Should your company win a federally funded construction project, you must understand government-imposed payroll practice regulations. Failure to adhere to specific standards can impose fines. Such projects require contractors to pay at least a minimum rate determined by the federal government or the state—whichever is higher. To adhere to these standards, contractors must document wages in a certified payroll report.
Why do most construction companies recognize Certified Payroll as a standard accounting practice?
The US Chamber of Commerce states:
Certified Payroll is a requirement stemming from the Davis-Bacon Act. In 1931, Congress passed the Davis-Bacon Act to protect workers from low hourly pay.
You must comply with Certified Payroll requirements if your business works on a federal contract over $2,000. The law applies to contractors and subcontractors hired to complete construction, alteration or repair of public buildings or public works. The law applies to contractors and subcontractors hired to complete construction, alteration or repair of public buildings or public works.
The Davis-Bacon Act mandates that these contractors and subcontractors pay prevailing wages and, where applicable, benefits to their employees. These prevailing wages are determined by the U.S. Department of Labor, based on the wages and benefits paid to workers in similar trades and occupations within the same geographic area. This ensures that the wages paid are reflective of the local economic conditions, preventing contractors from undercutting local wage standards.
Additionally, the Act requires that accurate records of hours worked and wages paid be maintained by contractors and submitted through weekly certified payroll reports to the contracting agency. This level of documentation and oversight is designed to enforce compliance with the law, thereby protecting both the workforce and the integrity of local labor markets."
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The primary aim of the Davis-Bacon Act is to prevent the depression of local wage standards by ensuring that contractors cannot offer lower wages than what is typically expected in the area, thus protecting the local workforce and ensuring fair competition.
The prevailing wage under the Davis-Bacon Act is set by the U.S. Department of Labor, which assesses the wages and benefits paid to workers in similar roles and trades within the same geographical region to establish a standard.
The Davis-Bacon Act mandates that contractors and subcontractors working on federally funded projects must pay workers the prevailing wages and potentially offer benefits similar to those in the local area, as well ensuring that they maintain accurate records of workers' hours and wages, and submit weekly certified payroll reports to the contracting agency.
Beyond setting wage standards, the Act necessitates that contractors working on federal projects submit certified payroll reports. These reports are crucial for proving compliance with the prevailing wage requirements stipulated by the law.
Contractors are required to adhere to the Act by submitting certified payroll reports. These reports serve as proof that they are compensating their workers according to the prevailing wage standards while engaged in federal projects.
The Act was passed in response to the practice of contractors submitting low bids for government projects by planning to pay minimal wages. This law was intended to prevent such underbidding that compromised fair labor wages and conditions.
The Davis-Bacon Act mandates that contractors and subcontractors involved in federally funded projects pay workers the prevailing wages and potentially benefits that are standard for similar roles in the geographical area. This standard is determined by the U.S. Department of Labor.
The Davis-Bacon Act introduced the concept of a "prevailing wage," which is essentially the average wage paid to workers of the same type in a particular area. This helps in maintaining a standard wage level for similar work across various regions.
Prevailing wage, a benchmark for similar work performed in surrounding geographical areas, establishes an even playing field for employers and laborers; it eliminates low-balling wages and offers higher pay to steelworkers.
Interestingly, prevailing wage only applies to hourly laborers and not salaried individuals. It protects workers from exploitation.
Certified Payroll stipulates weekly pay for employees. This unusual arrangement—outside the restaurant industry—benefits cash flow-based businesses.
When tackling commercial construction projects, it's vital to understand that prevailing wage laws may not uniformly apply across all scenarios. Here are some common exceptions that allow flexibility depending on specific circumstances:
Project Size and Cost: Usually, there's a set threshold for the cost or scale of a project beyond which prevailing wage laws take effect. Smaller projects under this threshold may not require adherence to these wage standards.
Type of Project: Not all construction activities are subject to rigid wage stipulations. For example, privately funded ventures or certain specific renovations often escape these requirements, particularly if the developments don't fall under the traditional definition of public works.
Owner-Occupied Projects: If the owner of the property is directly involved in occupying the building post-construction, prevailing wage statutes might not apply. This exemption is designed to benefit owner-operators actively participating in the construction and use of the building.
Economic Incentive Zones: Some geographic areas, identified as enterprise or economic development zones, may be exempt from prevailing wage laws. The purpose here is to spur economic growth by attracting businesses through reduced operational costs, including labor.
Emergency Works: In situations where urgent construction is necessary to safeguard public health or safety, prevailing wage requirements are sometimes waived to expedite project initiation and completion.
Each jurisdiction can have nuances in how these exceptions are applied. Therefore, contractors and developers should seek detailed, local legal guidance to ensure compliance with prevailing wage regulations specific to their construction projects.
Violating the Davis-Bacon Act, particularly in regards to certified payroll reporting, triggers severe penalties. Should your business miss filings or submit incorrect payroll information, it faces substantial consequences imposed by the Department of Labor (DOL).
Federal Contract Prohibitions: Your company may be barred from entering federal contracts for a period of up to three years.
Financial Penalties: The DOL may withhold payments on current contracts. This ensures that funds are available to compensate employees for any owed overtime wages.
Contract Termination: The failure to comply with the act can lead to the immediate termination of ongoing federal contracts.
Legal Consequences: Providing false information might result in civil or criminal legal actions. Convictions can carry fines and even terms of imprisonment.
If penalized, businesses have the right to contest these decisions. Initially, an administrative law judge will hear your case. Should you need to further contest the ruling, you can appeal to the Administrative Review Review Board (ARB), and potentially, the federal courts.
The US Government requires the following four main categories of construction to use Certified Payroll: *
Employers must file Form WH-347, which reports the type of labor performed, hours worked, and the prevailing wage paid (along with other data).
The Department of Labor reviews Certified Payroll reports and may issue severe penalties for violating the Davis-Bacon Act, including civil or criminal prosecution. Other consequences can include fines or loss of government contracts.
To elaborate further, certified payroll reports must include comprehensive details to ensure compliance with federal regulations.
Job Information: This section captures specifics about the construction project, including project name, location, and the agency providing the funding.
Employee Information: Here, every worker's name, their job classification, and total hours worked during the pay period are documented.
Wage and Benefit Information: Detailed information about the wages paid is required, which includes hourly rates, overtime compensation, fringe benefits, and any deductions.
Compliance Information: This part includes documentation that the contractor or subcontractor is adhering to federal and state prevailing wage laws.
Certification: Finally, the report must be signed and certified by the contractor or subcontractor, attesting to the accuracy and completeness of the information provided.
Each of these categories is crucial for a thorough understanding of the payroll and labor dynamics on federally funded projects, ensuring transparency and adherence to legal standards.
The WH-347 form, issued by the United States Department of Labor, necessitates detailed employee information to ensure accurate reporting and compliance with federal regulations. Here's what you need to include on this form:
Properly filling out the WH-347 form with these details ensures compliance with labor laws and facilitates accurate payroll processing.
Your accounting software should provide the instructions and data you need to complete Form WH 347.
Payroll setup should be configurable by state, work classifications, pay rate tables (straight and overtime), fringe benefits, and hours for your employees and subcontractors.
Data should flow seamlessly from a timekeeping app to your accounting system.
Streamlining Certified Payroll Reporting in Construction, managing certified payroll and ensuring compliance with the Davis-Bacon Act can be complex and time-consuming. However, employing solutions like hh2 can significantly simplify this process.
Efficient Data Management: hh2 allows users to input employee time data just once. This information is then used to automatically generate weekly payroll reports. These reports are not only fast to produce but also minimize the likelihood of errors.
Automated Compliance Tools: The platform includes built-in features such as the electronic WH-347 form needed for compliance. This automation streamlines the submission process, reducing the manual workload and helping ensure accuracy.
Time and Cost Savings: By integrating these tools, companies can save a significant amount of time and effort previously spent on manual payroll tasks. This efficiency translates into cost savings and allows staff to focus on other critical areas of the business.
Leveraging a specialized tool like hh2 can transform a traditionally cumbersome process, ensuring construction companies meet federal requirements with ease while optimizing their workflow.
hh2 Remote Payroll simplifies the process by providing an easy way to move certified classes from your accounting system through a synchronization client. Once configured, the hh2 Synchronization Client works in the background to update the hh2 Remote Payroll website and mobile apps with the latest certified classes for use on the project.
hh2 then streamlines the process of using Certified Classes for time tracking through the configuration of each payroll group.
Click ‘Enabled’ or ‘Required’ on the app’s Payroll Group Setup screen to activate Certified Classes.
You can also determine the Certified Classes you want each group to use. This ensures the correct prevailing wages are used for employees within the group.
The payroll group now has access to certified classes. Labor performed on the project can be set up to include certified classes for each code.
When adding jobs or codes to the time card or while punching in and out of the app, Certified Classes can be selected for coding.
When your company bids on public works or government-funded projects, consider using hh2 Remote Payroll, a cost-effective solution that complies with Certified Payroll stipulations. Risk aversion and peace of mind mean everything to your controller or CFO in a competitive bidding world.
Best of all, hh2 Remote Payroll seamlessly integrates with Sage 300 Construction and Real Estate, Sage 100 Contractor, and Procore solutions.