When a business is working on a federally funded project as an independent contractor, one of the requirements is submitting a weekly payroll report.
This report is called a certified report. A business must submit it to the U.S. Department of Labor. It’s another important requirement you must meet. Lucky, you can use our article as a guide to a certified payroll.
Understanding a Certified Payroll
Certified payroll is a special kind of weekly payroll. Contractors and sub-contractors use it when working on federally funded projects.
Independent contractors who want to complete certified payroll requirements must fill out and submit the WH-347 form to the Department of Labor. The WH-347 form consists of data about contractors’ employees, their wages, and how many hours they work.
The WH-347 form is needed to ensure companies pay sufficient wages to their employees. This wage is called a prevailing wage, the average wage for workers in a specific occupation. This form proves that the business is compliant with these requirements.
Note: businesses don’t apply the prevailing wage to salaried employees who work as executives and administrative workers. The contractor provides prevailing wages only to workers spending the majority of their time working manual labor jobs.
The Davis-Bacon Act
The law to meet certified payroll requirements was accepted by Congress in 1931. It’s called the Davis-Bacon Act, and it was accepted to protect employers from low hourly pay.
According to this Act, businesses working on federal contracts over $2,000 must comply with certified payroll requirements. The government applies the law to contractors and subcontractors hired to complete, repair, or add alterations to the construction of public buildings.
One of the best ways to ensure the business meets the requirements of certified payroll is to use modern accepted accounting software to run payroll faster and without any mistakes.
Keeping proper financial records is time-intensive and small mistakes can be costly. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business.
When is a Certified Payroll Required?
Certified payroll is required in several cases. If a contractor or subcontractor is performing work on projects financed by the government or assisted construction contracts over $2,000.
The project may be focused on building a structure for public purposes, such as schools or museums, to public works projects, such as the highway or bridge repair.
The certified payroll requirement covers several types of contracts since the term “construction” can be used in a broad sense. For instance, the term includes the following activities:
- electrical jobs;
These activities prove there are no particular limitations to companies working in different industries. A lot of businesses may expect to submit for and obtain certified payroll.
How to Comply with the Requirements?
As mentioned, most businesses can meet certified payroll requirements. One of the requirements is to ensure the company pays the prevailing wage. Let’s dive into the prevailing wage details and then proceed with other requirements.
Officials created a prevailing wage to ensure companies treat their employees fairly in terms of pay. Employees’ gross wages have to meet the prevailing wage requirements set within similar projects in the surrounding areas and corresponding industries.
Fringe benefits also must comply with these requirements. Some states even offer their versions of the prevailing wage, and local companies should meet these requirements as well.
States determine the prevailing wage by referring to the federal rules and by doing surveys of local wages to set the norm. If the prevailing wage in one of the states exceeds the federal prevailing wage, the company should pay the state’s rate.
When in doubt, contact the Department of Labor to find wage determination by state. As soon as you figure out the prevailing wage, you must pay your workers complete Form WH-347.
One of the requirements is to pay weekly. You should also complete the WH-347 form. Here’s what details to mention:
- business address;
- contractor or sub-contractor;
- company’s payroll number;
- the project or contractor number;
- the last day of the workweek.
The next step is to provide data about each employee working in your company:
- employees’ name;
- Social Security Number;
- the number and the type of withholding exemptions;
- the employee’s job class;
- total hours worked;
- the pay rate and fringe benefits.
This is the first page. On the second page, you must certify the report by adding a statement of compliance. As soon as you’re done, submit the report. The HR department, or an accountant, should make sure employees get paid for all their services and work on time and according to the requirements.
What Records to Keep?
Now you know what data to reveal in the form. The next step is to figure out for how long to maintain the records. There are requirements related to recordkeeping that all companies must meet.
When working on federal projects, all records and certified payroll reports should be maintained and preserved for a minimum of three years upon completing the project.
Check the official date of project completion to figure out for how long to keep the records. Most of these records are the same that companies must retain for FLSA purposes.
State projects have different terms. Typically, states require contractors and sub-contractors to keep the records and certified payroll records for 2-4 years.
Undoubtedly, submitting reports while also working on a project, processing the payroll, and doing multiple other tasks at a time is a daunting task. But it’s critical to understand that not meeting the requirements when working on federal or state projects will end in penalties.
Avoid negative consequences by complying with generally accepted rules on prevailing wage and certified payroll. To make it clear why it’s a must, here are the penalties for violating Davis-Bacon laws:
- Holding payments. The government may choose to withhold payments to the contractor or sub-contractor to pay for unpaid wages and award damages to employees since the company’s management has resulted in overtime violations.
- Debarment. The company will be debarment from possible future contracts. The penalty may last for up to three years.
- Prosecution. Record falsification may lead to civil or criminal prosecution. This type of crime could be punishable by fines or even imprisonment.
- Termination. The federal, state or local government may terminate the federal contract. And as mentioned previously, the company may also face debarment due to violating the rules.
The committee responsible for enforcing these rules is the Wage and Hour Division. It may determine that the company has violated applicable laws. But if the company didn’t break any laws, it’s possible to challenge the determination before an administrative law judge.
Businesses that haven’t done anything wrong and want to avoid punishments may appeal decisions the administrative law judge made to the Administrative Review Board (ARB). If the judge at ARB hasn’t made a satisfactory decision, consider appealing to federal courts.
Certified payroll is a standard requirement. Contractors and sub-contractors must meet these requirements when working on federal projects. Preparation to meet federal or state requirements takes a lot of time, but it’s a procedure that must be done to avoid penalties.
Author: Charles Lutwidge