Payroll comes with its own set of terms and processes. Certified payroll is similar to standard payroll but includes some unique terms that revolve around the regulations that govern prevailing wage work. Even if you work in payroll or already process certified payroll reports, there may be some things you don’t know about industry jargon.
Today we’re going to go over some important certified payroll terms that every government contractor needs to know.
What is certified payroll?
Certified payroll is the blanket term used to describe payroll and the reporting that is required under prevailing wage law. Government contractors working on covered contracts must follow these laws or face investigation and penalties. Part of the process is to submit reports with specific information and to “certify” that their report is accurate and follows all applicable regulations.
Federal prevailing wage laws include Davis-Bacon and Related Acts(DBRA) and the McNamara-O’Hara Service Contract Act (SCA). State prevailing wage laws are also common and effect government contractors working on state-funded or assisted contracts. There are conditions under each which determine if a project is eligible and what type of work is covered.
Certified payroll terms for government contractors
Annualization: Annualizing means to convert a short-term rate of return into an annual rate of return. Some fringe benefits are subject to annualization, which means that the amount you can claim toward your fringe obligation is reduced based on the time a worker spends doing prevailing wage work. An example of this is as follows:
If you pay $5,000 per year in medical benefits to an employee that only spends 25% of their time on prevailing jobs, you can only take $1,250 of credit for fringe benefits.
Apprentice: Workers that are in a training program that is registered with the U.S. Department of Labor, Employment and Training Administration, Bureau of Apprenticeship and Training, or with a State Apprenticeship Agency may be considered an apprentice. These may be called “trainees” as well. These types of workers may be employed on DBRA projects. Additionally, states may also have apprenticeship requirements under their prevailing wage laws. Under some circumstances, apprentices and trainees may be paid rates different from the general prevailing rates required under the law.
Assisted contracts: If a contract is partially funded by federal or state dollars, they are generally considered to be an assisted contract. If a contract falls into this category, it typically follows the same prevailing wage rules as any other government funded contract.
Awarding body/awarding agency: The agency or organization that awards a public works contract. The awarding body can be any kind of public agency or official, including a city, school board, water district, or private entity that is using public funds.
Davis Bacon surveys / Wage surveys: This refers to official surveys the government conducts to determine what the prevailing wage rates for DBRA contracts should be. At the federal level, these are conducted by the Department of Labor, but states may conduct their own for state prevailing laws.
Certified payroll report: While there are various reports that may be used in relation to payroll, this term refers to payroll information government contractors are required to submit under prevailing wage law. It must include key pieces of information and be signed to verify that you’re submitting accurate info and following all required regulations.
Compliance: This term is used in many different industries but in relation to certified payroll, it means to correctly follow all prevailing wage regulations. If you make a mistake or error, you’re not in compliance.
Eligible projects: A project that meets the minimum criteria for being covered under prevailing wage law is sometimes called an eligible project. For DBRA, this generally applies to a public works contract in excess of $2,000 for the construction, alteration, or repair of public buildings and public works, including painting and decorating.
Eligible/covered workers: A worker that performs work on an eligible project is sometimes called an eligible or covered worker. This simply means that they must be paid hourly and fringe rates according to the laws the contract falls under, be it DBRA, SCA or a state prevailing wage law.
Fringe benefits: In a general sense, fringe benefits may be called “perks” and are something that is offered above and separate from an employee’s salary. When it comes to prevailing wage law, fringe benefits are a mandatory part of an eligible worker’s hourly salary. These are intended to help workers improve their financial stability and provide access to options like health care. Learn more about fringe benefits in our FAQ.
Fringe benefit credits: This generally refers to a company’s ability to count something they offer their workers as a fringe benefit and to subtract it from their overall fringe obligations. Construction companies required to pay fringe benefits will take credit for allowable fringes and subtract that amount from what they are required to pay. This is not always a direct dollar to dollar amount because some benefits are annualized.
Fringe trust: Fringe benefits can be paid directly on a worker’s paycheck or through a 3rd party bona fide trust. This is often just referred to as a fringe trust or trust. To be compliant, a fringe trust cannot be a safe-harbor match or a deferred payment plan. It must be a pre-tax employer contribution into a qualifying plan followed by an optional distribution. It must also be structured in a way that is compliant with all applicable laws. Learn more about fringe trusts here.
Nonperformance: If no work is performed in a week, you still have to submit a nonperformance report to the awarding agency. This simply states that no workers or work was performed during a specific time period on an eligible project. This may be called also be called a statement of nonperformance and is generally required for federal and state reporting.
Payroll Number: Certified payroll reports include the payroll number. This helps to make sure that all reports for the project are sequential. You start with the number 1 for your first payroll report and make future reports on the same project sequential. You enter “final” for the final report for the project.
Prevailing wage: This refers to the typical wages found in any geographic area for specific types of work. There are prevailing wage laws, both federally and at the state level, that ensure that certain types of work is paid at the prevailing wage rate. This includes an hourly wage and an hourly fringe benefit rate. Prevailing wages are set by the government, pertain to government contracts, and vary based on location and type of work.
Prime contract: This refers to a binding contract that exists between the owner of a construction project and a contractor.
Public works: This refers to projects financed by the government for public use or for the general benefit of the public. This includes infrastructure projects, highways, bridges, dams, government facilities and similar structures. These types of projects generally fall under prevailing wage law as long as they meet the minimum dollar threshold.
Statement of Compliance: This is the statement at the end of a certified payroll report which attests that to the best of your knowledge, the form is correct and that the payroll follows all applicable laws. This does not need to be notarized but failing to truthfully complete out the form falls under penalties provided for under 18 U.S.C. § 1001 which includes a fine and potential jail time.
Supplemental Unemployment Benefit (SUB) plan: This is a benefits plan purchased to help cover lost wages if you end up unemployed for a reason covered by the plan. Sometimes a SUB plan is used to handle fringe benefits, but according to a 2015 DOL ruling, they must be annualized. For this reason, SUB plans have fallen out of favor for fringe management.
Wage determinations: This refers to information published by the government which show the prevailing wage and fringe rate for each classification of work. Wage determinations change regularly and are based on information gathered in wage surveys.
Wage schedule: There are four different wage schedules under DBRA: Building, Heavy, Highway or Residential. Each of these schedules has its own list of hourly wages and fringe rates for each work classification. This means the pay rates for every role is difference based on which wage schedule it falls under, so an electrician working under the building schedule would be paid different than one on the residential schedule.
Week Ending: This is the end date of the work week you are submitting a certified payroll report over.
WH-Form 347: This is the form provided by the federal government to help construction companies more easily comply with prevailing wage reporting requirements. It includes all of the details you need to submit on your weekly certified payroll report.
Work classifications/work roles: This refers to the various types of workers which may perform work on a job, such as a carpenter, plumber or electrician. These various classifications have their own pay rates and must be tracked on your payroll. If a worker changes jobs or roles for part of a shift, that must also be recorded.
Wage restitution: This refers to the act of correcting errors on a worker’s paycheck. If an error is found, you must make restitution to the worker or workers affected by the error. For prevailing wage work, this might mean correcting hourly wages and hourly fringe benefits.
Learn more about certified payroll and related topics by following the links below: :
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.