The Ultimate Guide to Certified Payroll Mistakes

Certified payroll mistakes happen. Certified payroll is a requirement of federal prevailing wage laws like the Davis-Bacon and Related Act (DBRA) and the McNamara-O’Hara Service Contract Act (SCA). The Department of Labor (DOL) Wage and Hour Division (WHD) oversees the application of these laws and is responsible for investigating violations. When violations are found, there can be a range of results that include wage restitution, penalties, and potential debarment from government contracts.

The following areas are commonly where mistakes that lead to violations occur. You can learn about how mistakes happen and ways to prevent them in your organization.

Certified Payroll Mistakes and Wage Determinations

Wage determinations list the minimum prevailing wage and fringe benefit rates that must be paid for each work classification to comply with prevailing wage laws. These are updated regularly, typically once a year, and published by the Department of Labor (DOL). Oftentimes, the awarding agency provides you with the wage determinations you need, but not always. You should also always verify the information even if it is handed to you.

You have to use the correct determination number for your project otherwise you won’t be paying the correct hourly and fringe benefits rate. This problem is compounded by the number of workers that are being paid incorrectly.  If you are investigated, you will minimally be required to pay restitution to make up for underpaid wages and fringe benefits.

We made a guide to help you learn how to find and read wage determinations.

Work Classifications

Wage determinations are tied to work classifications, which are listings of various work roles people can perform on the job site. Every work classification has a specific definition of the type of work that is included under it. If the wrong work classification is selected when logging time or generating pay, they will be paid the wrong hourly wage and fringe rate.

Additionally, someone may work in various roles during a single shift. Each of these roles must be tracked and paid accordingly. This must all be reflected in the required reporting. If anything isn’t tracked correctly, or paid correctly, you violate the law. If investigated, you will minimally be required to pay restitution to make up for any underpaid wages and fringe benefits. 

Fair Labor Standards Act

Companies are required to keep payroll and other basic records under Davis-Bacon and related Acts along with provisions within the Fair Labor Standards Act. This includes keeping the following records on all covered laborers and mechanics for three years:

• Name, address, and social security number of each worker
• Each worker’s work classifications
• Hourly rates of pay, including rates of contributions or costs anticipated for fringe benefits or their cash equivalents
• Daily and weekly numbers of hours worked
• Deductions made
• Actual wages paid
• Detailed information regarding bona fide fringe benefit plans and programs, including records that show that the plan or program has been communicated in writing to the laborers and mechanics affected
• If applicable, detailed information regarding approved apprenticeship or trainee programs

Failures to keep adequate records can lead to violations and fines. Recently, a contractor was cited on multiple state prevailing law violations by the Minnesota Department of Labor, including an 8K fine for failing to maintain adequate employee records. Awareness is your best defense against making this type of administrative mistake.

Reporting Errors and Certified Payroll Mistakes

Reporting is a big part of prevailing wage compliance. Under DBRA and SCA, every covered contractor and subcontractor must provide weekly reports to the contracting agency. This report must include a detailed copy of payroll information to verify that workers are being paid the correct prevailing wage and fringe benefit rate. This report must also be signed by someone in a position to verify that the information is correct and submitted within seven days after the regular pay date for the pay period.

Failing to stay on track with reporting can have serious consequences. For instance, if this report is not submitted, the awarding agency might withhold pay until all reports have been received. Prime contractors may in turn require and verify that their subcontractors are up to date with reports before issuing pay.

Contractors can use Form WH-347 to submit their reports, but the form is optional. It simply makes it easier for contractors to submit all required information to stay compliant. Unless you have a sophisticated payroll system made to simplify prevailing wage reporting, it can be quite time-consuming to correctly complete weekly reporting.

Certified Payroll Mistake Prevention Tips

Preventing certified payroll mistakes is always better than having to resolve them once payroll is posted and reports have been filed. The following tips can help you create an environment that limits errors and catches them early in the process when they are easier to resolve.   

1. Create checks and balances for all manual information. This includes having multiple sets of eyes verifying payroll and reporting information. This can limit errors in the mid-process before payroll and reporting is finalized.

2. Reduce the amount of manual processes when possible. For instance, if you’re capturing time on time cards or spreadsheets, move to digital time tracking. This reduces the potential for errors that happen when you manually transfer data.

3. Make sure you’re always using correct prevailing wage determinations for your project. Federal wage determinations for Davis-Bacon and Service Contract Act projects can be found here. The California prevailing rates can be on the Department of Industrial Relations’s website, broken down by area and city where applicable.

4. Prioritize ongoing education so that your team stays up to date on prevailing wage laws. Be sure to include federal laws and state laws, where applicable. Another area of education includes the importance of more accurately tracking work classifications in the field.

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.