Certified Payroll for Construction

What is Certified Payroll?

Certified Payroll means that you certify to the government that you've paid your employees a certain wage. That wage, known as prevailing wage, is determined by the "local prevailing wage rates" for similar projects in your area. The federal government requires this on federal construction projects, but states may also have their own prevailing wage rules for state projects.

Determining Prevailing Wage

The General Services Administration has a website at: https://sam.gov/content/wage-determinations. To find the wage determination, you must first find the WD number of the work you're doing. You can enter your state and county, and then select the type of construction in your contract. For example, if you are doing road work in Salt Lake City, UT, you may be given the number UT20240044. The number includes the state abbreviation, the year, and then the number.

Once you have the WD number, you can enter it into the search box to find a list of approved wages. In the roadwork example, you'll find relevant wages for workers like sign installers, stripe painters, welders, truck drivers, etc.

The wage determinations are updated from time to time, and you'll need to keep up with it to stay in compliance with the laws. Using the website referenced above, you can lookup your WD number and then click "Follow" in order to be updated as soon as any changes are made.

Note: Employers are welcome to pay their employees more than the prevailing wage. They just have to make sure it's at least as much as the federally approved wage.

How To Do Certified Payroll

Doing certified payroll basically means two things: 1) Make sure you're paying employees at least as much as the federally required wage, and 2) Report to the government that you've done it.

Use Accounting Software

When setting up a job, you can go to the Certification Tab, and then click the Edit Statement of Compliance Information button. Here, you can enter important details that will need to be included in your official form. These details include the name of the person filling out the form, the contract number, the agency that compliance info should be sent to, as well as some other settings, like exceptions. When you enter timesheets, that data can be automatically included in your certificate of compliance, saving you the time of doing it by hand.

Manual Method

If you prefer to do this by hand, you'll need form WH-347. You can grab it here: WH-347.

The form requires you to fill in the following information:

• Employee Names
• Last 4 Digits of SSNs
• Tax Withholding Info
• Employee Types (drywall, plumber, electrician, etc)
• Total Hours Worked
• Hourly Pay Rate
• Gross Pay
• Deductions, like FICA and withholding tax

After filling out employee details, you'll need to sign the form to confirm that you are in compliance with the law. This report will need to be filed weekly for the duration of the contract. You must submit it to the federal agency that you are contracting with.

For an average company, this process takes about an hour. If you'd like to save time by having all that data at your fingertips, try A-Systems JobView.

State Laws

A number of states have introduced their own mandatory wage laws, known as "little Davis-Bacon" laws. While it might not be the best name, it does still contain the word "bacon," which is a plus.

The following states have similar laws:

• Alaska
• California
• Connecticut
• Delaware
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• Missouri
• Montana
• Nebraska
• Nevada
• New Jersey
• New Mexico
• New York
• Ohio
• Oregon
• Pennsylvania
• Rhode Island
• Tennessee
• Texas
• Vermont
• Washington
• Wyoming

Each state has different requirements, of course. They each have different thresholds for how big a contract must be before the regulations apply.

Did you say bacon?

The Davis-Bacon Act (DBA) established the rules for certified payroll. It was named after the bill's sponsors—James Davis (R-PA) and Robert Bacon (R-NY). The law was originally passed in 1931, during the Great Depression, to ensure that workers were being paid fairly. It has had some minor amendments since then, but mainly remains intact.

To paraphrase the law, it basically says:

If you have a contract with the federal government (or Washington DC) to work on a public building, you must pay your employees a certain minimum wage. The Secretary of Labor is in charge of setting the wage rates. Those numbers are determined by the current pay for similar work being done in the area of the contract. If the contract is less than $2,000, you don't need to worry about it.

Workers must be paid weekly. Employees must be notified what those wages will be.

If the employer doesn't pay the laborers enough, the government can withhold payments or cancel the contract. In this case, the federal officer can hold the contractor liable for any excess costs incurred as a result of having to cancel the contract. The officer can also withhold payments to the contractor and pay the employees directly, using money earned on the contract so far. If that money isn't enough to pay the workers, they can bring a civil lawsuit against the contractor.

If a contractor doesn't comply with the prevailing wage, the federal government can add the contractor to a list, which is then distributed to all agencies. This is meant to ensure the contractor is not granted any new work for three years.

The act has been codified as 40 U.S.C. 3141-3148, where you can find any details not mentioned here.

Frequently Asked Questions:

Who is required to use certified payroll? Any contractor or subcontractor who is performing maintenance on a federal building or highway must be paid prevailing wage. This rate is also known as the Davis-Bacon wage.

There are other contracts—known in the law as "Related Acts" that may not be federally owned property, but are being funded through a federal agency. The funding could include grants, insurance, loans, or even loan guarantees. These projects must also comply with Davis-Bacon regulations.

Are there any exceptions? Yes, everything has its exceptions. Here are a few of them.

Federal contracts that do not reach the $2,000 threshold are not required to pay prevailing wage. Work that is performed for the federal government in U.S. territories or foreign countries does not fall under the regulations.

The law is meant to protect laborers. As such, there are several types of employee that are not considered laborers, and are not required to be paid prevailing wage. This includes office staff, time keepers, trainees/apprentices, engineers, architects, and inspectors.

In times of emergency, when the government needs to quickly hire many workers, the President of the United States can temporarily suspend the wage requirements. This has been done four different times.

How is prevailing wage determined? The Secretary of Labor is charged with gathering wage information from all over the country. This responsibility is delegated to the Wage & Hours Division (WHD) of the Department of Labor. They collect this information through voluntary surveys from private employers in various fields. This is how they are able to gather granular data, such as the rate for a plumber in Franklin County, Maine.

How can we be certain the official wage determination is accurate? There's really no way to be certain unless you're reading the survey information yourself. Even then, there's no way to ensure the survey data is accurate. In fact, some issues have been discovered in the data before.

Because the surveys are done voluntarily, there's now guarantee that a good variety of companies have been polled. If there are more large companies responding, the wage determination will be skewed toward higher wages. This type of data corruption is unintentional, but there are other types that aren't.

A criminal investigation was conducted on data submitted from contractors in Oklahoma. It found that data was reported for employees that didn't exist and projects that never happened. As a result, many of the wage determinations had to be revised. This was only discovered when an attorney in Oklahoma took the issue to court.

Another potential issue with the wage determination is data lag. The surveys being used to determine current wages might from 2 years ago. In a rapidly changing economy this would lead to inaccurate information. For example, in an inflationary economy, a recession, or after large financial policy changes.

How do I know if I have the correct wage determination numbers for my project? It is the responsibility of the agency that gave you the contract to ensure you have the right details. They are required to explain the duties and rates for each project.

What if I have a problem employee that doesn't work very hard? You are still required to pay the prevailing wage.

What about employees that work in multiple roles? You must pay the applicable wage for each type of work. This is one very good reason for using an accurate time tracking system.

What about deductions? You can make deductions from the pre-approved wage rate if they are for Social Security, federal/state taxes, some court-ordered payments, certain union dues, and charitable contributions. The Secretary of Labor can approve other deductions under certain conditions. Those deductions cannot benefit the contractor, and the employee has to voluntarily except the deduction. Any extra deductions have to be approved annually.

How long should we keep certified payroll records? You must keep them around for three years.

How often do I have to submit certified payroll reports? The reports must be submitted weekly, within 7 days of payment to employees. When you sign the certificate of compliance, you have use electronic signature or handwritten.

What are the penalties for not conforming? The contractor can be prosecuted. Additionally, the contractor can be "debarred," which basically means you're blacklisted from doing any federal work for 3 years.

Conclusion

Federal contracts can be profitable, if you are able to conform to the various regulations, like the Davis-Bacon Act. To ensure you are in compliance, you'll need to have an accurate time keeping system that tracks not only hours, but the specific tasks being performed. Storing a time keeping log can help you refer back to the work performed and ensure you are paying accurate wages. Those records can also come in handy in the case of a lawsuit or audit.

Having a reliable bookkeeper, and a reliable accounting software will be valuable. It will allow you to focus on running the business, without unnecessary worry about paperwork.

Payroll data needs to be submitted in a timely manner so that the necessary paperwork can be prepared and submitted to the contracting agency. The certified payroll report must be submitted each week. As long as you do this, there shouldn't be any issues, but if you purposely or recklessly disregard the wage policies, you can be penalized a number of different ways.

The WHD is responsible for making sure you've identified the proper wage determination for each part of the job. This should happen before work on the contract begins, and it will help you avoid any issues later on.

Doing certified payroll by hand is a lot like doing a tax return by hand. It can be done, if you have the time to commit to it, but there are digital options that may be more practical. Our recommended method is to use A-Systems JobView for your accounting and job costing. This will help you gather all the data you need as you enter timesheet info each week, and then creating a compliance report is just a few clicks away.

To learn more about using A-Systems JobView, you can see a free trial, schedule a demo, or browse features. You can also give us a call at 800-365-6790 so we can discuss your needs and see if our solution is the right fit for you.

A-Systems has been making software for the construction industry longer than anyone. We've been in business since 1978, and we love to help contractors.

If you're using a generic accounting software for your construction company, you may be missing out on industry-specific features that could make your life a little easier. True job costing, for example, helps contractors control their costs, thus increasing profits. If you'd like to see what we can offer your company, feel free to get in touch. We'd love to hear from you.

References

You can read more about wage determination at the Wage & Hour Division website here: WHD website

To view the full text of the original law, with links to subsequent amendments, you can view that here: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title40-section3141&num=0&edition=prelim