Businesses that have government contracts must submit certified payroll reports to the US Department of Labor (DOL) for any federally funded project with a payout of over $2,000. There are penalties for failing to submit a certified payroll report, so it is important that business owners get this right. Start by reviewing the need-to-know information below.
What is certified payroll?
For federally funded projects with a payout over $2,000, contractors and subcontractors are required to pay hourly workers a certain minimum wage, which varies by location and job classification, and they must pay workers weekly. (Keep reading for more on minimum wages below.)
Contractors and subcontractors submit weekly reports called “certified payroll” or “certified payroll reports.” This allows the government to ensure that contractors meet those required minimums and weekly payments.
Requirements under the Davis-Bacon Act
Certified payroll requirements stem from Davis-Bacon and Related Acts, which Congress passed in 1931. It has been amended several times, but the underlying principles have stayed the same. The purpose of this is to provide fair wages for people who work on federally funded construction projects. This “fair wage” is also known as the “prevailing wage.”
Any contract with the federal government that pays over $2,000 falls under the Davis-Bacon Act. It includes new construction projects as well as improvements to existing structures. The Davis-Bacon Act will likely affect any federal public improvement project that pays over $2,000.
The terms “construction” and “contractor” are broad. The Davis-Brown Act applies to a wide variety of industries that provide improvements, such as:
Painting
Plumbing
Electrical work
Drywall hanging
Cleaning
Decorating
If you are unsure about whether you need to submit certified payroll records, ask the agency or government entity that has contracted with you. Also, general contractors should provide this information to their subcontractors.
How do contractors report certified payroll?
Contractors may use Form WH-347, a certified payroll form, to report their payroll every week. Federal law provides specific information that contractors must include in their report, and filling out Form WH-347 meets those requirements. Using the form itself is optional, but every report must have the following information:
The name of the contractor or subcontractor submitting the form
Whether you are a subcontractor or a general contractor
Address and contact information
Payroll number (this is a sequential reporting number that starts with “1” for each project)
The dates that the report covers (usually listed as a “week ending” date)
Project and location
Project or contract number used on the job
Name and tax identification number for each worker (Social Security number or tax ID number)
Number of withholding exemptions for each employee
Information regarding the hours worked
Hourly wage rate
Overtime and straight-time pay information
Deductions from pay
Contractors must also include a description of “work classifications” for each worker. Work classifications, such as “mechanic” or “general labor,” are based on a schedule under federal law and vary by project. The contract administrator with Housing and Urban Development (HUD) Labor Relations will provide Form HUD-4720 at the beginning of the project. This form will list the specific worker classifications that apply to the project.
How is certified payroll different from regular payroll records?
Businesses generally do not have to provide weekly payroll records to government entities for reporting purposes. The state and federal governments typically require at least quarterly reporting; the level of detail and frequency required in a certified payroll report is unique.
Perhaps the biggest difference between a certified payroll report and regular payroll is that someone (often the business owner or project manager) must certify that the information in the report is correct. They make the certification under penalty of perjury, so it is important that whoever signs off on the certified payroll report has personal knowledge about the hours each employee worked.
Do certified payroll requirements apply to non-hourly employees?
No, certified payroll is not required for salaried employees. This is because the primary purpose of the minimum wage reporting is to ensure that appropriate and timely wages are paid to those who work in manual labor jobs, which are typically paid by the hour.
What are the wage requirements for federal projects?
Wages may vary based on the location of the project and the standard wage for similar work in that area. The federal government has a prevailing wage for each worker classification, and many states also have their own prevailing wage requirements. If a state’s prevailing wage is higher than the federal requirement, the state requirement will apply to a project.
If you have questions about required wages in your area, contact the appropriate state Department of Labor. State and local taxing authorities might require additional payroll reporting beyond the certified payroll report as well.
What are the penalties for failing to provide properly certified payroll reporting?
The Department of Labor reviews certified payroll records for noncompliance. The government may question any report that is inaccurate or incomplete. As a contractor, you must be able to produce supporting documentation about wages, hours, and payments.
A willful violation of the Davis-Bacon Act could result in termination from a project, fines, criminal prosecution, or civil penalties. Your ability to prove that you did not know about the error or that you could not have found an error without extensive review is imperative. To reduce the burden of this important administrative work, you may want to consider outsourcing it to a payroll service provider, like Gusto.
FAQs
What is Form WH-347, and how is it used for certified payroll?
Form WH-347 is a form contractors can use to report their certified payroll every week. The form includes specific information that contractors have to include in their report, like project dates and location, names and tax IDs for each worker, and descriptions of classifications for each worker.
How often must certified payroll reports be submitted?
Certified payroll reports have to be submitted weekly for federal projects. Each state has its own requirements for state projects, but most opt for a monthly reporting schedule.
What information is required on a certified payroll report?
You have to include company information; project information, like the project name, dates, and locations; payroll information like your payroll number; employee contact information, wages, and total hours worked in a workweek; employee benefits (including fringe benefits); job classifications for each worker (what type of work they’re doing); and a signed statement of compliance.
How does certified payroll differ for federal versus state prevailing wage projects?
Certified payroll for federal projects has to be submitted on a weekly basis, but certified payroll for state projects can usually be submitted monthly. State projects often have stricter compliance rules and come with higher prevailing wage rates.
How long must certified payroll records be retained?
You should hold onto your certified payroll records for at least four years from the date you submit your tax return in case you need to make corrections or you get notified about an audit.
