Obtaining government contracts can be a lucrative business. However, working on public works projects means that there are additional regulations and requirements that must be met. One that contractors can find particularly challenging is the certified payroll reporting requirement. This article will breakdown some of the most common certified payroll report mistakes, and how to avoid them.
When are certified payroll reports required?
Certified payroll reports are required to be used on almost every federal and state public construction project that are subject to prevailing wage laws. These requirements are imposed by the federal Davis-Bacon Act, and the respective state “mini Davis-Bacon Acts.” In order for a project to be deemed a prevailing wage job, it must be a public works project and exceed certain contract thresholds.
For federal jobs, the construction project must be more than $2,000 for the prevailing wage rules to apply. As for state level jobs, the contract the minimum threshold can range anywhere from $1,000 in California, to $100,000 in Wyoming. If working on one of these jobs, contractors are required to pay the minimum prevailing wage of that area and type of work. How is this regulated? Through the submission of certified payroll reports.
What makes it a certified payroll report?
A certified payroll report is a collection of all the worker information, hours worked, classification, wages, benefits, and any other deductions on the required form. In addition to this, a statement of compliance will “certify” that the records are complete and accurate. This seems pretty straightforward, but certified payrolls are much more complicated than they appear. Here are some of the more common mistakes that contractors should avoid when dealing with certified payroll reports.
Common certified payroll report mistakes
Can be a time-consuming and frustrating process, particularly if you are a general contractor. GCs are the ones ultimately submitting the payroll reports to the contracting agency. If there’s a mistake with a subcontractor’s report, then there’s a mistake in theirs! Certified payroll reports should be closely monitored to ensure they are as accurate as possible.
Completing CPRs without any training
Preparing an accurate report, and taking all the fringe benefits, classifications, deductions, and overtime into account can be challenging. There’s a common misconception that you need to be a Certified Payroll Professional to prepare CPRs; which involves an application process and exam. Although this isn’t necessarily true, it’s still a great idea to have some training. The larger the projects become, the more difficult the task of accurately reporting payrolls becomes. This is where spending a few extra bucks on either training or payroll software can really come in handy.
Certified payroll reports require that the worker be properly classified to receive the “prevailing wage rate” of that type of work. An incorrect classification can open you up to paying wage restitution. These are usually split up into overarching credentials (such as journeyman or apprentice), and then broken down more specifically by trade.
Another thing to keep an eye out for are where one worker may provide labor under two or more work classifications. Misclassifying a worker results in not only being paid less than the minimum wage for their work, but could also negatively impact their benefits and protections. Review all of the classification in your district to be sure you are compliant.
Inaccurate time records
This is a common problem, that can easily lead to fines and penalties. There are a lot of things to keep track of to ensure that proper wages are paid. First and foremost, be sure that all of your workers clock in and clock out everyday. Tracking work by shift hours is never a good idea, there could be travel delays, lunch breaks, and other inaccuracies involved. Also, overtime needs to be taken into account as well. Anytime a worker clocks in more than 40 hours, they are entitled to time and a half. Be sure to cross reference the time sheets with payments to make sure they match up.
Wrong regulations and/or forms
Whether working in your home state, or taking contracts across state lines, it’s important to do your research. Each state has its own unique forms, regulations, and submission requirements. Don’t presume that the federal form WH-347 can be used on any project other than a federal one. Not only that, but there will be different wage determinations and tax laws that apply.
Best practice? Contact a local attorney or accountant to ensure you are in compliance with that state’s requirements. Also, once you’ve received a final contract package from the government entity, the package usually contains a sample form and the submission requirements. If not, request one. Submitting the wrong form can be an easily avoidable mistake.
Late processing and submission
As you can probably tell, preparing certified payroll reports is a long, detail-oriented process. Another mistake that you definitely don’t want to make is submitting them to the higher-tiered contracts or contracting agency on time. Each state has different reporting requirements, but the standard timeframe is once a month, as progress payments are typically made monthly. However, read your contract carefully, the terms may require submissions more frequently. Certified payroll records that are submitted late, can slow payment down on the entire project, and could result in interest penalties or the outright termination of the contract.
Failing to keep records
On both federal and state prevailing wage jobs, contractors are required to keep payroll records for a certain period of time. This is in case the project or the contractor gets audited down the line. On federal jobs, certified payrolls must be retained for at least 3 years after the project completion date. As for state projects, the time period usually hovers around the 2-4 year range. If faced with an audit and can’t produce these reports, you could be facing some fines and potential penalties.
Penalties for non-compliance
Mistakes can happen, and there are corrective measures that contractors can take to remedy the situation. But egregious mistakes can result in being barred from bidding on future government construction projects, having payments withheld, or paying interest penalties for wage restitution payments. On top of that, if the contractor knowingly falsified their certified payroll reports, can be subject to fines and potential imprisonment. For example, on federal jobs, any falsification of payroll reports can result in imprisonment for up to five years!
Properly executing certified payroll reports is an arduous task, and no one wants to deal with an audit. If you are faced with one, cooperation with the auditor is the best way to minimize the fines and penalties that may be involved. As long as you keep these in mind, you can ensure that you don’t make one of these common certified payroll report mistakes on your next public works project.