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A small business guide to certified payroll

buisness guide

Certified payroll is a weekly payroll report. If your business works on federally funded projects as a contractor or a subcontractor, you are required to submit weekly reports to the U.S. Department of Labor.

The Davis-Bacon Act determines the information you must report.

Understanding the Davis-Bacon Act

The Davis-Bacon and Related Acts apply to the construction, alteration, or repair (including painting and decorating) of public buildings or public works projects. The term “public works” refers to structures built for public use, including schools and highways.

If your business works on a federal contract in excess of $2,000, you must comply with the certified payroll requirements. The rules address rate of pay and fringe benefits.

Prevailing wage laws

Business owners who work on federal construction projects must pay workers (laborers, mechanics and plumbers) a specific pay rate.

The gross wages paid must be no less than “the locally prevailing wage rates for corresponding work on similar projects in the area.” The same rule applies to fringe benefits.

You must also comply with state prevailing wage rates. If the state rate is higher than the federally required rate, you must pay the higher state level of pay. Your state can verify whether you must comply with a state wage requirement.

Your small business can use the Department of Labor (DOL) wage determination website to determine wage rate and fringe benefit requirements.

Wage determination

This DOL site lists the wage rates and fringe benefit rates for each labor category. The federal agency has determined the workers that must be paid the prevailing wage for a given area. Use the filters on the site to find the wage rates for your particular project.

Once you have the wage rates, you can submit payroll information using Form WH-347.

Completing Form WH-347

Businesses use the form to submit certified payroll reports for construction contracts.

The instructions explain the reporting requirements, including work classification, work week and hourly rate details. Fringe benefits can be contributed into a formal benefit plan, or by making cash payments to workers in lieu of fringe benefits.

The form requires some basic payroll data, including each worker’s name, social security number and tax withholding information.

Here are some additional details related to the payroll form:

Work classifications

The federal contract will dictate the work classification and the minimum wage schedule for each type of work. If an employee works on more than one classification for a weekly payroll, you must provide a breakdown of the gross wages paid in each job classification.

Hours worked

The certified payroll report requires the regular rate of pay up to 40 hours worked per week. Federal contracts require overtime pay, if an employee works more than 40 hours in a week. The wage determination site provides overtime rates of pay.

Statement of compliance

Business owners must also provide a signed statement of compliance, indicating that the payrolls are correct, and that each worker has been paid the prevailing wage rate. Falsification of payroll reporting data may result in criminal prosecution.

Completing the certified payroll report each week is time consuming. If you work on federal projects and do business in the private sector, payroll processing is even more complicated.

You need a process to minimize the time you spend on payroll.

Efficient payroll reporting

Processing payroll requires these steps:

  • Gather information: When you hire a new employee, you need the worker’s name, social security number, and their annual salary or hourly rate. Each employee fills out a W-4 to determine withholding amounts for taxes.
  • Net pay: Each pay period, you subtract tax withholdings (and possibly benefit withholdings) from gross pay to compute net pay.
  • Payments: You pay employees via direct deposit, or by issuing a physical check.
  • Withholding amounts: You must send federal and state withholding dollars to the
  • proper entity, and submit tax reports that document the withholdings for each employee.

Payroll data changes frequently.

Over time, you’ll add and remove employees, which impacts your payroll. If an employee gets a raise, the payroll records must be changed. When you work with the federal government, you must pay prevailing wages and use the correct work classifications.

To work efficiently and minimize errors, you need a procedures manual.

A procedures manual documents every routine task that you must complete. Using a manual reduces confusion about how work is performed, and it’s a great training tool.

Talk with your staff and confirm the process for managing payroll. Document the process and give everyone access to the current procedures manual. Once you have a procedure

documented, your staff will work more efficiently and ask fewer questions.

You also need to move away from spreadsheets and embrace technology.

Using spreadsheets is an outdated process, particularly when it comes to payroll. Spreadsheets require manual input, and that can result in errors. Tabs in a spreadsheet may not be linked correctly, and you may lose the current version of your file.

So, where do you go from here?

Prepare for growth

If you do business with the federal government, read each contract carefully so that you can comply with the certified payroll requirements. Talk with your staff and create a procedures manual, and update the manual, as needed.

Now, you’re ready for company growth. Use your new payroll process to move forward with confidence.

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