Certified Payroll: A Complete Guide 2024

If you’re a contractor or subcontractor in the United States working on government projects then you may be required to submit certified payroll records. Here’s everything you need to know to stay on the right side of compliance.

What Is Certified Payroll?

Certified payroll is a specific type of weekly payroll report required in the United States for contractors and subcontractors working on federally financed or assisted construction projects worth $2000 or more. 

The certified payroll report must be submitted weekly to the U.S. Department of Labor (DOL) using Form WH-347. This is still required even if work is temporarily halted.

Certified payroll is a requirement set forth under the Davis-Bacon Act mandating that workers on such projects must be paid at least the prevailing wages and fringe benefits for the area in which they’re working.

The Davis-Bacon Act

The Davis-Bacon Act was passed by Congress in 1931 to protect workers from low hourly wages.

Per the act, if the government awards your business a contract for over $2,000 to complete the construction, alteration, upkeep, or repair of public buildings or public works projects, you must comply with certified payroll.

This means submitting your weekly certified payroll report and paying your workers the prevailing wage and fringe benefits commensurate with their geographic location.

The prevailing wages are determined by the DOL using surveys. Overtime payment at 1.5 times the employee’s basic rate of pay for all hours worked over 40 will be required or contracts subject to the Contract Work Hours Standard Act.

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Form WH-347

Form WH-347 is what you’ll use to submit your certified payroll report to the DOL. Instructions are provided by the DOL in detail but here’s a summary of what’s included:

Business information

• Classification
• Name
• Address
• Payroll number
• For week ending (date)
• Project and location
• Project or contract number.

Worker information

• Worker name and identifying number
• Work classifications (list classification descriptive of work actually performed by each laborer or mechanic).
• Hours worked (on contracts subject to the Contract Work Hours Standard Act, enter hours worked in excess of 40 hours a week as "overtime".)
• Rate of pay (including fringe benefits
• Gross amount earned
• All payroll deductions and total of the deductions
• Net wages paid for the week.

Which Employers Must Use Certified Payroll?

Certified payroll is a legal requirement for all contractors or subcontractors working on government construction projects worth over $2,000.

Construction is a broad term and can mean anything from building a school to repairing a highway. It includes a wide variety of tasks such as painting, decorating, plumbing, or electrical. 

The wages and fringe benefits you’ll be required to pay are determined by the Department of Labor. While this information should be provided when you’re awarded the contract, it’s recommended that you contact the DOL to confirm anything you’re unsure about.

Failure To Comply With Certified Payroll 

Failure to comply with certified payroll can result in the following:

• Withholding of contract funds: The federal agency funding the construction project can withhold a portion of the contract funds to cover the amount of underpayments to workers. This is often the first step taken to ensure that workers receive the wages they are owed.
• Payment of back wages: Contractors may be required to pay back wages to workers who were paid less than the prevailing wage rates for their work. This can include both the difference in wages and any fringe benefits that were underpaid.
• Termination of contract: In severe cases of non-compliance, a contractor's current contract may be terminated, and they may be held liable for any additional costs the government incurs to complete the work with another contractor.
• Debarment: Contractors and subcontractors found to be in significant violation of the Davis-Bacon Act can be debarred from future government contracts for a certain period, typically three years. This means they are ineligible to bid on or receive federal contracts, which can have a substantial impact on their business.
• Legal action and fines: Contractors may face legal action, including fines and penalties, for willful violations of the Davis-Bacon Act. In cases where there is evidence of fraud or false statements, criminal charges can also be pursued.
• Reputational damage: Non-compliance can also lead to reputational damage, affecting a contractor's ability to secure future work, even beyond government contracts.
• Civil lawsuits: Workers who have not been paid the proper prevailing wage rate may also have the right to file a civil lawsuit against the employer for unpaid wages.

State And Local Prevailing Wage Laws

Contractors subject to the Davis-Bacon Act may also have to abide by state and local laws governing prevailing wages and overtime payments.

Known as "Little Davis-Bacon Acts", these are state-level laws in the United States that are similar to the federal Davis-Bacon Act. 

While the federal Davis-Bacon Act applies to federally funded construction projects, Little Davis-Bacon Acts apply to state-funded or state-assisted construction projects.

Employers on state-funded projects should contact the applicable state Department of Labor if their reporting responsibilities are not thoroughly explained when they receive their contract.

Common Certified Payroll Mistakes To Avoid

Completing certified payroll requires attention to detail and adherence to specific regulations. Being aware of common mistakes can help avoid compliance issues and penalties. Here are some of the most common mistakes to avoid when completing certified payroll:

• Incorrect wage rates: One of the most frequent errors is paying workers less than the prevailing wage rates for their job classifications. Ensure that you are using the most current wage determination for the project.
• Misclassification of workers: Incorrectly classifying workers in a lower-paying job classification is a common mistake. Each worker must be classified according to the actual work performed.
• Inaccurate reporting of hours worked: Failing to accurately report the number of hours worked, including overtime, can lead to compliance issues. It's important to keep precise records of all hours worked by each employee.
• Errors in calculating overtime: Overtime must be calculated correctly and paid in accordance with the Fair Labor Standards Act (FLSA). Remember that overtime is typically paid at one and a half times the employee's regular rate for hours worked over 40 in a workweek.
• Failing to include fringe benefits: If fringe benefits are part of the prevailing wage determination, they must be properly calculated and reported. This includes contributions to pension plans, health insurance, vacation funds, etc.
• Incomplete or late submissions: Certified payroll reports must be submitted on a weekly basis and be complete. Late or incomplete submissions can lead to penalties.
• Not maintaining proper records: Contractors are required to keep payroll records for a specified period, usually three years. These records should be accurate and readily available for inspection.
• Neglecting state-specific requirements: If working on a project that is also subject to state prevailing wage laws ("Little Davis-Bacon" acts), ensure compliance with those as well, as they may have different or additional requirements.

Best Practices For Filing Certified Labor Reports

Follow these best practices to help ensure you get certified payroll right:

• Understand the requirements: Familiarize yourself with the Davis-Bacon Act, related labor standards, and any state-specific prevailing wage laws (Little Davis-Bacon Acts). Knowing the details of these requirements is fundamental.
• Stay updated on prevailing wage rates: Regularly check for updates in prevailing wage rates for your project’s location and job classifications.
• Maintain detailed records: Keep accurate and detailed records of all hours worked, including start and end times, breaks, overtime, etc. Good record-keeping is essential for certified payroll reporting.
• Use accurate payroll software: Utilize payroll software that is designed for certified payroll. This means ensuring it can handle specific tasks such as different wage rates, overtime calculations, and fringe benefit tracking.
• Work with a specialist: A certified payroll specialist or payroll company has the knowledge and experience to help you handle certified payroll and remain compliant.

Certified Payroll Doesn’t Have To Be Difficult

By following the guidelines and best practices outlined in this article and on the DOL website, certified payroll can become a routine process.

Check out our article on managing payroll for small businesses and our payroll checklist for further guidance on optimizing your payroll process.

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