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What Is Certified Payroll?

September 9th, 2020

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So, you’ve earned a coveted government contract and now you find out that you have to file something called certified payroll. You likely have a lot of questions, primarily “what is certified payroll?” and “how do I report certified payroll?” Don’t worry—we’re here to provide the answers you need.

Certified payroll is a subcategory of a contractor’s payroll responsibilities. Certified payroll must be filed by companies, typically contractors, who are working on government-contracted projects. While it might sound like your general payroll process, it’s actually a bit more complicated as there are specific wages that need to be paid and a weekly form submittal process you need to adhere to.

But don’t worry, you can use this guide to better understand your certified payroll obligations. That way, you can ensure that you remain in compliance, pay your workers fair wages, and set yourself up for success when dealing with future government-funded projects. If you’re just now being introduced to the concept of certified payroll, read this guide from start to finish; or go straight to specific questions you have by using the links below:

What Is Certified Payroll?

Certified payroll is a weekly payroll report that a company must submit for federally funded (or assisted) projects, such as government-contracted work and public works projects that are over $2,000. Employers are required to submit certified payroll on behalf of all employees who work on these types of projects. A certified payroll report includes:

  • Wages
  • Hours worked
  • Type of work completed
  • Benefits worker is entitled to 

Certified payroll is one aspect of construction accounting that can be especially confusing for small business owners. To help you gain a better understanding of this concept, we’ll dive deeper into the basics of certified payroll.

What Is Certified Payroll for Prevailing Wage?

Certified payroll is required as a means of providing government entities with a detailed breakdown of the work completed and pay provided to employees. This is done to ensure that contractors are paying their employees the local prevailing wage. 

The prevailing wage was instituted to protect workers by ensuring they are being compensated fairly and at a rate similar to what they would be paid for similar work. A variety of factors determine the prevailing wage, with the two most important being location (specifically, the county where the work is being completed) and type of work (pay should be comparable to that of similar jobs). As such, the prevailing wage often varies from county to county.

What Is the Difference Between Prevailing Wage and Certified Payroll?

Davis-Bacon Act and Related Acts established labor fairness legislation, which included the prevailing wage system and certified payroll. Prevailing wage is the hourly pay rate that is used to complete certified payroll.

How Is Certified Payroll Calculated?

Certified payroll is calculated based on the prevailing wage, which is considered the standard rate for a government contract in that county. To determine the prevailing wage, the following factors (based on local norms) are considered:

  • Job classification (there are many different positions that may work on the same government project)
  • Basic hourly rate of pay (you can use this wage determination directory to look up your county) 
  • Typical benefits for the position
  • Expected overtime

Once you have calculated the proper wages, you will need to subtract any deductions, such as union deductions and state and federal taxes, which will give you the net pay for that employee. Repeat this process for each employee when completing certified payroll for that week of the project (reminder: certified payroll is reported on a weekly basis).

How Do I Report Certified Payroll?

Setting up payroll is a common challenge for small businesses, and this process only becomes more complex if you have to figure certified payroll on top of that. Don’t fret if you feel in over your head—we’ll break down how to report certified payroll, so you can complete this essential process and make sure you’re in compliance when working on government projects.

Here are some guidelines to follow when reporting certified payroll:

  • Certified payroll must be submitted weekly (it is best practice to submit weekly to correspond with pay)
  • Certified payroll is submitted using Federal Form WH-347 (one form is used for all workers on the project)
  • You can find the DIR Project ID (or the “PWC-100”) for the public works project using your state’s DIR searchable database of public works projects (typically found on their website)
  • As the business owner, you must also sign a statement of compliance (indicating that you are reporting payroll accurately and paying workers fairly)

In addition to these specific DIR certified payroll details, you’ll need to include basic payroll information like workers’ social security numbers, contractor name (your company’s details), and payroll period.

What Does a Certified Payroll Report Look Like?

Here is an example of what the certified payroll report, known as Form WH-347: 

As you can see, once you have a grasp of the basic components of certified payroll, it’s fairly straightforward to complete the form for each of the employees who are working on the project.

Where Do I Send Certified Payroll Reports?

You will need to submit certified payroll reports to the Labor Commissioner using the DIR’s (Department of Industrial Relations) online system. You can either upload the completed WH-347 form or you can fill it out digitally and submit it through their system.

How Long Do You Have to Keep DIR Certified Payroll Records?

You will need to hold onto certified payroll records for three years. For more guidance on retaining certified payroll records for federal projects, refer to the code for Contractor Records Retention.

How to Calculate Fringe Benefits for Certified Payroll

When working on government-related projects, employees may be paid in wages or a combination of wages and fringe benefits. Fringe benefits include anything provided in addition to basic compensation (the prevailing wage workers are paid by the hour). 

Fringe benefits can be perks such as healthcare, paid time off, and other traditional workplace benefits, or they can be paid in cash. For construction contracts, this is typically the case. When paying cash fringe benefits, this additional hourly pay is a percentage of the prevailing wage.

In order to calculate fringe benefits, you need to first determine the prevailing wage for the project. Once you have that, you will need to provide workers with a basic hourly wage plus fringe benefits that add up to the required prevailing wage for their position and the county the project is being completed in. 

So, together, the cash wages you pay your workers plus fringe benefits provided must add up to the prevailing wage on an hourly basis. 

 

Fringe benefits must be paid on all hours of work.

Who Is Exempt from Certified Payroll?

Apprentices or trainees may be exempt from certified payroll and prevailing wage requirements if they are participating in an apprenticeship program registered with the Department of Labor or with a state apprenticeship agency recognized by the Department of Labor.

Additionally, salaried employees who serve in executive, administrative, or professional positions may also be exempt from certified payroll.

Do I Include Subcontractors on My Certified Payroll Report?

Yes, however, it works a little differently than with your direct employees. This is because each contractor and subcontractor is responsible for submitting their certified payroll records directly to the Labor Commissioner. To comply with this requirement, the subcontractor will complete a certified payroll report and provide it to you.  This should then be included with your company’s certified payroll reports in order to properly account for their wages related to the project.

If you’re still feeling confused or overwhelmed, you’re not alone. Even payroll professionals have to earn a specific accreditation to become a Certified Payroll Professional

 

Why is Correct Certified Payroll Reporting Important?

Incorrectly processing certified payroll can lead to hefty fines. In fact, if you are found to be purposefully violating the Davis Bacon Act by not paying prevailing wages and submitting certified payroll, your company may face:

  • Termination from the project: Landing a government contract is a major win for any construction business. However, if you file incorrect or false payroll records, you may be terminated from the project.
  • Being barred from government contracts: In addition to being terminated from your current government project, you may be barred from future contracts of the kind. This could be a huge blow to the viability of your construction company.
  • Having payments withheld: If you are falsifying payroll records, the awarding entity may have the ability to withhold payment, meaning you’ll be on the hook for paying your employees what you owe, out of pocket.
  • Fines: Monetary fines can take a toll on your business, especially if you have limited liquid assets or poor cash flow management. Not only can owing fines affect you in the month they’re applied, but depending on the amount of the fine, it can throw your operations off for months to come.
  • Civil or criminal prosecution: By signing off on certified payroll records, signifying your compliance, you can be held liable for falsifying records, which could include imprisonment.

 

 

Mistakes to Avoid When Completing Certified Payroll

We understand that protecting your business’s viability is your top priority (and not to mention every dollar counts for a small construction business), so here are a few reminders to help you avoid making mistakes on certified payroll and remain in compliance: 

  • Note that larger contracts may have additional requirements. For work done on projects worth over $100,000, employees must be paid at least one-and-a-half times the regular pay rate when they work over 40 hours in a week. This requirement is in accordance with the Contract Work Hours and Safety Standards Act.
  • Employees who fall under certified payroll must be paid weekly. While your company overall might follow a bi-weekly or monthly pay schedule, any employees who are included in certified payroll must be paid on a weekly basis.
  • If you submit certified payroll records to your union or another entity, you still have to provide them directly to the DIR. It’s not uncommon for companies to mistakenly report their certified payroll to their union or Labor Compliance Program and think they’re good to go. However, regardless of which other entities you provide these records to, it is imperative to submit them to the DIR to remain in compliance.
  • Always review your certified payroll form before submitting it. When you sign off on a certified payroll report, you are saying that all the information provided is accurate. So, if mistakes are found, you will be held responsible.
  • As a business owner, you are still required to report certified payroll for yourself if you worked on the project, even if you don’t typically pay yourself wages. For many construction business owners—especially in the early stages of the business—labor is just considered part of the effort that goes into getting a business off the ground, meaning many business owners don’t pay themselves out. However, for these types of projects, you are required to report certified payroll for yourself. 
  • Be careful you do not go into autopilot when you complete payroll each month. Employees on the job may change from month-to-month, prevailing wage rates may change from year-to-year, and more. Each week when you complete payroll, be sure to take account of any changes that may have happened to ensure that your certified payroll is completed correctly.

Keep in mind that if you make mistakes on your certified payroll, you cannot make changes. However, you can submit a new record with the correct information, which will take precedence. Note that you only need to submit updated records for the affected employees; the report for the other employees will stand.

Need more help? You may benefit from our payroll services for small businesses.

Approach Certified Payroll with Confidence

Adding any new process to your workflow can be stress-inducing, but growing your business with government-contracted projects is an exciting opportunity. Don’t let the learning curve deter you from taking on these lucrative projects for your firm. Instead, master the process, or get help with your construction payroll and accounting. 

FinancePal has helped many contractors just like you streamline workflows, improve their finances, and take their business to the next level. Our financial services are completely customized to your business, so you only pay for what you need. Simplify your payroll and construction finances, get started today!

About the Author

Jacob Dayan, Esq.

Jacob Dayan is a true Chicagoan, born and raised in the Windy City. After starting his career as a financial analyst in New York City, Jacob returned to Chicago and co-founded FinancePal in 2015. He graduated Magna Cum Laude from Mitchell Hamline School of Law, and is a licensed attorney in Illinois.

Jacob has crafted articles covering a variety of tax and finance topics, including resolution strategy, financial planning, and more. He has been featured in an array of publications, including Accounting Web, Yahoo, and Business2Community.

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About the Author

Nick Charveron, EA

Nick Charveron is a licensed tax practitioner, Co-Founder & Partner of Community Tax, LLC. His Enrolled Agent designation is the highest tax credential offered by the U.S Department of Treasury, providing unrestricted practice rights before the IRS.

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About the Author

Jason Gabbard, Founder and CEO of JUSTLAW

Jason Gabbard is a lawyer and the founder of JUSTLAW.

About the Author

Andrew Jordan, Chief Operations Officer at FinancePal

Andrew is an experienced CPA and has extensive executive leadership experience.

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