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Updated: June 11, 2024

Certified payroll reporting requirements and the purpose of prevailing wages

Published By:

David Kindness, CPA

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If your business works on construction projects for the US government, then you might have to think about something called certified payroll.

Fast facts about certified payroll

  • Certified payroll is a special reporting process required for contractors working on federally-funded construction projects
  • Companies must submit Payroll Form WH-347 to the US Department of Labor as part of the requirements
  • Form WH-347 should list information like employees’ names, wages paid, and total hours worked on the project
  • For federal projects, workers must receive prevailing wages, which are pay rates matching similar local construction jobs

In this article, we will go over what certified payroll is, the various types of businesses that need to know about it, and what employers should know about the process to stay compliant.

What is certified payroll?

First things first, certified payroll is a specific type of payroll record, and its purpose is to make sure that workers on government-funded construction projects receive the prevailing wages and fringe benefits owed to them by law. To receive these benefits, employers must prove that they are compliant with prevailing wage laws and labor standards for publicly funded projects.

 

This is where certified payroll comes in. It adds an extra layer of transparency to the payroll process, safeguarding employees who work on publicly funded projects to make sure they are compensated (and treated) appropriately.

Certified payroll reporting refers to federal construction projects

Certified payroll reporting refers specifically to payroll reports that employers are required to submit when working on construction projects funded by the federal government or, in some cases, certain states. These reports verify that workers received the prevailing wage rates, determined by the government, for their specific job classifications on the construction site.

 

This type of reporting is due, in large part, to the complex nature of construction projects, which often involve multiple contractors and can have many moving parts. The purpose of this payroll type is to:

  • Verify that proper wages and benefits are paid to workers
  • Maintain legal compliance
  • Increase transparency in the payment process

 

It also provides documentation that all contractors are following the appropriate labor regulations for federally or state-funded construction initiatives.

 

Now that we have that primer on the purpose of certified payroll, let’s discuss how prevailing wages are part of the equation.

 

What are prevailing wages in certified payroll?

Prevailing wages are also known as Davis-Bacon wages (we’ll go into more detail on the background behind the Davis-Bacon Act a little further in the article), and they are the hourly wages, benefits, and overtime pay rates established by the United States Department of Labor (DOL) for workers who engage in federally-funded construction projects. As mentioned above, the purpose of these wages is to ensure fair and honest work arrangements, limit negative pay wars between contractors, and ensure workers are paid fairly for their work.

 

Next, let’s learn more about the types of companies that will likely need to be familiar with the process.

Who is required to complete certified payroll reports?

Several business types are required to complete and submit certified payroll reports to government agencies. These can include:

  • General contractors: These stakeholders are responsible for ensuring that certified payroll reporting is completed on government-funded construction projects.
  • Subcontractors: As part of this process, subcontractors submit their own payroll data to the general contractor so it can be included in the certified payroll report.
  • Government agencies: Oftentimes, these are the parties that will require contractors working on their projects to use certified payroll reporting systems.
  • Construction companies: Construction companies are often made up of a mix of general contractors, subcontractors, and support employees (and may need to run certified payroll reports if they work with government entities).
  • Engineering firms: Should engineering firms have employees working at a construction site, they may also be responsible for submitting certified payroll reports.
  • Architectural firms: Similarly, if architectural firms have employees working at a construction site, they may also be responsible for submitting certified payroll reports.

 

Now that we have an overview of the different types of companies that typically have to have certified payroll on their to-do list, let’s find out more about where this process originated.

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What details are included in certified payroll reports?

Certified payroll is processed similarly to regular payroll, just with a few extra steps and calculations. Below are the steps employers should keep in mind.

 

Step 1 – Collect payroll data

This step may sound familiar for those running payroll: employers collect detailed payroll information for all covered workers on the project. This information can include employee personal information, records of hours worked, wage rates for each type of employee, records of fringe benefits paid, taxes withheld, and any deductions withheld from paychecks.

 

Step 2 – Verify wage rates

During this part of the process, the employer should double-check that the wage rates their workers receive match the prevailing wage rates for the project type and location where they are doing business. They should also confirm that all workers are classified correctly.

 

Employers can use government resources or approved prevailing wage surveys to verify this information. These surveys can be performed by independent government-approved firms.

 

Compare the payroll data you collected in Step 1 with verified prevailing wage rates, and if there are any discrepancies, be sure to correct them before moving on to Step 3.

 

Step 3 – Prepare certified payroll reports

As we move into step three, there’s some specific documentation that needs to be accounted for. Certified payroll reports must be prepared and submitted weekly, and the US Department of Labor’s Wage and Hour Division provides employers with Form WH-347 to fill out and submit. Remember the concept of prevailing wages we touched on earlier in the article? The main purpose of Form WH-347 is to confirm that companies are following the rules and paying their employees the prevailing wage.

 

To fill out Form WH-347 completely, include the following information:

    • Contractor information (employer info): name, address, payroll number, week ending date, project and location descriptor, and project or contract number.

 

  • Employee information:
    • (1) Employee’s name
    • (2) Social Security Number (SSN) or other ID number
    • (3) Number of withholdings
    • (4) Day, date, and number of hours worked each day
    • (5) Total hours (add up from section 4)
    • (6) Hourly pay rate
    • (7) Gross weekly earnings
    • (8) Deductions: FICA tax, income tax withholdings, other deductions, and total deductions
    • (9) Net wages paid for the week (gross pay minus deductions)

 

  • Sign and attest: Once you have completed these items, you must sign and attest (which is a fancy way of saying you agree) to properly paying employees and submitting all relevant information on page two of the form.

 

The Department of Labor also has a set of instructions you can follow as well.

 

Step 4 – Submit certified payroll reports

Now all that’s left to do is submit the WH-347 report — either electronically or by mail — to the government agency overseeing the construction project.

More resources for employers

Certified payroll should be on your radar for federal construction projects

If you work on federally funded construction projects, you should familiarize yourself with how certified payroll works. Though the process is similar to how most businesses pay their employees, understanding the specific steps, such as reporting prevailing wages and completing documentation such as Form WH-347, can help your company avoid unwanted attention from Uncle Sam and remain compliant. Best of luck as your business grows, plus keeping up with the different rules and regulations.

 

This article has been updated with the most up-to-date information available and is for informational purposes only. It should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.

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David Kindness is a CPA, experienced financial writer and editor, and a tax and accounting expert with 7+ years of experience. David lives and works in San Diego, California.

Frequently asked questions employers have about certified payroll

  • Which law requires a company to use certified payroll?

    The Davis-Bacon and Related Acts require the use of certified payroll reporting on essentially every federally-funded construction project that exceeds a threshold of $2,000 in billings.

  • What is the difference between Davis-Bacon and certified payroll?

    Davis-Bacon is a specific federal law requiring that workers on federally-funded construction projects must be paid prevailing wages and benefits, while certified payroll is the process of reporting payroll information for covered employees on those projects. The goal of certified payroll is to ensure compliance with the Davis-Bacon Act.

  • What is a prevailing wage?

    Simply put, a prevailing wage is the minimum hourly wage, benefits, and overtime that employers must pay workers on federally-funded construction and building projects.

     

  • Is the prevailing wage a federal law?

    Yes, the prevailing wage is a federal law. However, it can also be implemented at the state, county, and local levels.