Certified Payroll Reporting Best Practices for Construction Firms
Table of Contents
- I. Executive Summary
- II. Certified Payroll Origins
- III. Certified Payroll Process & Penalties
- IV. California Certified Payroll Requirements
- V. Best Practices for Certified Payroll
- VI. Certified Payroll Processing with SBS
- VII. About SBS Payroll
I. Executive Summary
“Certified payroll” is a mandatory reporting requirement for government-contracted construction work. Construction companies must submit a federal form (WH-347) weekly to the agency overseeing their government contract.
The WH-347 lists every worker and their employee information, including wages, hours worked, type of work performed, and the benefits they’re entitled to as government subcontractors. It also lists all withholdings and gross wages and must include a statement of compliance.States like California also require contractors and subcontractors to submit certified payroll records to the state labor commissioner for most public works projects, even if they are also required to submit certified payroll records to other agencies.
Adhering to all federal and state certified payroll requirements can be daunting. Many companies spend dozens of hours a month manually tracking employee hours and wage rates, then producing reports in the proper forms in time to avoid fines.
Fortunately, through a combination of technology and third-party services, construction firms can achieve all tracking and reporting requirements for certified payroll in a fraction of the time as part of a best practices approach.
- The Davis-Bacon Act established the foundation of certified payroll requirements for the protection of government construction contractors and employees
- State and local governments have additional regulations known as “prevailing wage laws,” especially California, which has established many different prevailing wage rates
- Penalties for certified payroll non-compliance can include heavy fines or criminal prosecution
- Best practices for handling certified payroll include using a payroll provider with certified payroll experience, in addition to having the right software platform with integrated time and attendance capabilities
II. Certified Payroll Origins
Certified payroll is a reporting requirement that arises out of the Davis-Bacon Act (DBA). Enacted in 1931, the Davis-Bacon Act was crafted to provide wage protections for local construction workers on federal projects. The law was designed to prevent local wages from being driven down by contractors who might underbid a project and import lower-paid workers.
The DBA applies to any contractors and subcontractors working on federally funded or assisted contracts over $2,000 for the construction, alteration, repair, renovation, or decoration of public buildings or works. It requires contractors to pay their laborers and mechanics no less than the local industry wage per the Department of Labor standards. The DBA also covers employee fringe benefits for similar work on projects in the same area.
Prime contracts that exceed $100,000 also require contractors to pay all workers a minimum of one and one-half times their regular rate of pay for all overtime hours.
III. Certified Payroll Process & Penalties
While the DBA prevailing wage requirements apply only to employees that perform manual labor or physical jobs directly on the “site of work” immediately before or during construction, this can still leave room for interpretation.
Laborers and mechanics are automatically covered under the DBA, and in certain cases, surveyors, watchmen or security guards. Truck drivers may also be included. Contractors have to determine the DBA qualifications of their employees by assessing the timing, location and nature of each individual job.
For example, architects, engineers and most surveyors who operate during the design phase of a project would not be covered under the DBA. Nor would workers employed by the contractor whose jobs are performed off-site or are more managerial or administrative than physical. But surveyors who operate during the construction phase on the work site may be covered.Contractors also need to track work hours on multiple job sites. Because all hours must be recorded in payroll reports, they must ensure that employees clock in and out of each job site for accurate reporting. Workers who are present on, or travel between, multiple job sites may also qualify for extra fringe benefits.
Penalties for non-compliance with federal certified payroll requirements include:
- Withheld contract payments to satisfy liabilities for underpayment of wages
- Withheld payments for liquidated damages for overtime violations
- Contract termination
- Contractor liability for resulting costs to the government
- Debarment from future contracts for up to three years
Contractors are subject to on-site compliance reviews and workforce-wide interviews with a government or agency representative during the term of their contract. Falsifying certified payroll records can result in civil or criminal prosecution with heavy fines and/or imprisonment.
In addition to the DBA federal requirements, many state and local governments have established their own conditions: 36 of 50 states have “prevailing wage laws” (PWL) or additional regulations with project and budget criteria, each with a different dollar threshold amount for contract coverage.
Some states and local agencies also have specific submission guidelines for certified payroll reports, from paper to online or both. Others may simply require different information on the same forms (e.g. one state’s report might require the worker’s home address). Parallel agencies, like local or industry-specific unions, also regulate labor laws in their own way.
IV. California Certified Payroll Requirements
California is known for stringent employee protection laws. Their prevailing wage regulations set a minimum for government contracts at $1,000, according to Labor Code section 1771. Contractors who meet this minimum must pay their workers the general prevailing rate of day wages for similar public work as set by the California Department of Industrial Relations (DIR).
However, certain public works projects within city limits can be declared exempt from prevailing wage requirements if all funding comes from local city funding sources. California also offers a different prevailing wage threshold for small public works projects with an approved labor compliance program: $25,000 specifically for construction work and $15,000 for alteration, demolition, repair, or maintenance.
Other California certified payroll requirements include:
- A modified WH-347 form
- Additional “paper filing requirements” by labor compliance organizations
- California Department of Industrial Relation (DIR) form A-1-131 and a California
- Department of Transportation (CALTRANS) audit-friendly version
- Electronic filing compatibility for systems such as LCPTracker, TRS Consultants/Hill International, MyLCM, Elation Systems, Prism, and the DIR eCPR System
In the event of non-compliance, employees can be awarded back wages, plus interest, from the date that the wages were due. Contractors may also be penalized at a rate of $200 per day, per worker. Penalty amounts are determined by the Labor Commission based on two factors:
- Whether the failure of the contractor or subcontractor to pay the correct rate of per diem wages was a good faith mistake and, if so, if the error was promptly and voluntarily corrected when brought to the attention of the contractor or subcontractor
- Whether the contractor or subcontractor has a prior record of failing to meet its prevailing wage obligations
V. Best Practices for Certified Payroll
The process of tracking and reporting certified payroll can easily be streamlined by working with an integrated payroll and time and attendance system – those that can easily separate hours by project and/or by site will significantly improve certified payroll compliance.
All time and attendance system data has to be imported weekly into the payroll system so employers can sign off before producing the weekly report. They can download a paper report and submit or export it for filing online. Doing this manually may only require 5-10 minutes per employee, but leaves more room for human error.
Not all payroll providers offer certified payroll as a service nor offer time and attendance software with their HCM or other payroll software. If you’re struggling to find the right platform for your company as you take on government contracts, here are some questions to keep in mind as you search:
- How experienced is the company doing it?
- What is their experience providing certified payroll services within your locality and in other states in which you operate?
- Do they know the prevailing wages laws of your jurisdiction?
- How can they be trusted to keep you in compliance?
VI. Certified Payroll Processing with SBS
SBS Payroll has offered certified payroll processing services for over two decades. We combine cloud HCM and integrated time and attendance with payroll and HR services to ensure both DBA and state PWL compliance, with unmatched responsiveness and customer service.We can help you run regular payrolls, gather weekly data, and configure signature-ready reports in all federal and state formats.
If your certified payroll efforts are time-consuming, error-prone or put you at undue risk of not compliying with the DBA and state PWLs, or you are considering bidding for a government contract for the first time, make sure you have a qualified certified payroll provider with the right software to ensure efficient compliance.
VII. About SBS Payroll, Inc.
Serving small and mid-sized businesses throughout Southern California, SBS Payroll believes payroll done right means doing more than just payroll. SBS offers a full suite of payroll, HR services and related support, including time and attendance, benefits administration and human capital management (HCM) software.
SBS is committed to providing the most responsive customer care by answering your questions on the first call, and with deep payroll and HR expertise so that you can focus on your core business. SBS is based in Santa Ana, CA, and is a wholly-owned subsidiary of FBG Holdings, Inc. More: www.sbspayroll.com