Certified payroll 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 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.
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 business with sub-market wages.
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. The Davis-Bacon Act applies to federally funded contracts over $2,000 for the construction, alteration or repair or public buildings or public works. SCA applies to prime contracts in excess of $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.
How does certified payroll work?
The main difference between payroll and certified payroll are the reporting requirements that must be followed in accordance with 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.
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 submit weekly reports. This can quickly dominate a payroll teams’ time and even limit a company’s ability to grow. This makes certified payroll software an important strategy for government contractors.
Certified payroll violations can cost you
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.
Potential violations may be reported by workers that 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 in order to check for compliance. No matter how the violation is found, however, it is followed up with an investigation.
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 f the reported hours are accurate. They will look at how fringe is being handle and may even talk to employees to dig into alleged violations.
The penalties vary based on the type and size of violation, but often includes 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.
Learn more about certified payroll, prevailing wages and payroll for construction by visiting our resource hub.
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.
