Government contracting is not a simple business. In many cases, complex paperwork and regulatory requirements make contracting an extremely difficult business to operate with severe penalties for those who are uninformed and do not dot their I’s and cross their T’s. One topic that often trips up CEO’s, CFO’s, Controllers, Comptrollers, and/or anyone who finds them self with the responsibility of processing payroll on federal construction projects is certified payroll reporting.
What is Certified Payroll Reporting?
Certified payroll reporting is the process by which contractors on government-funded construction jobs record and report wages and benefits paid to their employees.
Why is it Required?
The Davis-Bacon Act of 1931 requires prevailing wages to be paid on government-funded construction projects. To comply with the law, employers must create “certified payroll,” essentially a detailed report that proves that they are complying with the law which “certifies” that the information that they are putting forth is true and accurate. The idea behind Davis-Bacon Act is to ensure that workers on federal projects are paid fair wages and to prevent firms from low-bidding to win contracts by paying lower wages. Prevailing wages are often determined from regional surveys and union information.
Completing a certified payroll report can be complicated for a first timer or a firm that is new to Federally funded projects.
A very common mistake is for a firm to only provide reporting for its employees excluding subcontractors. This would be a mistake, firms are required to prepare certified payroll reports for both their employees and their subcontractors. They can be penalized if they do not.
An alternate mistake is to discard old certified payroll reports after a couple of years. In most cases, a solid rule of thumb is to keep certified payroll reports on hand for 7-10 years incase a complaint is filed subsequent to the completion of the work in question.
Severe Penalties for Non-Compliance
In most cases, certified payroll reports are required to be kept in the main office of the employer (the firm holding the contract or subcontract). Both Federal and State labor departments have the right to audit employers certified payroll reports at any time.
According to the DOL Guide,
Contractors or subcontractors found to have disregarded their obligations to employees, or to have committed aggravated or willful violations while performing work on Davis-Bacon covered projects, may be subject to contract termination and debarment from future contracts for up to three years. In addition, contract payments may be withheld in sufficient amounts to satisfy liabilities for unpaid wages and liquidated damages that result from overtime violations of the Contract Work Hours and Safety Standards Act (CWHSSA)
It should go without saying that falsifying or intentional mis-representing prevailing wage reporting can result in significant fines and/or jail time.
If you are new to certified payroll or believe that you or your firm may need to understand the requirements to comply with The Davis Bacon Act please take a look at our webinar, Unraveling Certified Payroll Requirements on Federal Construction Contracts. Nancy Smyth, an expert in certified payroll accounting and software development explains both all the requirements for when and what construction contractors are required to file and provides a clear tutorial on how to meet your requirements.