How to create a certified payroll report

The construction industry gets hit hard by Davis-Bacon Act/prevailing wage prosecutions. Data obtained from the US Department of Labor reveals that the industry has had to repay $177 million in back wages since 1985. Why? Failing to pay workers the “prevailing wage” on government projects. A staggering 89 percent of Davis-Bacon Act violations are by construction companies, followed by waste management, and manufacturing companies.

The solution is called “certified payroll.” But therein lies the problem. As government construction contract expert Nancy Smyth explains, it’s almost impossible to get certified payroll right. As president of Sunburst Software Solutions, Inc, Nancy knows a lot about certified payroll.

“Doing certified payroll is like doing your taxes,” she said in a recent interview with QuickBooks Time. “There are rules and there are exceptions. Then there are exceptions to the exceptions to the exceptions.”

For all these exceptions and complications, certified payroll reports are mandatory on almost all government-funded construction projects. The rules were first set out in 1931 in the federal Davis-Bacon Act, but they have been amended many times and some states have since added similar laws in their own jurisdictions (more on this below). Essentially, this vast collection of laws ensures workers employed on government construction projects worth $2,000 or more are paid fairly on a weekly basis by requiring the contractor to pay the correct amount of wages, benefits, and overtime. The evidence that this is being done comes from what is known as a certified payroll report, and as you’re about to discover, putting one of these together is not a simple task.

Read on to learn more about certified payroll and why you need it for Davis-Bacon Act compliance.

When you win a contract to build something for the government, you have to submit a weekly certified payroll report to the project’s general contractor. If you don’t, you’re not complying with the Davis-Bacon Act. You can be prosecuted for not submitting a certified payroll report even if you are paying your workers the prevailing wage, so it’s important you understand what’s required — and this can change from one state to the next.

There are 14 states that do not have their own prevailing wage laws: Arkansas, Idaho, Indiana, Kansas, Kentucky, Montana, New Hampshire, Oklahoma, South Carolina, Tennessee, Utah, Vermont, West Virginia, and Wyoming.

In those states, you just need to follow the federal regulations for certified payroll. These regulations say you must include all of the items listed below (all of which are set out in the federal WH-347 form) to complete your certified payroll report:

1. The name and ID number of every employee who works on site.
2. Each employee’s job classification (e.g. carpenter, electrician, etc.).
3. The number of hours each employee worked, including overtime.
4. Every employee’s rate of pay based on the prevailing wage, including fringe benefits (or cash paid in lieu of fringe benefits).
5. Every employee’s gross amount earned.
6. Every employee’s deductions or withholdings.
7. Every employee’s net wages paid.

States with prevailing wage laws include Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Texas, Virginia, Washington, and Wisconsin. In these states, you will need to check whether any additional regulations apply before you submit your certified payroll report.

We’ll look at this in more detail below.

1. The date of the report submitted.
2. The name and position of the person submitting the statement.
3. The name of the company working on the project.
4. The name of the project.
5. The date of the beginning work week, “[date] day of [Month], [year].”
6. The name of the company working on the project.
7. A deduction statement like, “Deductions are based on gross wages and include but are not limited to: Federal Withholding, FICA, Medicare, State Withholding, State Disability Insurance, Union Deductions, Child Support, or Other Garnishments.”
8. An indication of how fringe benefits are paid (either in cash or through plans, funds, or other programs).
9. Exceptions to indicate any employees who don’t qualify for fringe benefits.
10. Any remarks regarding payroll, including the frequency of payroll (submitted on a weekly or bi-weekly basis, for example).
11. The name and position of the person submitting the statement.
12. The signature of the person submitting the statement.

The Department of Labor does offer some instructions on how to complete a certified payroll report, but as Nancy explains, they’re not exactly what you’d call “a beginner’s guide to certified payroll.”

“Most of the difficulty is in a lack of education,” she says. “But there are also certain instructions that you almost need to be a lawyer to figure out what they mean, because it’s very easy to get lost. There isn’t a lot in plain English. Most people have to go out of their way to find their own resources.”

In states that don’t have their own prevailing wage laws, the WH-347 form will suffice. But if you’re in a state that has its own prevailing wage law, your certified payroll reports can be much more complicated. As we saw earlier, there are 36 states with laws (dubbed little-Davis-Bacon Acts) that say the prevailing wage must be paid on projects that meet certain budget and project criteria. Naturally, these criteria can change from state to state, even government agency to government agency within each state.

In addition to having their own prevailing wage laws, some states also specify how certified payroll reports should be submitted (either on paper, online, or both) and which state office they should be submitted to, as Nancy explains:

“Some states require people to upload certified payroll reports electronically. So contractors still have to fill out the paper reports, then manually re-enter all that data. And some states, like California, require more information in their reports than are required by the federal WH-347 form.”

Let’s take a closer look at California’s prevailing wage laws as an example. California’s prevailing wage law, in Labor Code section 1771, sets the minimum government contract threshold at $1,000. However, in California’s Labor Code section 1771.5, the threshold is set to $25,000 for construction work and $15,000 for alteration, demolition, repair, or maintenance.

Meanwhile, California’s certified payroll requirements include:

• California Department of Industrial Relation (DIR) form A-1-131.
• A modified WH-347 form and statement of compliance that meet the paper compliance reporting requirements of organizations like Golden State Labor Compliance, LLC and CalCP.
• California Department of Transportation (CALTRANS) audit-friendly version of the DIR A-1-131.
• Electronic filing compatibility for online systems like LCPTracker, TRS Consultants/Hill International, MyLCM, Elation Systems, Prism, and the DIR eCPR System.

All of the requirements should be set out for you in the contract you sign with the government. But as we’ve seen, these instructions aren’t always easy to follow, and if you need more help, which you probably will, there are some great resources out there that you can turn to:

• State-by-state breakdown of certified payroll requirements, Sunburst Software Solutions, Inc.
• User Guide for Electronic Certified Payroll Reporting via the Online Form, California Department of Industrial Relations

“You have to invest the time and effort,” Nancy says. “You could call your state’s prevailing wage division [for help], but you’d get different answers from different people. A lot of people learn by trial and error.”

The Department of Labor says it takes the average contractor or payroll administrator one hour to complete a certified payroll report. But in reality, it could take you much longer. Once you factor in all the time you need to collect, read, review, confirm, and file your payroll data, it’s very likely it will take you much more than one hour each week. It also depends on which system you use — whether it’s the Department of Industrial Relations (DIR) system, a state-provided system, or another piece of software — and how much data you need to enter.

“That hour is just for gathering data for the paper report. How fast that data is entered into state-specific DIR systems depends on how fast your data-entry person can type. If someone doesn’t use software, it can take two to three hours to do a certified payroll report for a single job. So if there are four jobs with five workers each, it could take hours. It’s the reason a lot of people turn to software like QuickBooks or Sunburst,” Nancy says.

Nancy explains that in a perfect world, “contractors would have payroll clerks who understand certified payroll,” but the reality is that many do not, and this can not only drag out the process but expose you to the risk of violating your contract. “If the contractor is using an online system that doesn’t have built-in data checking, but relies on a human to review the information, it could take a month all the way to the end of a project to get each report approved [by the DOL],” she explains.

Because certified payroll is such an investment, and so easy to get wrong, it’s no wonder the construction industry accounts for 89 percent of Davis-Bacon Act violations.

“Some contractors aren’t filling out the reports. Some are cooking the books. And some of the violations are from people just not paying attention to what’s spelled out in their contract,” Nancy says.

From failing to pay the prevailing wage to forgetting to sign the statement of compliance or not filing one of the many state-required forms, there are plenty of ways to violate the Davis-Bacon Act. Here are 10 of the most common.

• Incomplete or inadequate payroll information.
• Incorrect or missing addresses and worker ID numbers.
• Missing or misclassified information for workers, laborers, and mechanics.
• Missing documentation of apprentices and trainees.
• Failure to pay the prevailing wage, pay overtime, or comply with FLSA regulations.
• Not submitting certified payroll reports weekly.
• Missing or incorrect signatures.
• Unresolved reporting errors and payroll reports.
• Unresolved labor standards disputes.

If you find a mistake in your certified payroll report — such as a data entry error or that you underpaid an employee — you have 30 days from the time the report was submitted to correct it. As ever with certified payroll, this is not a simple process. Making corrections (or “amendments,” as they are known) can be as time-consuming as creating the report in the first place.

If you make more than one mistake in a certified payroll report that was submitted on paper, you will need to create a new report from scratch. But if you just made a single error, it’s still possible to submit the old report. Here’s what to do:

1. Cross out the mistake with a single line.
2. DO NOT use correction tape or fluid.
3. Make the correction.
4. Add the date the correction was made.
5. Add the initials of the contractor or the administrator in charge.

Source: Department of Energy?s Davis-Bacon FAQ

If you used a Department of Industrial Relations system (or another kind of electronic system) to submit your certified payroll report and you need to make a correction, you will need to do some very careful data re-entry. Taking California’s correction requirements as an example, here’s what you need to know:

1. If you need to correct any piece of information about an employee, all of the employee’s information must be re-submitted.
2. The correction will only be completed once all of the payroll fields match.
3. Any inconsistencies in the contractor’s SSN, DIR project ID, week-ending date, employee SSN, etc. will prevent the correction from being accepted.

If you’re a contractor overseeing the construction of a government project and you get certified payroll wrong, three things can happen:

1. You won’t get paid.
2. You could get a three-year ban from working on government contracts.
3. You could be prosecuted — especially if you get caught deliberately submitting false payroll reports.

All serious consequences. The first one to bite, of course, is when a contractor doesn’t get paid, because the workers’ paychecks still need to be processed. Most contractors bill once a month and then wait 30 to 90 days for the money. But if there’s a problem, this could quickly become 60 or 120 days.

“Let’s say a contractor isn’t paying the prevailing wage, but submitting certified payroll reports anyway. If they want to correct their reports, they have to re-submit a report of what was paid and what should have been paid, and then pay restitution checks. Ultimately, the contractor will have to correct and resubmit payroll and start the 30- to 90-day waiting process for their pay all over again,” Nancy explains.

Submitting certified payroll reports correctly is not only an exercise in willpower and accountability (or risking millions of dollars in back wages). It’s also a matter of proper record keeping, continued education, and compliance.

But you don’t have to do it alone. Do your homework and educate yourself on your state’s prevailing wage and certified payroll requirements. And when in doubt, consult an expert