Labor compliance can be a sticky business. Just ask the thousands of contractors who have had to repay millions of dollars in back wages since Davis-Bacon (DBA) and its Related Acts (DBRA) went into effect decades ago. Better yet, talk to the prime contractors that had to pay for their subcontractors’ mistakes.
Primes Acting as Mini Compliance Enforcement Agencies
Let’s start with the obvious: city/county agencies and other state/local authorities have obligations to regulate certified payroll reports (CPRs) when any federal, state, local, or other agreement-specific funds are applied to projects. It’s their job, right? They are the ones that need to make sure every contractor is compliant.
While this is true, prime/general contractors might be surprised to find that they, too, can benefit from operating much the same way: as mini compliance enforcement agencies. Why is that? Because it’s not just their employees’ payroll that a prime needs to worry about; they need to ensure every worker on the project is appropriately compensated. The hard truth for many prime contractors is that they can be held liable for the underpayments that a subcontractor commits on one of their projects. Yes, the onus is clearly on the sub to pay their own employees, but if they fail for whatever reason to follow through, the prime bears the responsibility of restitution and other potential repercussions. This is one of the many reasons that prime contractors must take it upon themselves to monitor compliance in a similar way that a public institution or project owner would.
Anybody can create and submit a certified payroll report. You do not need to be “certified” with a license to submit one. But herein lies a vulnerability that cannot be emphasized enough: certified payroll reports created manually are prone to human error. And mistakes happen a lot more often than you might think, especially in an industry where regulations might seem pretty convoluted to the average person.
As a prime contractor, it’s hard enough to manage compliance for your own employees, but to ensure that every subcontractor is doing the same? What about the smaller subs that the larger subs contracted work out to? Suddenly, you have layers upon layers of contractors, with tens (if not hundreds or thousands) of workers, and you, as the general contractor, are responsible that all of them are getting paid appropriately.
Pitfalls of Monitoring Certified Payroll Reports
If you are experienced with public works projects, you’ve most certainly already come to the realization that you can’t just rely on your payroll provider to generate your CPRs and apply a universal form that satisfies all federal, state, or local requirements. It doesn’t work that way. For one, many states and local agencies have their own separate requirements. And besides, it isn’t a payroll provider’s goal to ensure you are compliant; they just facilitate payments. And even if they did, it still wouldn’t solve the main issue that we keep circling back to: monitoring every other contractor on the project. Unfortunately, this continues to be one of the biggest administrative struggles prime contractors face today.
But there are ways primes can overcome this hurdle…
Understanding Compliance Laws
If you are brand new to public works projects, start at square one: familiarize yourself with Davis-Bacon and prevailing wage laws to better understand what’s at stake (check out the US Department of Labor website). There are very real consequences for violations, such as payment of back wages, additional fines and penalties, prosecution, and other potential repercussions (up to and including disbarment). These are typically handed out at the discretion of prevailing wage investigators/auditors, depending on the severity and whether they deem criminal intent is at play. Which brings us to a very important point: if you are being audited, work with the auditors – not against them. In most cases you are at their mercy, and if you are cooperative, they may even help you. Key word: help - not do your work for you.
Helping Contractors and Subcontractors Remain Compliant
Your subcontractors’ success is your success. If they continue to struggle with the manual process of creating CPRs, they will remain vulnerable to errors and the consequences. This in turn exposes the prime to those same liabilities, which is why it is so crucial that every contractor on the job cuts down on these manual processes. In this digital age, contractors should not have to continue to repeat mundane tasks and then double check (and even triple check) their work to ensure accuracy – we can leverage the power of technology for this. Likewise, they should not have to enter the same data multiple times on different CPR formats for separate requesting bodies.
Collecting, Reviewing, and Accepting CPRs
Another pitfall that primes must overcome is the facilitation of receiving all the compliance documents from contractors. The archaic method of collecting and reviewing paper CPRs and other necessary requirements is a waste of time and space, not to mention it results in an inefficient way of communicating back-and-forth between primes and subs, something that is absolutely necessary to rectify potential mistakes. An optimal solution would be an integrated system that provides a centralized place where, 1) all contractors can create and submit pre-validated CPRs, 2) project administrators can review and accept/reject them, and 3) all parties can efficiently communicate.
Keeping an Archived Record
There’s also the additional hassle of keeping a clean, organized record of all CPRs and compliance documents. This is especially important since contractors are required to keep archived records in the event of an audit. An online, cloud-based storage of records is recommended and would facilitate easy access for any agency, contractor, or auditing organization. It also means elimination of paper waste and physical storage.
The bottom line is, the more efficient every contractor is at remaining compliant, the more effective the entire process becomes for prime contractors that regulate this compliance. Navigation of prevailing wage laws does not need to be as complicated as it has historically been for contractors, and it does not need to be the headache that it is for many prime administrators.
If you’d like to learn more about cloud-based software applications that help streamline construction labor compliance and resolve each of the issues discussed in this article, visit www.lcptracker.com.