A Guide to Certified Payroll: History, Best Practices + Example

If you are working on government or federally funded projects, a certified payroll is a must.

The failure to comply with and submit certified payroll requirements merits serious repercussions not only to you as the contractor but to the workers involved in the project as well.

Fortunately, this article will help enrich your background on certified payroll, from its history to the best practices for reporting it on your payroll and avoiding possible penalties for non-compliance.

So, let’s see what it’s all about!

What is Certified Payroll?

A certified payroll, also called a federal payroll report, is submitted by government contractors to agencies in compliance with federal or state-imposed requirements. It is typically submitted by contractors who oversee and complete public works or programs funded by the government.

A certified payroll report declares the gross wages and withholdings paid and processed on the paystubs of all the laborers involved in the project. Contractors use federal Form WH-37 in certified payroll reporting.

Certified payroll is most commonly used in the construction industry. For example, electricians, laborers, mechanics, painters, and plumbers are among the workers who are hired to complete federal infrastructure and development projects.

The demands that go into a construction job are no easy feat. That’s why submitting a document of compliance, such as a certified payroll, indicates that the contractor has dutifully paid all their laborers the proper and lawfully mandated compensation.

The Importance of Certified Payroll

Certified payroll has recently become even more significant, thanks to the Bipartisan Infrastructure Bill, also called the Infrastructure Investment and Jobs Act. The bill, signed by President Biden, provides funding amounting to $550 billion for roads, bridges, water facilities, broadband resilience, and mass transit.

The said coverage is effective for four years, from 2022 to 2026, with a greater focus on enhancing multiple infrastructures, such as transport systems, highways, and more bids for contractors.

Bigger projects entail more rigorous work, demand a broader range of skills, and impose more pressure on contractors to fulfill their duties adequately.

The History of Certified Payroll

On March 3, 1931, then-Long Island, New York Representative Robert L. Bacon and former Pennsylvania Senator James J. Davis passed the Davis-Bacon Act (DBA). Davis and Bacon were prompted to improve working conditions for workers and protect them from displacement, especially while the global economy faced a massive decline.

The Davis-Bacon Act mandates improved labor standards and duly compensates local prevailing wages and benefits for workers in government-funded projects.

The DBA also prompted contractors to be more scrupulous in securing federal contracts, understanding the scope of work to be delegated to their workers, assessing the materials to be used, and identifying applicable labor classifications and regulations to the projects they take on.

Prevailing Wages

Prevailing wages are set rates for fringe benefits and wages established by the Davis-Bacon Act.

Supervised by the Department of Labor, these rates are to be strictly followed by agencies, contractors, and employers who have secured federal contracts for their operations.

For instance, if a contractor has a federal contract worth over $2,000, then their workers must be paid the prevailing wage.

Not all states have existing regulations on prevailing wage laws. That’s why it’s best to use the Wage Determinations Online Search to check the corresponding wage rate for each type of worker or job classification in your project.

Certified Payroll Information

What information should be included in certified payroll?

Employer or Contractor Information

Here’s the employer or contractor information that goes on a certified payroll:

• Business name. State the name of your agency and indicate whether you are a subcontractor or a contractor.

• Business address. Provide the complete details of your business address, such as the specific street, city, state, and zip code where your business is located.

• Payroll number. The payroll number indicates the weeks when work was rendered under your government contract. Payroll numbers should begin with the number ‘1’ and follow a sequential order for the succeeding payroll.

• Week ending. Specify the day when the work week ends.

• Project and location. Declare the type of project and the location where it is carried out.

• Project or contractor number. Check your public works contract for reference.

Employee or Worker Information:

Certified payroll usually includes the following employee or worker information:

• Name. Provide your worker’s name.

• Social security number. Include only the last four digits of your worker’s social security number.

• Job classification. Indicate whether the worker is a mechanic, carpenter, plumber, etc. This is to help determine whether the proper threshold for prevailing wage is applied.

• Total hours worked. Calculate the total number of hours worked by the employee.

• Pay rate. Specify the hourly rate. Don’t forget to include worker’s fringe benefits and withholdings and ensure it reflects on your worker’s net pay.

• Withholding exemptions. This section is not mandatory and whether it’s included in the certified payroll depends on the contractor.

Penalties for Non-Compliance

• Withheld payments. Payments in your federal contract may be suspended or withheld by the government if found that you have failed to pay your workers’ wages.

• Debarment. You will be debarred or excluded from any future federal contracts. Debarment may be in effect for as long as three years.

• Prosecution.This can either be a criminal or civil prosecution and takes place if you falsify payroll records. Possible consequences for this violation include fines or, worse, imprisonment.

• Termination. Your federal contract will be permanently terminated.

Certified Payroll Reporting

When fulfilling certified payroll reports, government contractors are to submit the federal Form WH-347 to their agency on a weekly basis.

A typical setup for completing a certified payroll report involves a subcontractor, a contractor, and a federal agency. It consists of three steps, namely:

• Step #1. The subcontractor reports to the contractor, while the latter will submit a finalized report to the federal agency.

• Step #2. The form must be duly filled out with the necessary information about the contractor and their workers.

• Step #3. After completing the WH-37 form, there is a succeeding page that includes a statement of compliance.

The statement of compliance is a certification step where the contractor guarantees that all payroll forms bear the correct information and that they have submitted the complete documents for the certified payroll report.

It is the payroll manager or agency that typically signs the statement of compliance.

Certified Payroll Best Practices

Indeed, committing mistakes on your certified payroll is no joke considering all the possible consequences that await. On the bright side, there are certain practices you can adopt to avoid these errors and secure full compliance with the DBA.

Namely, you can:

• Keep records for future references. According to the Fair Labor Standards Act, contractors may keep payroll records for a minimum of three years. File your records in a secure place and keep them organized.

• Classify jobs correctly. Construction projects entail different job roles, and each job role will also differ in terms of the corresponding prevailing wages.

• Enter the correct work hours. Always double-check your records when it comes to reporting billable hours.

• Verify hours. Make it a habit to verify the hours with your workers, preferably before the end of the week. This way, you identify any errors ahead of time and resolve them accordingly.

• Go digital for attendance. Using outdated systems to check worker attendance only predisposes you to amassing errors in your reports. Switch to a digitally powered attendance system to track worker attendance and take note of any absences and discrepancies.

• Check the appropriate prevailing wage threshold. Ensure that you apply the correct prevailing wage based on the state where your project is carried out. Compensate your laborers properly based on their job role.

• Seek the assistance of a certified payroll specialist. Consulting the expertise of a certified payroll specialist or a tax accountant is ideal if you aim for error-free certified payroll reports.

Final Thoughts

Contractors bear the heavy responsibility of overseeing federal-funded projects and securing proper wages and benefits for their workers. Non-compliance with the regulations in filing a certified payroll report merits serious repercussions and penalties.

At the end of the day, workers who take part in improving and creating facilities that benefit the general public deserve just payment and treatment for their hard work.

Key Takeaways

• A certified payroll is a document submitted by government contractors to federal agencies.
• It declares the gross wages and withholdings paid and processed on the paycheck of all the laborers involved in federal-funded projects.
• Certified payroll originated from the passing of the Davis-Bacon Act (DBA), which mandates improved labor regulations and just compensation and benefits for workers in federally funded projects.
• Non-compliance with the DBA has corresponding penalties, depending on the severity of the violation.
• Contractors must enroll the correct certified payroll information in the WH-347 form before certifying their report on the statement of compliance.

Related Articles

How To Set Up A Payroll For A Small Business: A Complete Guide

7 Payroll Trends Every Business Owner Should Know in 2024

What is A Payroll Ledger? Full Guide On How To Use & Create It