Certified Payroll

Summary Definition: A special type of payroll report created and submitted by government-funded contractors (or subcontractors) to prove employees are receiving fair pay.

What is Certified Payroll?

A certified payroll is a report to the federal government from contractors or sub-contractors receiving federal funds to complete projects. This proves the funds are being used properly and guarantees the employer meets their legal obligations to their employees.

Created by the Davis-Bacon Act, the law requires employers to submit certified payrolls to the Department of Labor via Form WH-347 weekly. The form not only records each worker’s identity but also their wages, benefits, tax deductions, etc.

Key Takeaways

  • Certified payroll is a weekly payroll report used by contractors and sub-contractors working on a project funded by the federal government.
  • Employers are required by the Davis-Bacon Act to submit the certified payroll reports each week via Form WH-347.
  • The government may withhold payments of federal funds if an employer doesn't comply.

The Davis-Bacon Act

The Davis-Bacon Act of 1931 established the rule that government-funded contractors and sub-contractors must pay their employees the prevailing local wage and fringe benefits determined by the Department of Labor.

Specifically, the law focuses on employers receiving $2,000 or more in funding for the construction, alteration, or repair of public buildings or public works. For contracts worth over $100,000, employers must also pay their employees 1.5 times their normal rate anytime they work over 40 hours in a workweek.

Certified Payroll Requirements

To submit a certified payroll, Form WH-437 must be reviewed for accuracy and have a statement of compliance from the employer that confirms the submitted information is correct. The form itself requires employers to provide several pieces of information, including:

  • The business’ name and address
  • The payroll number and dates for the workweek in question
  • The project’s location and ID number
  • Each employee’s name and ID number
  • The classification and number of hours each employee worked
  • Rate of pay, benefits, and deductions

To help with the process, the Department of Labor’s Wage and Hour Division (WHD) provides specific instructions for completing Form WH-437. Employers must then keep copies of the certified payroll reports for at least three years after the completion of the project.

Prevailing Local Wage

The WHD sets and maintains two types of prevailing local wages: general determinations and project determinations. General determinations are rates specific to geographic areas based on the work being performed, while project determinations are specific to an individual project. As such, project determinations must be requested and expire after 180 days, unless an extension is made.

Who is Exempt from a Certified Payroll?

The certified payroll process primarily applies to on-site laborers and mechanics. In other words, those who perform the physical or manual labor necessary for the project’s construction, regardless of whether they’re an employee of the contractor or independent contractors themselves. The law’s requirements don’t, therefore, apply to salaried executives, administrative employees, etc.

Penalties for Non-Compliance

If an employer doesn’t comply with the Davis-Bacon Act, the government can choose to withhold payments of federal funds until the underpaid wages are met. Additionally, the contract in question may be terminated and the employer barred from receiving new contracts for the next three years.

Finally, employers can also be held liable for any additional costs to the government that result from the contract’s termination. Employers can, however, challenge these penalties by appealing to an Administrative Law Judge.

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