There are many payroll and prevailing wage mistakes that can leave a construction company in trouble with the Department of Labor. The mistake doesn’t have to be big to cause big problems, either. In fact, any violation of Davis-Bacon and Related Act (DBRA) and the McNamara-O’Hara Service Contract Act (SCA) can create financial and legal trouble.
You don’t have to look far to find examples construction companies facing serious problems due to DBRA or SCA violations. For instance, a Baltimore federal contractor didn’t pay workers the correct prevailing wage and was recently ordered to pay 293K in back wages and fringe benefits. Another contractor was ordered to pay $124,075 in back wages and fringe benefits after failing to pay the correct prevailing wage rate, fringe benefits and not correctly tracking time.
Exactly what type of mistakes are these companies making and how can you avoid doing the same thing that got them in trouble? While every case has different details, the following are the top mistakes construction companies make that leave them out of compliance and in trouble with the DOL.
Misclassifying workers: Workers have to classified according to the specifics of their job in order for the prevailing wage rate align. So, if you classify someone as a laborer when they are doing iron work, they are misclassified.
Incorrect prevailing wage rate: If you pay someone the wrong hourly rate for the type of work they are doing, you are in violation. This can also happen if you happen to use the wrong wage determination to find the prevailing wage rate.
Using the wrong wage determination: Wage determinations list jobs and their corresponding prevailing wage and fringe benefit rates. If you use the wrong one, you will automatically be paying people wrong. This can be hard to get right since wage determinations change regularly.
Incorrect fringe benefits: Fringe benefits come from wage determinations and are directly tied to prevailing wage rates. Mistakes in any single area typically means additional mistakes. So if you use the wrong wage determination, hourly and fringe rates are likely wrong as well.
Time tracking problems: Tracking hours on each project is critical, but so is tracking role changes during each shift. If a worker does different types of job during a day, each type of task must be tracked, and the correct prevailing rate paid for the time they work in each role.
Reporting errors: Certified payroll requires you to report specific details of your payroll to official government agencies. Failing to complete these reports on time, and in full, can leave you out of compliance.
Additionally, companies still have to follow basic labor and business laws that govern things like record keeping, safety and things like overtime. Making prevailing wage mistakes can open a company up for audit, which can uncover all sorts of non-prevailing related issues. For example, a contractor was cited on multiple state prevailing law violations by Minnesota Department of Labor, including an 8K fine for failing to maintain adequate employee records. So while the record keeping violation wasn’t what got the attention of government officials, once the door was open all violations are fair game.
Preventing payroll and prevailing wage mistakes
Now that you know the top payroll and reporting mistakes government contractors make, you’ll want to learn how to prevent them. The following steps will give you a great head start on limiting the types of errors that lead to prevailing wage violations.
- Go digital and reduce manual processes. Every manual task is an opportunity for error, so move away from them in every area possible. An example of this is moving to digital time tracking if you currently use handwritten timecards or manually transfer hours into spreadsheets. An added benefit of this is that doing this will save your admin team time so they can take on tasks that help you grow instead of being buried under paperwork.
- Stay on top of reporting: If you work on government funded projects you probably have to deal with multiple reporting requirements. Staying up to date with these is important because if you’re behind you’re not only noncompliant, but you’re more likely to make mistakes trying to get everything back on track.
- Create official checklists for your payroll process: Mistakes are easier to make and harder to catch if you don’t have official processes in place. Stay on track by creating a payroll workflow that includes each step of the payroll process. Make sure you include checks and balances to verify critical data, like hours and prevailing wage rates, to limit errors before payroll is finalized.
- Verify wage determinations: Using the wrong wage determination will lead to mistakes in fringe benefits as well, so verify them regularly. And remember, wage determinations change so never apply wage rates from previous projects to new projects. 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 Relation’s website, broken down by area and city where applicable.
- Prioritize ongoing education: Team members change, prevailing wage laws change, and it’s easy to forget some of the more complicated aspects of complying with the law. For these reasons, it is important to help your team stay up to date by prioritizing ongoing education. Including federal and state prevailing wage laws along with general labor laws. Our resource hub has some great official information to get you started.
- Keep good records: All companies are required to keep certain records, but it is extra critical for prevailing wage construction companies. If your company is investigated due to prevailing wage issues, you’ll want to show that you have time keeping and payroll procedures in place. And if you are investigated, all mistakes are on the table. This means a simple, non-prevailing wage related record keeping issue can be included in the corrective action.
Payroll, reporting and prevailing wage regulations are complicated, so it’s easy to understand how mistakes happen. It’s equally easy to see how seemingly small mistakes get compounded into larger, more serious issues. Fortunately, you can reduce your company’s risk by learning to identify, prevent and resolve common mistakes through these strategies.
Learn more about prevailing wage laws.
Read the wage determination guide.
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.
