Contractors and subcontractors working on federally funded projects are subject to the Davis-Bacon Act (DBA), which creates reporting requirements and regulates many aspects of the payroll process. There are also state and municipal laws that can impact payroll, creating an extra layer of complication.

For construction companies, this creates an environment that is risky and difficult to navigate because mistakes can lead to costly penalties, legal problems and even debarment from government projects. It can also be limiting, because the administrative costs of processing certified payroll can be high, making it too costly to take on additional government work.

While there are few ways to improve the burdensome requirements associated with government work, there are ways to limit the risk. By preventing common certified payroll reporting errors with these tips, construction companies reduce their exposure to financial and legal risks associated with noncompliance.

What is certified payroll?
Certified payroll is associated with qualified government-funded projects, including federal, state and municipal jobs. Construction companies taking on these projects must complete certified payroll reports to prove they are complying with all laws. Federal projects require weekly reports, which are most often submitted through Wage Hour Form 347 (WH-347). While the use of this specific form is optional, reporting the information is mandatory. State and municipal reporting requirements vary, so it’s important to know local regulations.

Inaccurate assigning and tracking of work classifications

Work classifications determine the rate of pay for each worker, but they change based on the work being done. For instance, if a worker is helping with general cleanup, their classification will be different than when they are pouring concrete. This means that the same worker, during a regular workday, may have different work classifications. The certified payroll report must show that each of these roles was tracked, and that the correct wage was paid for each.

Keep in mind that it’s best to catch errors early since work classifications impact other areas of the payroll process. Having an automated system to help find and assign work classifications can help limit errors. For companies manually tracking and assigning classifications, creating an auditing system can help.

Using incorrect wage determination

Wage determinations list the rate of pay, including hourly wages and fringe benefits, that must be paid to workers in each labor category. These rates apply to work done under both the DBA and the Service Contract Act (SCA). Additionally, state and municipalities may have wage determinations in place.

The certified payroll report should show that the correct wage determinations have been used. These change regularly, so it’s important to always use the most recently published rates. Companies can limit errors by checking official government sites for the latest update and compare it against each payroll they process. If underpayment of wages occurred as a result of a mistake, wage restitution must be made. The corrected information must be reflected on an amended and separate report.

Time tracking errors

Time tracking in regard to certified payroll is more than just accounting for hours worked. Certified payroll must track hours but also worker classifications and accompanying wage rates. This information must be accurately reflected in the certified payroll report in order for a company to be compliant.

Manual methods are error prone, so it’s important to create a system to check and verify hours daily or weekly. Digital time tracking helps, but workers still need to track changing roles throughout the day. In this instance, on top of regularly auditing hours for accuracy, worker education is needed. Make sure everyone knows when and how to change their worker classification as they track their hours.

Administrative and record keeping mistakes

Companies that take government-funded projects must also comply with recording keeping regulations. For Davis-Bacon and related Acts, this includes saving payroll records and basic information, including the following:

• Name, address and social security number (companies can submit an individual identifying number (e.g., last four digits of worker's social security number) on weekly payroll reports.)
• Work classification information
• Hourly pay rate, rates of contributions or costs anticipated for fringe benefits (or the cash equivalent)
• Number of hours worked (daily and weekly)
• Deductions
• Actual wages paid
• Details on any fringe benefit plans and programs. This must include any written communications that have been provided.
• Information regarding approved apprenticeship or trainee programs, when applicable.

Records must be kept for the duration of the project and a period of three years afterwards. Additionally, they must be kept either at the place of employment or a central records office. To prevent a mistake in record keeping, companies should create a process to securely save relevant records.

Unfortunately, mistakes at any step in the process can lead to owing back pay, costly fines from government entities or even legal problems. For a company trying to grow, these types of issues can be devastating. The reporting process can help catch mistakes, which allows companies to rectify problems before they become a liability. So, while certified payroll reports may feel like an administrative burden, they can help protect businesses because they demonstrate compliance, illustrating that all rules are being followed.

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.