Contractors on federally funded construction projects pay laborers and mechanics at least the wage rates the Department of Labor sets for the locality. The proof is the weekly certified payroll. Errors here create back-wage liability, withheld contract payments, and in the financial statements an accrual the client may not have booked. For a contractor client with public work, this belongs in the planning conversation.
The clauses a federal construction contract must include appear in 29 CFR 5.5, which applies to contracts in excess of $2,000 for construction, alteration or repair of a public building or public work, or work financed in whole or in part with federal funds. This guide covers the payroll record and submission requirements in paragraph (a)(3). The clauses are effective by operation of law under paragraph (e) even when they are missing from the contract.
The records
Under 29 CFR 5.5(a)(3)(i), the contractor and each subcontractor must keep regular payrolls and other basic records during the course of the work and preserve them for all laborers and mechanics working at the site of the work for at least three years after all the work on the prime contract is completed. The same three years apply to certified payrolls (paragraph (a)(3)(ii)(G)) and to the contract, subcontracts and related documents such as bids, proposals, amendments, modifications and extensions (paragraph (a)(3)(iii)). The records must contain:
- name, Social Security number, last known address, telephone number and email address of each worker;
- each worker's correct classification or classifications of work actually performed;
- hourly rates of wages paid, including rates of contributions or costs anticipated for bona fide fringe benefits or cash equivalents;
- daily and weekly hours actually worked in total and on each covered contract;
- deductions made; and
- actual wages paid.
Where the contract involves fringe benefits found by the Secretary of Labor to be part of the wage, the contractor must also keep records showing the commitment to provide the benefits is enforceable, the plan is financially responsible, and it has been communicated in writing to the workers, along with the cost. For apprentices, written evidence of the registration of the program, the apprentice, and the ratios and wage rates in the program must be kept.
The submission
The contractor or subcontractor submits certified payrolls weekly, for each week in which covered work is performed, to the contracting agency or, if the agency is not a party, to the applicant, sponsor or owner for transmission to the agency. The prime contractor is responsible for the submission of all certified payrolls by all subcontractors. Electronic submission is permitted if the system requires a legally valid electronic signature.
The certified payrolls must set out all of the required information, except that full Social Security numbers and last known addresses, telephone numbers and email addresses must not appear on weekly transmittals. An individually identifying number, such as the last four digits of the Social Security number, is enough. The information may go on Optional Form WH-347 or in any other format. A properly executed certification on the back of WH-347 satisfies the Statement of Compliance requirement.
Each certified payroll must come with a Statement of Compliance, signed by the contractor, subcontractor or the agent who pays or supervises payment of the workers. It certifies that the payroll contains the required information and is correct and complete, that each laborer, mechanic, helper and apprentice was paid the full weekly wages earned without rebate, and that each worker was paid not less than the applicable wage rates and fringe benefits for the classification of work actually performed. Falsifying a certification can lead to civil or criminal prosecution under 18 U.S.C. 1001 and 31 U.S.C. 3729. The signature must be an original handwritten or a legally valid electronic signature.
What goes wrong
- Misclassification. A worker who spends part of the week as a laborer and part as an electrician must be paid and recorded at the rate for each classification for the hours worked in it.
- Fringe benefits. Contributions count as wages paid when they are for bona fide fringe benefits. For an unfunded plan, the costs count only if the Secretary of Labor has found that the Davis-Bacon standards are met. Without the credit, the contractor owes the difference in cash.
- Apprentices. A worker paid at an apprentice rate who is not individually registered in a registered program must be paid the full wage-determination rate for the work performed, and so must apprentices above the permitted ratio.
- Subcontractor gaps. The prime contractor is responsible for the submission, so a late or unsigned payroll from a subcontractor becomes the prime's problem.
- Withholding. The agency may, and on written request of the Department of Labor must, withhold accrued payments from the prime contractor to satisfy wage and monetary relief liabilities, including interest. The funds can come from other federal or federally assisted Davis-Bacon contracts held by the same prime contractor.
- Records not produced. If records are not submitted or made available, the agency may suspend further payment, advance or guarantee of funds after written notice, and the failure can be grounds for debarment.
Worked example of an underpayment accrual
A drywall subcontractor has 6 workers on a federal project who each worked 400 hours at a paid rate of $34.00 per hour. The applicable determination requires a combined wage and fringe rate of $41.50 per hour and the company's fringe plan does not qualify for credit.
- Shortfall per hour: $41.50 minus $34.00, or $7.50.
- Hours: 6 workers times 400 hours, or 2,400 hours.
- Back wages: 2,400 times $7.50, or $18,000.
The prime contractor may see this $18,000 withheld from its payments, and under paragraph (a)(1)(vi) the contractor must also pay interest on any underpayment of wages. If the prime is exposed, it should record a liability when the shortfall is probable and estimable.
Worked example of mixed classifications
A worker spends 10 hours of a 40 hour week in the laborer classification at a combined rate of $30.00 per hour and 30 hours in the electrician classification at a combined rate of $45.00 per hour. Paragraph (a)(1)(i) allows pay at the rate for each classification for the time actually worked in it, provided the payroll records accurately set forth the time in each classification.
- Laborer hours: 10 times $30.00, or $300.
- Electrician hours: 30 times $45.00, or $1,350.
- Required weekly total: $1,650.
The certified payroll must show the 10 and 30 hour split. A single line of 40 hours at one classification fails the accuracy condition.
Common errors
- Submitting payrolls that carry full Social Security numbers and home addresses on weekly transmittals.
- Treating WH-347 as mandatory. It is optional, but the Statement of Compliance is not.
- Letting subcontractor payrolls arrive late. The prime contractor is responsible for submission of all subcontractor payrolls.
- Paying wages less often than weekly. Paragraph (a)(1)(i) requires payment not less often than once a week.
- Not posting the wage determination and the Davis-Bacon poster (WH-1321) at the site.
- Discarding records at contract end. The three years start only when all work on the prime contract is complete.
Engagement steps
- Obtain the list of federal and federally assisted contracts and the wage determination for each.
- Select weeks across the year and trace certified payroll to the payroll register, time records and classifications.
- Agree fringe contributions to benefit plan remittances.
- Test that classifications on the payroll agree to the wage determination, and that any added classification went through the conformance process.
- Request any agency correspondence, audit letters and withhold notices.
- Link the exposure to the contractor's contingency analysis, and see construction contractor audits under ASC 606 for the revenue side.
- The same payroll records feed the labor requirement for section 179D.
Sources
- Legal Information Institute, 29 CFR 5.5, Contract provisions and related matters: https://www.law.cornell.edu/cfr/text/29/5.5
- eCFR, 29 CFR 5.5, Contract provisions and related matters: https://www.ecfr.gov/current/title-29/section-5.5
- U.S. Department of Labor, Wage and Hour Division, Davis-Bacon and Related Acts: https://www.dol.gov/agencies/whd/government-contracts/construction
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