If you’re a contractor or subcontractor working on a federally funded project, you may be required to send in weekly certified payroll reports. These reports confirm that your company is fairly paying everyone working on the contract.
Certified payroll reports can be complex, and even innocent mistakes could lead to major legal and financial consequences. Here’s a closer look at certified payroll, explained for contractors.
What Is Certified Payroll?
Certified payroll laws don’t apply to all contractors. However, if you’re a subcontractor or contractor working on a federally funded (or federally assisted) construction or public works project worth more than $2,000, you’re most likely required to submit certified payroll reports.
These reports include details about your workers, how much you paid them, and any benefits they received. They must be submitted every week to the contracting agency.
Certified Payroll: What’s the Point?
The concept of certified payroll is rooted in a 1931 law called the Davis-Bacon Act. This federal law requires contractors working on government projects to pay their employees no less than the “prevailing wage” for similar work in the area.
The prevailing wage is the average wage paid for comparable work in the area of the government project. The U.S. Department of Labor is responsible for determining the prevailing wage for any given project.
Certified payroll reports confirm that a contractor is actually paying their workers the prevailing wage and offering similar fringe benefits as local employers.
You might wonder why the government sets prevailing wage standards and requires contractors to file detailed reports. Here’s a breakdown of the key reasons:
It Safeguards Workers’ Rights
When contractors bid on a project, they compete to see who can complete the necessary work for the best price. Without prevailing wage standards, contractors could slash wages to keep prices lower. With these standards in place, people who work on government projects can count on being fairly compensated.
It Helps Protect Local Labor Markets
If there were no prevailing wage standards in place, contractors could bring in low-wage workers from outside the area. These workers could then undercut the local workforce, drive wages down, and have a substantial negative effect on the local economy.
It Encourages Better Work
With these standards in place, contractors can’t undercut each other in terms of labor prices. Instead, they can distinguish themselves by performing superior work and doing it efficiently.
What Goes Into a Certified Payroll Report?
Form WH-347 is the Department of Labor form you’ll need to use to submit your weekly certified payroll reports. You’ll need to enter the following data to complete the form:
Company Information
In this section, you must include your company’s name and address. You’ll also need to indicate whether it’s a subcontractor or contractor on the project.
Project Information
Next, you’ll need to enter the name of the project and include the project number assigned by the government.
Payroll Number and Date
The payroll number indicates the week of the project you’re currently on. In the first week, your payroll number should be one. Each week, you’ll need to increase the number by one.
Crucially, you must increase the payroll number each week, even if you don’t do any work on the project that week.
Weekly Calendar
This section features a grid where you’ll need to create a calendar for the work week. The top row of the grid is for days of the work week, and the bottom row is for the dates.
Beneath that grid, you’ll need to enter the hours worked each day and total hours worked per week for each employee.
Employee Payroll Information
In addition to providing each employee’s total hours worked, you must enter their name, job classification, and pay rate.
Statement of Compliance
Once you’ve filled out the rest of the form, you must enter your information and sign a statement of compliance. Your signature attests that you’ve filled out the form truthfully and to the best of your ability.
Where Do You Submit Certified Payroll?
Generally, you must submit your certified payroll reports to the agency you’re contracting with. Most agencies have online portals where you can quickly and easily upload your reports each week. If you’re a subcontractor, you’ll need to submit your certified payroll reports to the prime contractor.
Still not sure how to proceed? Book a consultation with Devine Consulting or browse our resources to get certified payroll explained for contractors and subcontractors in a way you can understand.
What Happens if You Make a Mistake Filling Out the Form?
Certified payroll forms can be challenging to navigate. And as you may already know, the stakes are high when dealing with government forms. Mistakes may lead to a range of consequences, including the following:
More Administrative Work
This might seem like a minor repercussion, but it has the potential to seriously disrupt your workflow. If you make an error on a form, your company will be expected to fix it. That means you (or a hired payroll expert) will need to review the documents, revise them, and send them back in, which can eat up a lot of time.
Financial Penalties
Not all errors on certified payroll forms lead to financial penalties. However, penalties are fairly common among contractors who fail to meet prevailing wage requirements.
If you don’t pay your workers the prevailing wage, your company could face fines and penalties, even if you weren’t intentionally withholding money. You may also be ordered to pay back wages to any employees you underpaid.
Payment Withholding
If you submit your certified payroll reports late, fail to send them at all, or submit forms that contain errors, your company could encounter a temporary cash flow problem.
Prime contractors (if you’re a subcontractor) and government agencies (if you’re a contractor) usually won’t distribute payment for the project until you’ve corrected any outstanding issues.
Audits and Legal Risks
Making errors on certified payroll forms invites legal scrutiny. If the government thinks you’re committing fraud, making careless errors, or both, your company could be subjected to an audit. Audits can be stressful, and if the auditing agency finds anything amiss, you might face more legal complications.
If your errors led to a failure to properly pay your employees, you could even find yourself embroiled in one or more employee lawsuits.
Contract Termination
One minor error isn’t likely to result in a contract termination. However, if you make errors consistently or turn in a certified payroll form with a significant mistake, you could lose your contract.
Do You Need a Certified Payroll Professional (CPP) to Do Your Certified Payroll?
Given the potential outcomes of failing to properly fill out a certified payroll report, you might reasonably assume that you’re required to work with a Certified Payroll Professional (CPP).
In actuality, there’s no legal requirement for contractors or subcontractors to work with a CPP. Business owners and forepeople are free to prepare reports themselves.
However, the fact that you can prepare your certified payroll reports yourself doesn’t necessarily mean that you should. There are many good reasons to consider outsourcing certified payroll. Here are just a few:
Regulatory Compliance
If you misunderstand Form WH-347 or make a mistake when filing your weekly reports, your company may have to deal with fines, penalties, and other consequences. When you outsource reporting to Devine Consulting, you can rest assured that your reports will be completed and filed accurately and on time.
Our team also stays abreast of changing labor laws and tax laws to help you stay compliant wherever you are.
Improved Focus on Your Business
Many contractors underestimate the time and effort it takes to handle certified payroll alone. Doing manual calculations and double-checking your forms can consume hours of your time that would be better spent on core business tasks.
Expertise Across Jurisdictions
As a contractor, you may travel outside of your own jurisdiction for a job. Our team uses advanced technology to ensure that clients like you stay compliant with prevailing wages, tax laws, and other jurisdiction-specific issues.
Data Protection
Every time you prepare a certified payroll report, you’re handling addresses, Social Security numbers, and other pieces of sensitive information. Data leaks can be financially and reputationally devastating.
CPPs use high-security systems to shield your workers’ data and minimize the risk of cyberattacks and data leaks.
Scalability
If your company is growing, you may find that your once-manageable payroll-reporting process has become too much to handle alone. When you outsource certified payroll reporting, your provider can easily add new workers and track multiple projects at once.
What to Consider Before Saying “Yes” to Federally Funded Projects
Certified payroll is just one consideration. Here are a few things most people don’t think of before saying “yes” to a job:
Wage Tracking
Employees working on multiple projects may earn both the prevailing wage and their regular wage. You’ll need to keep track of these different pay rates.
Business Expenses
Because your workers’ compensation/business liability audits will reflect higher payroll than normal, your business will probably see increased expenses.
Margins
To get a federally funded job, you have to be the lowest bidder. You can’t do that by lowering wages. Thanks to the combination of increased wages, decreased margins, and increased administrative costs, these jobs often pay just enough to break even.
Let Us Help You Manage Certified Payroll
Payroll can be intricate enough on its own. When you consider the additional challenges that come with certified payroll, it’s no wonder so many people choose to outsource.
If you’re considering going this route after having certified payroll explained for contractors, don’t just choose the first firm you come across. Not everyone understands how to manage the complexities of certified payroll, but the team at Devine Consulting is intimately familiar with it.
We primarily focus on contractors, architects, and others in the construction industry, and we’re committed to helping clients streamline payroll so they can continue doing their best work.
Want to learn more about how we can assist you? Get in touch with us today!