Certified payroll reporting requirements and the purpose of prevailing wages

What is certified payroll?

First things first, certified payroll is a specific type of payroll record, and its purpose is to make sure that workers on government-funded construction projects receive the prevailing wages and fringe benefits owed to them by law. To receive these benefits, employers must prove that they are compliant with prevailing wage laws and labor standards for publicly funded projects.

This is where certified payroll comes in. It adds an extra layer of transparency to the payroll process, safeguarding employees who work on publicly funded projects to make sure they are compensated (and treated) appropriately.

Who is required to complete certified payroll reports?

Several business types are required to complete and submit certified payroll reports to government agencies. These can include:

• General contractors: These stakeholders are responsible for ensuring that certified payroll reporting is completed on government-funded construction projects.
• Subcontractors: As part of this process, subcontractors submit their own payroll data to the general contractor so it can be included in the certified payroll report.
• Government agencies: Oftentimes, these are the parties that will require contractors working on their projects to use certified payroll reporting systems.
• Construction companies: Construction companies are often made up of a mix of general contractors, subcontractors, and support employees (and may need to run certified payroll reports if they work with government entities).
• Engineering firms: Should engineering firms have employees working at a construction site, they may also be responsible for submitting certified payroll reports.
• Architectural firms: Similarly, if architectural firms have employees working at a construction site, they may also be responsible for submitting certified payroll reports.

Now that we have an overview of the different types of companies that typically have to have certified payroll on their to-do list, let’s find out more about where this process originated.

What does the Davis-Bacon and Related Acts have to do with certified payroll?

“Davis-Bacon and Related Acts” refers to a collection of federal laws that established standard minimum wages and fringe benefits for workers on federally funded construction projects. The original Davis-Bacon Act was first enacted in 1931, and these laws have evolved over time to reflect industry changes, the cost of living, healthcare, and more.

For those keeping score, the Davis-Bacon and Related Acts require certified payroll reporting on nearly every federally funded construction project with that in excess of $2,000.

Why is it important?

The purpose of the Davis-Bacon and Related Acts is to protect workers, maintain a skilled workforce, and prevent unfair competition. Let’s explore these points in more detail:

• Protect workers: The acts safeguard workers from exploitation by guaranteeing fair wages and benefits, also known as “prevailing wages.”
• Maintain a skilled workforce: By ensuring fair wages and benefits, the acts help attract skilled, capable workers in the construction industry.
• Prevent unfair competition: the acts ensure that construction companies cannot continually lower workers’ pay in order to outbid competitors for construction contracts.

Now that we have covered the legislation that gave rise to this type of payroll, let’s find out more about how the reporting gets completed.

What details are included in certified payroll reports?

Certified payroll is processed similarly to regular payroll, just with a few extra steps and calculations. Below are the steps employers should keep in mind.

Step 1 – Collect payroll data

This step may sound familiar for those running payroll: employers collect detailed payroll information for all covered workers on the project. This information can include employee personal information, records of hours worked, wage rates for each type of employee, records of fringe benefits paid, taxes withheld, and any deductions withheld from paychecks.

Step 2 – Verify wage rates

During this part of the process, the employer should double-check that the wage rates their workers receive match the prevailing wage rates for the project type and location where they are doing business. They should also confirm that all workers are classified correctly.

Employers can use government resources or approved prevailing wage surveys to verify this information. These surveys can be performed by independent government-approved firms.

Compare the payroll data you collected in Step 1 with verified prevailing wage rates, and if there are any discrepancies, be sure to correct them before moving on to Step 3.

Step 3 – Prepare certified payroll reports

As we move into step three, there’s some specific documentation that needs to be accounted for. Certified payroll reports must be prepared and submitted weekly, and the US Department of Labor’s Wage and Hour Division provides employers with Form WH-347 to fill out and submit. Remember the concept of prevailing wages we touched on earlier in the article? The main purpose of Form WH-347 is to confirm that companies are following the rules and paying their employees the prevailing wage.

To fill out Form WH-347 completely, include the following information:

• • Contractor information (employer info): name, address, payroll number, week ending date, project and location descriptor, and project or contract number.

• Employee information:

• • (1) Employee’s name
  • (2) Social Security Number (SSN) or other ID number
  • (3) Number of withholdings
  • (4) Day, date, and number of hours worked each day
  • (5) Total hours (add up from section 4)
  • (6) Hourly pay rate
  • (7) Gross weekly earnings
  • (8) Deductions: FICA tax, income tax withholdings, other deductions, and total deductions
  • (9) Net wages paid for the week (gross pay minus deductions)

• Sign and attest: Once you have completed these items, you must sign and attest (which is a fancy way of saying you agree) to properly paying employees and submitting all relevant information on page two of the form.

The Department of Labor also has a set of instructions you can follow as well.

Step 4 – Submit certified payroll reports

Now all that’s left to do is submit the WH-347 report — either electronically or by mail — to the government agency overseeing the construction project.