations and auditing requirements. It’s crucial to check specific regulations in your jurisdiction, as they may dictate different retention periods. Additionally, some projects or contracts may have unique record-keeping requirements, so it’s essential to be aware of any specific guidelines outlined in the contract documents or by relevant authorities.
Why do I need to track certified payroll?
Tracking certified payroll is essential for legal compliance, transparency, and accountability in government-funded construction projects. Prevailing wage laws, like the Davis-Bacon Act, mandate specific minimum wage rates, and certified payroll ensures adherence to these regulations. It provides a detailed breakdown of wages, classifications, and benefits, serving as a transparent record for auditing purposes. Meeting contractual obligations, including the submission of certified payroll reports, is crucial to avoid penalties and maintain project integrity. Additionally, accurate payroll tracking contributes to building trust with employees and unions, enhances financial management by providing insights into labor costs, and supports the overall success of construction projects.
What is the difference between certified payroll and regular payroll?
The main difference between certified payroll and regular payroll lies in the level of detail and compliance required. Here’s a breakdown of the distinctions:
- Detail and Documentation:
- Certified Payroll: Involves a more detailed and specific breakdown of information. Certified payroll typically includes details about each worker’s classification, the number of hours worked, wage rates (including prevailing and fringe rates), and any deductions or benefits. It requires additional documentation to ensure compliance with prevailing wage laws, especially on government-funded construction projects.
- Regular Payroll: Generally includes basic information such as employee names, hours worked, gross pay, taxes, and deductions. While it covers the fundamental aspects of compensating employees, it may not provide the specific details required by certified payroll for compliance with prevailing wage regulations.
- Legal Requirements:
- Certified Payroll: Often mandated by law, especially in government-funded construction projects subject to prevailing wage laws like the Davis-Bacon Act. Contractors are required to submit certified payroll reports to demonstrate that workers are paid in accordance with specified wage rates.
- Regular Payroll: Follows standard payroll practices required by tax and labor laws. While compliance with labor laws is crucial, the level of detail may not be as extensive as that required for certified payroll.
- Purpose:
- Certified Payroll: Primarily serves as a tool for ensuring compliance with prevailing wage laws on public projects. It provides transparency and accountability in paying construction workers according to specified wage standards.
- Regular Payroll: Focuses on compensating employees for their work, meeting tax obligations, and managing general payroll processes within the organization.
In summary, certified payroll is a specialized form of payroll designed for projects subject to prevailing wage laws, requiring meticulous documentation and compliance with specific regulations. Regular payroll, on the other hand, is a more general process of compensating employees, adhering to standard payroll practices and legal requirements.
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The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.
