Certified Payroll Requirements: What to Know for U.S. Federal Jobs

When discussing U.S. federal projects — and, specifically, prevailing wages — it's important to also discuss a related topic: certified payroll. Consider this an introduction to the subject. Let's look at the basics: what certified payroll is, when certified payroll reports are required, and some common mistakes to avoid.

What is a certified payroll?

Why would a payroll need to be certified? The simple answer is, federal construction projects have more rules and regulations than other commercial projects.

Certified payroll reports are required to be used on almost every federal and state public construction project that is 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 minimum threshold can range anywhere from $1,000 in states like 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.

For a payroll report to be certified, it must include particular information — which we'll look at below — as well as a Statement of Compliance. The goal is to keep track of everything affecting payment on the job site. The certified payroll report is submitted weekly to whatever government agency is tracking the public project. 

The WH-347 form will fulfill all certified payroll requirements. It's the most commonly used form, but it is optional — you can use some other form. The Department of Labor makes it easy to fill out with these Instructions For Completing WH-347.

What makes a payroll report 'certified'

All contractors and subcontractors on most federal public works projects must submit certified payroll records to the federal agency that is contracting for or financing the project. As you could imagine, the toughest part is gathering the data.

The payroll officially becomes certified when the signed Statement of Compliance is attached. This document is exactly as it sounds - it's simply a statement that the person submitting this certified payroll has complied with all necessary rules. It states that all of the forms are correct and that no employee is paid less than the prevailing wage for the work they performed on the project.

What to include in a certified payroll report

A certified payroll must include:

• The name of every employee
• The type of work they performed on the project
• All employees wages
• Their benefits
• Hours worked
• Gross wages
• Amounts withheld

Common certified payroll report mistakes

General contractors 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 the GC's too — so certified payroll reports should be closely monitored by everyone up the chain to ensure they are as accurate as possible. Some of the more common mistakes on certified payroll reports include:

• Completing CPRs without any training: 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.
• Misclassifying workers: An incorrect classification can open you up to paying wage restitution. Keep an eye out for workers who 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.
• Keeping inaccurate time records: Be sure that all of your workers clock in and clock out every day. Tracking work by shift hours is never a good idea, as there could be travel delays, lunch breaks, overtime, and other inaccuracies involved. 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. 
• Providing the 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. Best practice? Contact a local attorney or accountant to ensure you are in compliance with that state’s requirements.
• Being late on processing and submission: Each state has different reporting requirements, but the standard timeframe for reporting 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 three years after the project completion date. As for state projects, the time period usually hovers around the two to four 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 a contractor knowingly falsifies their certified payroll reports, they 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.

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