When it comes to paying your employees, there should be a total lack of discrepancies. If you track your employees incorrectly or classify them in a different labor group, you might end up facing a lot of trouble from both your employees and the government. This is the idea behind the certified payroll.
Today certified payroll reporting is a mandatory task that needs to be carried out by every employer involved in a federally-funded project. If an employer is not compliant with these rules, they run the risk of facing prosecution. To understand what is certified payroll, you must first understand why its implementation was so necessary.
Before the 1930s, employers were free to determine their wage rates for their employees. This led to hundreds of people being exploited without reservation as they were paid wages that were far too low to sustain a living while their employers made a healthy profit. This changed with the introduction of the Davis-Bacon Act in 1931 for certified payrolls.
Essentially, an average wage was calculated for each employee working in government-funded projects. This average wage varied from state to state. The prevailing wage rate was determined by looking at the average salaries for a particular field in a specific geographical area.
What Is Certified Payroll
Now, every employer must submit a certified payroll report that shows that they have paid their employees either equal to or more than the prevailing wage. The prevailing wage and fringe benefits vary for different states. These payroll reports need to be submitted weekly. They must contain information about the employer and the employee.
Most of the information is purely identity-based, but the crucial points are the ones where you provide the wage details for each employee. This must include the number of hours they have worked, the amount of overtime they are entitled to, a list of deductions or tax exemptions, and the net wages owed to the employee. Any discrepancy in these details will lead to you having to fill out the form again.
Even when done through software, payroll reporting is a highly error-prone process though the room for error through software is significantly lower than manual filling. This is why it is crucial that the information filled out in these forms is closely verified before submission.
The government agency will reject a report with errors in it, and you will have to fill out the entire thing from scratch. Double-checks are even more critical when you realize that many projects are headed by multiple government agencies, resulting in numerous reports. The following are the most common mistakes seen in certified payroll reports:
- Error in the number of hours worked
- Incorrect employee classification
- Wrong prevailing wage rates (This is due to not checking your states prevailing wage rate before filling)
- State regulation errors (includes tax exemptions, fringe benefits, and prevailing wage rates)
A Certified Payroll Professional or a CCP is an individual who has been certified by the American Payroll Association or APA. These individuals are people who are meant to handle payroll functions and be well-versed in payroll management. You must give an exam to be certified as a CPP. The important thing here is that you don’t need a CPP to fill out payrolls. If a non-CPP fills out a certified payroll report, then the report is still valid.
The critical thing to keep in mind is that the individual who fills out the payroll report must be a person who either manages payrolls for a living or holds some form of authority in the company. This requirement is necessary as it gives the payroll report a semblance of authenticity in the government agency’s eyes that will eventually review it.
Now that you know what is certified payroll, you can see that a certified payroll report not only benefits employees by paying them fair wages but has also helped employers by giving them a happier workforce. In the absence of certified payroll, employers were free to pay workers whatever amount was convenient. This, in turn, led to workers cutting corners and finding new ways to include more hours with less work done.
Today an employee’s rights are legally protected by the Davis-Bacon Act. This has also led to a lack of unionizing on the employee’s part as they know they are getting fair wages. While you might feel that you can fill out these reports by yourself, it becomes a cumbersome task when you realize that each employee’s details and deductions need to be filled in and submitted each week.
Many software systems in the market can help you with this task. They can also automate your payrolls via state for the art payroll software system for each week and ensure you submit error-free reports on time.