Certified payroll reporting is a vital process that ensures fair wages for workers on projects funded by the federal government. This requirement stems from the historic Davis-Bacon Act of 1931, introduced to protect workers from low hourly wages, and plays a crucial role in upholding labor standards today. These reports confirm that employees are being paid prevailing wages in accordance with the act, which is why understanding the significance of certified payroll reporting is paramount for all stakeholders involved in government-funded construction projects.
Understanding Prevailing Wage
Prevailing wage refers to the minimum hourly rate of pay that contractors and subcontractors are required to pay workers on public works projects in excess of $2,000. In the state of Texas, the prevailing wage for a project is determined either by surveying wages paid on past local projects similar in scope, or by using the rate determined by the U.S. Department of Labor (DOL) to be the prevailing wage under the Davis/Bacon and Related Acts.
Texas prevailing wage law is similar to its federal counterpart, with a notable exception. The state doesn't require a minimum monetary threshold amount in order for prevailing wages to apply, and political subdivisions are permitted to adopt the federal wage determinations without conducting new wage surveys. Present in both laws is the requirement for compensation that applies to overtime hours when a worker performs in excess of 40 hours per week or over eight hours per day, though neither law requires the establishment of different rates based on the shift worked, the weekend, or legal holidays.
Certified Payroll Reporting Requirements
Contractors and subcontractors working on federally-funded projects are required to submit weekly certified payroll reports to the agency tasked with overseeing the government contract. These certified payroll reports must contain specific information in order to ensure compliance with the Davis-Bacon Act.
- The name and address of the construction company or subcontractor, as well as the name and identification number of each worker who performed work on the public works project.
- The identification number can be either the last four digits of the worker’s social security number or any other unique identifier that does not reveal personal information.
- The job classification of each worker, which should correspond to the classifications and wage rates determined by either the U.S. Department of Labor or the contracting agency.
Wage and Benefit Information
- The hourly rate, total hours worked, total gross wages paid, deductions, and net wages paid to each worker for each week of work.
- The fringe benefits paid to each worker or to a plan, fund, or program on behalf of the worker. Fringe benefits can include health insurance, pension, vacation, holiday, sick leave, and more.
- The amount and type of each fringe benefit as well as the name and address of the plan, fund, or program that receives the benefit payments.
Compliance and Certification Elements
- A statement of compliance signed by the contractor or subcontractor indicating that the information in the report is correct and complete and that workers have been paid the full amount of wages and benefits due to them.
- The statement of compliance must indicate that the contractor or subcontractor has complied with all applicable labor standards and regulations.
- The certified payroll report must be submitted weekly to the contracting agency using Form WH-347, available from the U.S. Department of Labor.
It's important to note that contractors and subcontractors are required to keep copies of certified payroll records for at least three years, and failure to comply with the certified payroll requirements could result in penalties, debarment, or even legal action such as criminal prosecution.
Texas-Specific Variations in Certified Payroll Requirements
Texas prevailing wage law applies to public works contracts awarded by the state and any political subdivision of the state, including counties, cities, school districts, and public authorities. However, this doesn't apply to government-funded or assisted projects unless the state or local agency has a higher prevailing wage rate than the federal rate.
As with the federal prevailing wage law, Texas requires contractors and subcontractors to submit certified payroll reports to the contracting agency on a weekly basis completed with the same information as required on Form WH-347, as well as the name and address of the project, the contract number, and the name of the contracting agency.
Form WH-347 and Its Significance
Contractors and subcontractors are required to use Form WH-347 to report the wages and fringe benefits paid to workers who perform services on federal construction projects, pursuant to the Davis-Bacon and Related Acts. Submission of this form enables the U.S. Department of Labor as well as the contracting agency to monitor compliance with applicable labor standards and requirements.
The form has two sections—one for showing the basic rates and cash in lieu of fringes paid to each worker, and one for certifying the payment of other fringes and the accuracy of the information. WH-347 forms must be submitted to the contracting agency on a weekly basis along with a copy of the wage determination, and as stated above, each form submitted must include the following details:
- The name and address of the contractor or subcontractor
- The payroll number and the work week ending date
- The project name and location
- The project or contract number
- The name and identification number of each worker
- The work classification (type of work) and hourly rate of each worker
- The number of hours worked and the gross amount of wages paid to each worker
- The deductions and net wages paid to each worker
- The fringe benefits paid to each worker or to a plan, fund, or program
- A statement of compliance signed by the contractor or subcontractor
Common Compliance Issues With Certified Payroll Reporting
In Texas, there are several common issues and mistakes that contractors make with regard to prevailing wage law compliance. According to the City of Austin's "Wage Rates and Payroll Reporting Section 00830 for Construction Projects", past compliance issues have included:
- The contractor failed to provide documents to the owner within two working days of the request.
- The contractor failed to display the required postings on the project site.
- The contractor allowed employees to work under more than one classification without recording the time spent under each classification, or without paying the highest wage rate of the multiple classifications.
- The contractor failed to maintain weekly payroll reports, compliance statements, and other documentation including documentation from subcontractors.
- The contractor failed to pay employees proper wages due to misclassification of duties.
- The contractor paid straight time for overtime hours worked.
- Apprentices were not enrolled in a DOL-approved apprenticeship program.
Penalties for Non-Compliance
Contractors and subcontractors may face strict penalties for non-compliance to prevailing wage laws, which may involve misclassification of laborers and mechanics, failure to pay full prevailing wage including fringe benefits for all hours worked, or inadequate record-keeping. These penalties may include fines, prison time, and in some instances, both.
According to Government Code Chapter 2258, penalties for non-compliance with certified payroll reporting in Texas include a fine not to exceed $500, confinement in prison for up to six months, or both a fine and imprisonment. Contractors and subcontractors may also have funds withheld from final payments if they are in violation of the requirements of the chapter.
Misconceptions and Challenges
Misconceptions and challenges can quickly lead to issues of non-compliance and subject contractors and subcontractors to steep penalties. Common misconceptions include the belief that certified payroll reporting is only for large projects and that it isn't necessary for small businesses working on smaller construction contracts—but in reality, Texas requires reporting for all public sector projects, and the federal government requires reporting for all public sector projects with a value exceeding $2,000.
Challenges faced by contractors in Texas may include:
- Proper execution of certified payroll reports, as they can be both complex and time-consuming
- Misclassification of workers, leading to incorrect local prevailing wage rates
- Inadequate record-keeping, which can result in discrepancies and penalties
That said, in an effort to overcome these challenges and maintain robust compliance standards, contractors can take action by:
- Providing training to employees responsible for maintaining accurate payroll records
- Implementing routine procedures for tracking worker hours, wages, and benefits
- Using payroll software or hiring a professional payroll service to ensure accurate reporting
- Regularly reviewing and updating payroll records to promptly address any discrepancies
Role of Technology and Outsourcing
Technology can play a helpful role in maintaining reporting compliance for Texas contractors, offering a number of useful benefits for managing the payroll process. Modern software solutions work to streamline the payroll reporting process and ensure far greater accuracy and compliance with prevailing wage laws than manual recording.
That said, it's wise to consider outsourcing your certified payroll reporting if your business lacks the resources to manage it in-house. This can reduce costs and provide access to specialized expertise from trained and experienced payroll experts who understand the federal and state requirements for certified payroll. This will ensure accurate and compliant reporting and keep your business out of hot water.
Staying Updated with Regulations
It's crucial for contractors to stay up-to-date with requirements and regulations surrounding prevailing wage law both on a federal level and in Texas. Maintaining compliance means avoiding penalties, legal repercussions, and complications that could hinder or harm client relationships. To stay informed about changes to prevailing wage law requirements when managing your own reporting, review the websites for both the U.S. Department of Labor and the Texas Workforce Commission.
Frequently Asked Questions (FAQs)
What is certified payroll software?
Certified payroll software is a specialized tool used by contractors and subcontractors working on federally funded projects to manage and submit certified payroll information and reports, ensuring compliance with prevailing wage requirements. There are often various pricing tiers depending on the specific needs of the business.
What is the importance of certified payroll?
Certified payroll ensures that employees are paid prevailing wages in accordance with federal and state labor laws. This works to protect workers from low hourly wages and, when done correctly, safeguards contractors against non-compliance penalties.
What are the benefits of using certified payroll?
The benefits of using certified payroll include ensuring compliance with prevailing wage laws and regulations, protecting workers from wage theft, and shielding employers from potential lawsuits and penalties associated with non-compliance.
What is certified payroll for construction?
Certified payroll for construction involves regular reporting in compliance with federal and state labor laws, requiring employers to document employees' wages, hours, and benefits for public sector projects funded with federal capital.
What is the correct definition for certified payroll?
Certified payroll is a weekly payroll report used by contractors and subcontractors working on federally funded projects to ensure compliance with prevailing wage requirements, including the submission of Form WH-347 to the U.S. Department of Labor.
Is certified payroll difficult?
Certified payroll can be complex and time-consuming as it involves the strict enforcement of policies and state-by-state requirements. This can make it challenging for many employers to file accurate certified payroll reports. That said, there are software and outsourcing options to alleviate the burden.
Which law requires a company with federal contracts to use certified payroll?
The requirement for certified payroll comes from the Davis-Bacon and Related Acts, which mandate compliance with prevailing wage laws for contracts over $2,000 for the construction, alteration, or repair of public buildings or public works projects. In Texas, however, there is no monetary threshold, meaning that all such projects require prevailing wage law compliance.
Certified payroll reporting is a critical process and one that contractors and subcontractors must take seriously when engaging with public sector projects. Government agency requirements are strict and must be adhered to in order to avoid unfortunate penalties that could be detrimental to your business. In addition, by ensuring that your company is paying proper wages, tracking and recording correctly, and reporting on time, you'll also ensure that your employees are receiving the compensation that they deserve. If your business works in the public sector and takes on federally funded projects, be sure to stay up-to-date on all regulations and turn to software solutions or outsourcing to maintain compliance with peace of mind.