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Certified Payroll for Construction

Welcome back to our Construction Accounting series. We have some good news today! Our construction company won the bid for the Portland library project! So far, we’ve discovered that there is a lot to learn when working with the federal government, and we’re not done learning yet.. So today, we are going to be learning about prevailing wage and certified payroll requirements.

Through our research, we have found that our company is going to be subject to something called the Davis Bacon act. While the name may sound like some exciting brunch special, the reality is much less exciting. The Prevailing Wage Act is a federal law that was enacted in 1931, sponsored by two gentlemen by the names of Davis and Bacon.  This act establishes the requirement that construction companies have to pay the local prevailing wage on public works projects. 

Let’s look at an example of what this act means for construction companies. In our example, our construction company is based in Portland, so we pay our employees $15.00 an hour. But, we signed a contract to do some federal work in Los Angeles, where the local wage is $27.00 an hour. In this case, because of the Davis Bacon act, we cannot pay our employees the Portland rate of $15.00 an hour. Instead, because we’re working in LA, we have to pay employees the local prevailing wage of $27.00 an hour.  This act applies anytime a contractor enters into a contract with the federal government with a contract in excess of $2,000. So basically, any contract. 

Now, the rules for state governments are a little bit different. They follow what are called Little Davis Bacon laws, where the states themselves determine what that threshold is. 

This seems pretty manageable, until you take a look at the massive book that lists all the prevailing wage rates in different areas. This book is incredibly complicated, and just this one page listing rates for an operating engineer in specific counties in California can be overwhelming to look at. To make things even more confusing, these rates are only good through June, and then they are going to change.

Now, we have to figure out what the prevailing wage is. To do that, we have to decide which group our operator is in, out of 25 groups, and we have to look at things like insurance, pension, holiday and vacation time, and training in addition to hourly rate.  Managing all of these groups, wages, and rates gets incredibly complicated very, very quickly. On top of that, each week of our library project, we have to show that we are actually paying prevailing wages by producing a certified payroll report.  This form is sometimes referred to by its technical name, WH 347. 

In this example of a certified payroll report, we can see information about who the employee is, and the hours that they worked for this particular week. And here, you can see the validation that yes, we did, in fact, pay our employees at the established prevailing rates and pay them for all the fringe benefits. There is their gross pay, all the deductions, and the benefits that they will be paid per prevailing wage requirements. 

You may be realizing that all the information supporting this report is really difficult to manage. In fact, payroll reports state how complex this process is. If we look at the fine print on this report, we can see an interesting section of text.  Here, we estimate that it will take an average of 55 minutes to complete this collection. That means that, for contractors who work regularly with the government, there will be about 55 minutes per week of work to do on payroll, on just one job. As you’ll find in the industry, it’s not uncommon for contractors to have anywhere from two to twelve jobs they’re working on at one time, which means 55 minutes of work per job per week! That’s a lot of time! 

As an example, if our company had 5 projects we were working on at once, and we rounded up to 1 hour of work per job, that would mean that it takes 5 hours per week to do all this work manually.

 And that’s not all, because this isn’t taking into consideration some of the other paperwork requirements! Oftentimes, the government will require contractors to do Equal Employment Opportunity reporting, to make sure that they are working hard for a diverse workforce. Here's an example of an EEO report that was run using Spectrum. We can see its reporting not only based on employee classification, but also the ethnicity and the gender of the workforce. 

If we want to do more projects like this library project, an ERP solution will be an extremely useful tool to help manage all this complex data collection, management, and reporting. Investing in an ERP will allow us to use our time more effectively, take on more projects, and earn more money!

Certified Payroll, along with other accounting workflows, can be difficult to manage in a way that maximizes your organization's efficiencies.

Trimble Construction One is a connected suite which connects your office to the field to streamline these workflows with the industries’ leading solutions to give you the right data for your projects. Check out what Trimble Construction One can do for you.