What Is Certified Payroll? An Employer's Guide to Wage Compliance
If your business is considering working on federal government-funded construction projects as a contractor or subcontractor, you’ll be asked to submit certified payroll records every week to show you’re paying your workers fairly. But certified payroll involves strict rules you need to follow. Since understanding what you need to do to stay in compliance can be confusing, especially if you’re submitting these records for the first time, we’ll break down the requirements for you here.
To help you understand what you need to do to demonstrate your employees are receiving the prevailing wage if you’re working on a government contract, here we’ll discuss what certified payroll is, when it’s required, what you need to do to comply with the rules, penalties for noncompliance, and recordkeeping requirements. After reading this, you’ll know the steps to take to make sure you maintain compliance.
What is certified payroll?
Certified payroll is a special weekly payroll report using Form WH-347 that contractors who work on federally-funded projects need to complete and submit to prove they are paying workers the prevailing wage.
The requirement comes from the Davis-Bacon Act, which passed in 1931 and requires that each contract over $2,000 to which the US or the District of Columbia is a party for the construction, alteration, or repair of public buildings or public works shall contain a clause setting forth the minimum wages to be paid to laborers and mechanics employed under the contract.
Since its enactment, other related “Acts” have been passed that require payment of prevailing wages in accordance with the Davis-Bacon Act for federally assisted construction undertaken pursuant to the relevant law such as the Federal-Aid Highway Acts, Housing and Community Development Act of 1974, and Federal Water Pollution Control Act.
When is certified payroll required?
Certified payroll using Form WH-347 is required for covered contractors and subcontractors performing work on federally financed or assisted construction contracts in an amount over $2,000. This could be anything from the building of a structure built for public use like a school to a public works project such as the repair of a highway or bridge.
When it comes to the types of contracts covered by this requirement, the term construction is used broadly. For example, it includes activities such as:
As a result, the types of companies that may need to submit certified payroll are not limited to any particular industry.
What requirements do I need to comply with?
To meet the requirements for certified payroll, you’ll need to pay your employees the prevailing wage weekly. Specifically, your workers’ gross wages must be at least the “local prevailing wage rates for corresponding work on similar projects in the area.” You’ll also have to make sure you comply with your state’s prevailing wage rates. That means you’ll have to pay whichever rate is higher – the federal or state.
What is the prevailing wage?
The prevailing wage rates vary by the location of where the work is performed and the job title of your employees. The U.S. Department of Labor can help you find your wage determination by providing a list of the wage rates and fringe benefit rates for each labor category in a given locality.
Under the Davis-Bacon Act, you’re required to pay not less than the prevailing wage, including fringe benefits. Your obligation to pay fringe benefits can be met either by payment of the fringe benefits to bona fide benefit plans, funds, or programs, or by making payments to the covered workers as cash in lieu of fringe benefits.
To demonstrate compliance with this requirement for federal projects, you’ll have to complete and submit Form WH-347 each week within 7 days after the regular pay date for the pay period. This form covers anyone who is performing construction work on the projects such as tradespeople, traffic control personnel, and guards, and includes information about these employees such as their:
- Social Security numbers
- Gross and net wages
- Job classification (e.g. electrician, carpenter, etc.)
In addition, on the back of the form, you’ll need to sign a Statement of Compliance that you paid each employee on the contract no less than the proper prevailing wage for the work performed. This statement, which must be signed by the contractor or subcontractor or an authorized officer or employee of the contractor or subcontractor who supervises the payment of wages, validates that the information on the report is accurate.
The weekly reports, which serve as proof that you’re paying your employees the prevailing wage, must be submitted to the funding agency for the contract. So, for example, the federal, state, or local government. If you don’t work on the contract in a particular week, you don’t have to file the report. Instead, you would just insert the correct payroll report number on the next certified payroll record submission.
If you’re working on a construction project that’s fully funded by state dollars, depending on where you operate, you may need to file a different state-specific certified payroll report. For example, in Connecticut, you’ll need to complete and submit the Connecticut Department of Labor Form WWS-CP1 monthly. These state forms generally request the same information as Form WH-347 but are simply formatted differently.
How long do I have to maintain certified payroll report records?
Once you properly complete and file the required federal or state reporting, you’ll need to maintain the records for the required time period. On federal jobs, certified payroll reports must be retained for at least 3 years after the project completion date. Many of the records are the same that you’ll need to retain for Fair Labor Standards Act (FLSA) purposes.
For state projects, the timeframes vary but you’ll typically need to keep the records for around 2-4 years.
What are the penalties for non-compliance?
According to the DOL, violations of the Davis-Bacon contract clauses may be grounds for contract termination, contractor liability for any resulting costs to the government, and debarment from future contracts for a period of up to three years.
Typical violations include:
- Misclassifying laborers and mechanics
- Failure to pay full prevailing wage, including fringe benefits, for all hours worked
- Inadequate recordkeeping
- Failure to submit certified payroll reporting weekly
Stay On Top Of Compliance with Proper Certified Payroll Reporting
If you’re a contractor for public works projects, complying with the requirements of the Davis Bacon Act is critical to your company’s future. If you don’t have the time or resources in-house to stay on top of the complex rules to avoid serious penalties, you may want to consider partnering with an outsourced payroll provider who has the knowledge and experience to handle all types of payroll processes, including certified payroll. If you decide to go this route, the next step would be to learn more about Complete Payroll Solutions’ payroll outsourcing services to see if we’re the right fit for you.
This blog was originally published in April of 2021 and was updated in July of 2023 for accuracy and comprehensiveness.