Certified payroll is an essential component of government-funded construction projects, ensuring that contractors and subcontractors pay fair wages. This guide provides a thorough explanation of certified payroll, including its requirements and its importance in the construction industry.
What Is Certified Payroll?
The main component of certified payroll is a specialized weekly payroll report that contractors and subcontractors working on federally funded construction projects must complete and submit to the government. The primary purpose of certified payroll is to prevent contractors from underpaying their workers to win bids on public contracts. By requiring detailed reporting of wages earned and hours worked, using Form WH-347, the government can monitor compliance with wage laws and protect workers’ rights.
Understanding certified payroll is crucial, especially given the immense scale and impact of the construction industry. According to a McKinsey report, construction is the largest industry in the world, accounting for 13% of global gross domestic product (GDP). With such a significant economic footprint, ensuring fair labor practices for the industry becomes paramount.
The Davis-Bacon Act
Certified payroll requirements stem from the Davis-Bacon Act of 1931. This federal law mandates that contractors and subcontractors working on federally funded projects worth over $2,000 must pay their laborers and mechanics the prevailing local wage. The prevailing wage is determined by the Department of Labor, and it reflects the average wage paid to workers in similar roles within the area.
The Davis-Bacon Act was enacted to prevent contractors from underbidding on public projects by paying workers less than the local standard wage. This law ensures that workers on government projects are fairly compensated, regardless of the competitive nature of the bidding process.
Requirements of Certified Payroll
Certified payroll involves various reporting and recordkeeping obligations. Below is a summary of them.
Weekly Payroll Reporting
Contractors and subcontractors must submit a certified payroll report weekly using Form WH-347. This form includes detailed information about each employee, such as:
- Name
- Social Security number
- Job classification
- Hours worked each day
- Total hours worked each week
- Rate of pay
- Gross wages earned
- Deductions
- Net wages paid
The form also requires a statement of compliance, signed by the contractor, certifying that the information provided is accurate and that the employees have been paid the prevailing wage.
Prevailing Wage
Prevailing wage is a critical component of certified payroll. It includes both the base hourly rate plus any fringe benefits that workers are entitled to receive. The Department of Labor determines the prevailing wage based on surveys of wages paid to workers in similar roles within the area.
Contractors must ensure that their employees are paid at least the prevailing wage for their work. This requirement applies to all laborers and mechanics working on the project, regardless of whether they are employed by the contractor or a subcontractor.
Recordkeeping
Contractors must maintain accurate payroll records for at least three years after the completion of the project. These records should include:
- Copies of certified payroll reports (Form WH-347)
- Documentation of wage determinations and fringe benefits
Maintaining these records is crucial for any potential audits by the Department of Labor.
How To Fill Out Certified Payroll Report, Form WH-347
Filling out Form WH-347 can be a complicated process, but it is essential for compliance. Here are the steps to complete the form:
- Blank form: Obtain the form from the Department of Labor’s website.
- Contractor or subcontractor: Indicate whether you are the primary contractor or a subcontractor.
- Payroll number: Start with No. 1, and increase each subsequent week.
- Week ending: Insert the end date for the work week.
- Project or contract number: This number can be found on your awarded government-funded contract.
- Employee details: Fill in the details of each employee, including their name, Social Security number, job classification, hours worked and wages paid.
- Statement of compliance: Sign the statement of compliance to certify the accuracy of the information provided.
Penalties for Noncompliance
Noncompliance with certified payroll requirements can result in severe penalties, including:
- Back wages: The contractor may have to pay back wages to employees who they underpaid.
- Contract termination: The government may terminate the contract.
- Debarment: The government may bar the contractor from bidding on future government contracts for up to three years.
- Fines: The Department of Labor may impose fines.
Expert Tips for Staying Compliant
To ensure compliance with certified payroll requirements, contractors should:
- Use payroll software: Utilize payroll software to automate the process and reduce the risk of errors.
- Stay informed: Keep up to date with prevailing wage rates and any changes to the Davis-Bacon Act.
- Maintain accurate records: Ensure that all payroll records for at least the last three years are accurate and complete.
- Provide training: Train employees responsible for payroll on the requirements of certified payroll.
The Bottom Line
Certified payroll is a vital aspect of government-funded construction projects, ensuring that workers receive fair wages. By understanding the requirements and maintaining accurate records, contractors and subcontractors can avoid government penalties and successfully complete their projects.
Frequently Asked Questions About Certified Payroll
Salaried employees in executive, professional or administrative positions who are not primarily engaged in manual labor on-site are usually exempt from certified payroll. However, there are important nuances to consider. For instance, construction foremen or supervisors who spend 20% or more of their time on craft-related tasks must be included in certified payroll reports for those hours.
The key factor in determining exemption is the nature of the employee’s primary job duties and their direct involvement in the construction work. When in doubt, it’s often safer to include an employee in the report rather than risk noncompliance.
Standard payroll follows general labor laws and tax regulations, requiring quarterly reporting with basic employee information. On the other hand, certified payroll adheres to specific government regulations for federally funded construction projects. It is more strict with weekly detailed reports on each worker’s compensation. These reports are subject to higher scrutiny and more frequent audits.
Form WH-347 is the document used to submit weekly certified payroll reports. We have linked it in this article. Or, you can visit the Department of Labor’s website to find it.
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