I found this article online, written by Roberto Rossi – I have no idea who he is, but the article is interesting and factual.
Prevailing wage laws have been the focus of public policy debate at the federal and state levels for decades. They are intended to protect workers and communities by ensuring that contractors compete on the ability to perform work competently and efficiently while maintaining community compensation standards.
Prevailing wage laws require that construction workers on public projects be paid the wages and benefits that are found to be “prevailing” for similar work in or near the locality in which the construction project is to be performed. The federal Davis-Bacon Act is enforced by the federal Department of Labor. It requires that private contractors pay construction workers the prevailing wage/benefit package on all contracts of more than $2,000 for construction, alteration, or repair of federal public buildings or public works. The federal law surveys contractors but contractors are not required to respond to the survey.
Oregon enacted its prevailing wage law in 1959 and then-governor Mark Hatfield signed it into law. It requires that prevailing wages be paid on projects that exceed $25,000 ($50,000 as of 1/1/006). Under state law, the commissioner of the Bureau of Labor and Industries enforces the state law and sets prevailing wage rates twice a year based upon a survey contractors in Oregon are required to complete.
The state law has been challenged several times, but in the last attempt, in 1994, 62 percent of Oregon voters favored retaining the law including a majority in each of Oregon’s 32 counties. The state Legislature has made changes to Oregon’s law several times. In 1989, the Legislature clarified the law’s definition of public works revising the threshold test by adding the phrase “contracted for by”. The first prong of the test now is whether the construction work is .“carried on or contracted for by any public agency to serve the public interest.” In addition, the 1995 Oregon Legislature reaffirmed the goals of the prevailing wage law and instituted the state survey in lieu of relying upon the federal survey. In the just completed 2005 session, legislators passed SB 477, which among other changes, raised the threshold for projects qualifying under the law from $25,000 to $50,000.
Many still argue that the economic hardships of the depression era ushered in the federal Davis-Bacon Act, but others argue it was the desire of states and local government to protect itself against fly-by-night, low-wage construction firms winning bids on public contracts and adversely impacting local construction workers. In the early 1930s, federal and state governments were preparing to construct even more large public projects and they sought to protect themselves from falling contractors who performed “shoddy” work with “exploited,” “low-skilled” and an “imported” workforce.
Interestingly enough, those were not the words of labor advocates, but of the bill’s primary sponsors, Congressman Robert Bacon (R-NY) and Senator James Davis (R-PA), who viewed their bill not so much as a means to protect workers, but more as a way of providing some market stability in what was, and still is, an inherently unstable construction industry.
Bacon, a former banker, explained the need for the law when he detailed for his legislative colleagues how an out-of-state construction firm paying extremely low wages transported thousands of unskilled workers hundreds of miles to toil on a public project in New York:
“They were herded onto this job, they were housed in shacks, they were paid a very low wage, and … it seems to me that the federal government should not engage in construction work in any state and undermine the labor conditions and the labor wages paid in that state.”
Davis, the former Secretary of Labor under Presidents Harding, Coolidge and Hoover, went on to argue that “the least the Federal Government can do is comply with the local standards of wages and labor prevailing in the locality where the building construction is to take place.”
Some critics of prevailing wage laws have tried to place a “racist” label upon the original passage of the Davis-Bacon Act in 1931. While some may have had some intent to keep poor black construction workers from moving north to work, others saw it for what it still represents today – a way to assure that public money is not spent by hiring employers who pay low wages and disrupt the wage scale in other communities.
However, some critics still charge that the prevailing wage rate law continues to discriminate against minority and female contractors. In response to a May 22, 1992 Wall Street Journal making such accusations, Rep. Edolphus Towns rose on U.S. House floor on June 24, 1992 in rebuttal:
“The truth is, minority and female workers have entered the construction industry in increasing numbers over the past fifteen years. Because they are often the newest members of the industry, they are particularly vulnerable to wage-cutting practices the Davis-Bacon Act is designed to prohibit. Norman Hill, president of the A. Philip Randolph Institute, has characterized women and minority workers as `particularly vulnerable to exploitation such as the Davis-Bacon Act of 1931 is designed to prohibit.’”
Before passage of the Davis-Bacon Act in 1931, nine states and several cities had already passed a prevailing wage law. Within four years of Davis-Bacon’s passage, sixteen more states added a state-level prevailing wage law (little Davis-Bacon acts). At one time or another, forty-two states and the District of Columbia have had a prevailing wage law. Thirty-two states currently have state prevailing wage laws on their books.
Since the U.S. Constitution prohibits the federal government from dictating contract terms for the states in construction, the Davis-Bacon Act does not cover construction work funded entirely by state and local governments. State prevailing wage laws set a minimum pay for construction workers on state and local projects, and the terms of the respective prevailing wage statutes among the states differ substantially. The prevailing wage laws of some states are non-binding, while other states set wages for virtually all contracts at the collectively bargained wage rate. In addition, different states treat jointly financed projects (e.g. state/federal, local/federal, private/public) differently. Some states defer to the federal statute while other states set the prevailing wage at the higher of the state or federal prevailing wage. Certain states also specifically include or exclude specific types of projects (e.g. road construction) and/or workers, and/or projects above or below a given threshold.
Kansas passed the first prevailing wage law in 1891. New York was the second state to pass a prevailing wage law in 1894. Similar laws in other states were passed in the first part of the twentieth century. These laws provided the legal basis for the creation of the federal Davis-Bacon prevailing wage law at the federal level. By 1969, 41 states had prevailing wage statutes.
During the 1970s, many states began to suffer fiscal crisis. On the belief that they might save tax dollars, many state and local governments began to consider repeal of prevailing wage laws. Florida, which had enacted a prevailing wage law in 1933, was the first to repeal its law, in 1979. Eight states (Alabama, Arizona, Colorado, Idaho, Kansas, Louisiana, New Hampshire, and Utah) repealed their prevailing wage statutes in the 1980s. The prevailing wage statute in Oklahoma was invalidated by a court decision in 1995. At the present time, 32 states and the District of Columbia still have prevailing wage statutes, 10 states have repealed their prevailing wage statutes, and 8 states have never enacted a prevailing wage statute.
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Author’s Note:
As of the date of this article:
- 24 States follow the prevailing wage reporting requirements established by the U. S. Department of Labor and are required to file the Federal WH-347 Certified Payroll Report & WH-348 Statement of Compliance.
- 14 States have their own prevailing wage laws and certified payroll reporting requirements and forms, which must be used when the construction project is fully funded with state dollars.
- 12 States have multiple state agencies, each with their own prevailing wage reporting requirements and forms.
- More states are adding electronic filing requirements, either of their own design or through the use of compliance systems by TRS Consultants, Elation Systems, or LCPtracker.
A reader wrote to ask the following question:
We were just awarded a contract with the Department of Defense and have to pay our employees “prevailing wage” and submit certified payroll reports. I called Intuit Support to ask them about prevailing wage, certified payroll, and how to track the fringe benefits; they weren’t very helpful – they just told me that QuickBooks can produce the certified payroll report…….can you help me understand all this?
Answer:
Ok, let’s start with some basics:
- The Davis-Bacon Act of 1931 (a Federal Law) set wage rate requirements on government funded construction projects.
- All contractors & subcontractors who perform work on these public works projects, that have a value of $2,000.00 or more, are required to submit a certified payroll report on a weekly basis.
Prevailing Wage(s) rates are comparable to hourly wages PLUS hourly fringe benefit rates for the area in which the construction project is located in, type of construction it is, and the type of work employees are doing – carpenter, laborer, equipment operator, etc. Prevailing Wage Rates are found in the Contract Package and each employee must be classified and paid accordingly – these rates are often times higher than the hourly rate that you normally pay your employees.
A certified payroll report is a specially formatted payroll report, consisting of two pages:
- Certified Payroll Report – this contains information about who worked on the job, how much you paid them, etc.
- Statement of Compliance – this contains certain legal language and requires the original signature of a company official who is signing the document under penalty of perjury.
In your case, you will be required to file the U. S. Department of Labor Form WH-347 Certified Payroll Report, however, because this is a Department of Defense job – you will need to submit their Statement of Compliance (even though it has an expiration date of June 30, 2000).
Paying and tracking prevailing wage fringe benefits gets quite complicated, as they can be:
- paid to a Union on behalf of the employee
- paid to a bona-fide fringe benefit plan on behalf of the employee
- paid in cash to the employee
- or, a portion of the total hourly fringe benefit amount can be split between payments to a bona-fide plan with the balance in cash to the employee
Request our FREE 27 page eBook – 4 Ways Contractors Pay Prevailing Wage Fringe Benefits
Intuit was partially correct, QuickBooks does have an alternate/substitute Certified Payroll Report built into it – however, it is only available if you have an Enhanced Payroll Subscription AND you are using QuickBooks Premier (any flavor – Contractor, Accountant, etc) 2009 or 2010 OR Enterprise 9.0 and 10.0; but it is very different than the Federal WH-347 form.
What Intuit didn’t tell you – is that these prevailing wage projects require more than just the submission of a certified payroll reports, you may also be required to:
- submit EEOC/Work Utilization reports on a weekly, monthly or annually
- submit ARRA (American Recovery & Reinvestment Act) reports on a monthly basis
- generate Fringe Benefit Statements on a monthly basis (if you are paying the fringe benefits to the Union or a bona-fide plan)
- electronically file your certified payroll reports using Labor Compliance programs such as LCPtracker, TRS Consultants, Elation Systems, and others.
Watch a brief 10-minute video demonstrating how Certified Payroll Solution interfaces with QuickBooks to generate these reports.
General Contractors using QuickBooks will have by far the most complex job costing needs. Tracking the cost of specialized equipment, subcontracts, multiple prevailing wage rates, and retainage in addition to overhead costs, employees, materials and labor charges.
Estimating and Job Costing needs will vary depending on the type of contractor you will be dealing with, so if anyone dares to suggest that one “Chart of Accounts or bookkeeping method” will work for all contractors – well you just shouldn’t listen to them
Meet Gerry the General Contractor:
“Gerry’s” usually have the same basic philosophy as Sam the Subcontractor; however, because they have more employees, subcontractors, and bigger “operations” they realize that they need to consider more things when they go out to bid on a job; but they do not always realize all of what they need to take into consideration nor do they always know how to use QuickBooks efficiently.
Gerry has overhead costs, employees, specialized equipment, company vehicles, materials, subcontractors, retainage, percentage of completion billing, and more that he needs to take into consideration when estimating. He works mostly on prevailing wage jobs, where he has to pay his employees a much higher rate of pay plus fringe benefits with a few private jobs – he isn’t a union shop; so he is paying the prevailing wage fringe benefits in cash to his employees. Billing requirements for his jobs include Time & Materials and Percentage of Completion, where he needs to submit AIA billing forms and track retainage that he is owed and retainage he owes his subcontractors.
Gerry tells you that he was just awarded several contracts on an ARRA funded construction – in some instances he will be the General Contractor and on other jobs he will be a subcontractor, these jobs will last anywhere from 1 to 3 years, and he has to submit certified payroll reports, monthly ARRA reports, and AIA format billings. Gerry will need to hire 25 additional employees – including 2 project manages/estimators, is working with 10 new subcontractors, 3 new project owners, and will be required to submit his certified payroll reports electronically for 3 of the new jobs. He is nervous about how he and his bookkeeper will manage. He offers his employees health insurance – with the company paying a portion of the monthly premiums and contributes to a pension plan on their behalf. His workers’ comp and general liability insurance premiums are outrageous, because he is paying his prevailing wage fringes in cash, and with new employees, he wants to be prepared.
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TIP: Investigate to see if Gerry is able to take credit against the entire prevailing wage fringe benefit package for company contributions made to employee health insurance and pension plans. If he is able to take credit, make sure that he is actually taking the credit and therefore reducing the full cash fringe amount. This will help to reduce his General Liability and Worker’s Compensation costs, especially if they are based on gross payroll instead of gross sales. Request our free eBook on 4 Ways Contractors Pay Prevailing Wage Fringe Benefits. |
Gerry has QuickBooks Pro 2009 and a full-time bookkeeper. They use QuickBooks to run payroll, do Estimates, and job costing. They have been using the QuickBooks built-in certified payroll report – but they have to do a lot of manual adjustments to make them meet requirements, and Excel to do his ARRA reports, AIA Billings, and to track subcontracts and equipment costs. He knows that they could be using QuickBooks more efficiently – but do not know how to make changes – he is also not positive that the reports he is getting from QuickBooks are accurate or include “everything”.
As Gerry’s ProAdvisor or CPA, you should first do a general review of their QuickBooks file and help him identify areas for improvement and then implement new procedures.
You will find that Gerry is going to be more than willing to make changes; his bookkeeper on the other hand could present another problem.
A basic plan of action for Gerry and his bookkeeper would be to:
- Move his Excel based tasks into QuickBooks
- Review the QuickBooks Item List and make any necessary changes
- Review the existing Job Costing methods
- Review their existing Time & Materials Billing methods
- Run existing Estimate vs. Actual Reports and drill down into the details to find potentially missing costs
- Review Payroll methods, making sure that payroll is being job costed correctly
- Teach Gerry and his bookkeeper to use Purchase Orders to track material purchases and Subcontracts
- Implement Workers Comp and General Liability tracking
- Implement Vehicle and Equipment Costing procedures
- Implement a Retainage Tracking system
- Research ways in which to lower General Liability and Worker’s Compensation costs
- Implement QuickBooks integrated applications to deal with AIA Billing and all aspects of Certified Payroll, ARRA Reporting, and electronic submission
Gerry is very concerned and is becoming increasingly agitated and his bookkeeper is feeling very overwhelmed and out of her element – but will not admit it. Gerry will probably want to hire you for on-going review of his QuickBooks file and to provide training for his bookkeeper, just to make sure that “things” are being done right. The bookkeeper on the other hand, knows that she is over her head and needs training – but is resentful.
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Gerry and his bookkeeper would benefit from automating certified payroll and AIA billing requirements. Request a FREE 30-day trial of Certified Payroll Solution and/or Construction Application for Payment Solution by Sunburst Software Solutions, Inc. |
Sam Subcontractor already uses QuickBooks, he has more complex job costing needs due to certified payroll reporting requirements, payments of prevailing wage fringe benefits and AIA billing. High overhead costs, specialized equipment, materials, labor charges are other things that must be taken into consideration.
QuickBooks Estimating, Job Costing, and payroll needs will vary depending on the type of contractor you will be dealing with, so if anyone dares to suggest that one “Chart of Accounts or bookkeeping method” will work for all contractors – well you just shouldn’t listen to them, and here’s why:
Meet Sam Subcontractor:
I have worked for a lot of “Sam’s” they are great people too. They usually have the same basic philosophy as Harry the Handyman; however, because they have employees and bigger “operations” they realize that they need to consider more things when they go out to bid on a job; but they do not always realize all of what they need to take into consideration.
Sam has overhead costs, employees, specialized equipment, company vehicles, materials, and more that he needs to take into consideration when estimating. He works on private and prevailing wage jobs. When he works on prevailing wage jobs he has to pay his employees a much higher rate of pay plus prevailing wage fringe benefits and submit weekly certified payroll reports. Billing requirements for his jobs include Time & Materials and Percentage of Completion, where he needs to submit AIA billing forms and track retainage.
Sam tells you that he was just awarded a contract on an ARRA funded construction, the job will last about 18 months and he has to pay prevailing wages to his employees, submit certified payroll reports, monthly ARRA reports, and AIA format billings and will need to hire 5 additional employees. He is nervous – his workers comp and general liability insurance premiums are killing him; he knows that part of his high overhead is due to the fact that he is paying the prevailing wage fringe benefit it cash to his employees.
Sam has QuickBooks Pro 2008 and he has used it to run payroll for his employees. He has been using Excel to do his bidding, billing, certified payroll reports, and his job costing. He knows that he has to make sure that he is bidding high enough to make a profit and stay in business; yet not so high that he is no longer competitive.
Let’s look at some of Sam’s costs that you as his bookkeeper, ProAdvisor, CPA should help him identify for estimating and job costing purposes.
- Overhead – rent, phone, electric, trash service, etc.
- Liability Insurance
- Worker’s Compensation Insurance
- Wages (private & prevailing wage jobs)
- Employee Benefits – health insurance (?)
- Tool Purchases
- Materials
- Prevailing Wage Fringe Benefit Costs
- Insurance for vehicles and equipment
- Registration for vehicles and possibly some equipment
- Repairs to vehicles and equipment
- General Maintenance for vehicles and equipment
- Gasoline and/or Diesel fuel to run vehicles and equipment
- Vehicle & Equipment costs on his jobs
As a bookkeeper, ProAdvisor, or CPA with a client like Sam, you are going to have to spend some extra time helping Sam set up his books.
You will find that Sam is going to be more than willing to make changes – but that he is NO bookkeeper! He also knows that he needs to make things easier because he is spending too much time in the office doing paperwork – when he needs to be on the jobsite.
One of your biggest challenges with Sam will be communication – he is going to talk construction and you are going to be talking accounting…..learn his language and help him learn yours.
A basic plan of action for Sam would be to:
- Move his Excel based tasks into QuickBooks
- Turn his Estimating Cost Code list into a QuickBooks Item List
- Teach him to use the QuickBooks Estimate function to do his bidding
- Teach him how to use QuickBooks for Job Costing
- To automate his Time & Materials Billing
- To run Estimate vs Actual Reports so he can tell how much money he’s making & if he is bidding accurately
- Teach him how to job cost his payroll by using Weekly Timesheets
- Teach him to use Purchase Orders to track material purchases
- Implement Workers Comp and General Liability tracking
- Implement Vehicle and Equipment Costing procedures
- Implement a Retainage Tracking system
- Research ways in which to lower General Liability and Worker’s Compensation costs
- Implement QuickBooks integrated applications to deal with AIA Billing, Certified Payroll, and the ARRA Reporting
Sam will feel very overwhelmed and out of his element, he will probably want to hire you for on-going review of his QuickBooks file, just to make sure that he is doing things right – he may even want to hire you to come in on a weekly basis to help him out.
TIP: Paying prevailing wage fringes in cash will increase Sam’s General Liability and Worker’s Compensation costs, especially if they are based on gross payroll instead of gross sales.
Request our free eBook on 4 Ways Contractors Pay Prevailing Wage Fringe Benefits.
How contractors view business management covers a wide range of emotions; from a “necessary evil” to those who want and need their information “NOW” (or yesterday) in order to be able to make better day-to-day operating and financial decisions.
For the most part, contractors are NOT “business people” – they are highly skilled craftspeople who prefer to work in the field doing what they do best….building things. They hate being stuck in an office in front of a computer faced with a pile of paperwork; and while they may recognize that their current accounting method isn’t optimal, if it’s working well enough (in their opinion) they simply leave it alone.
Although this group of contractors may not be actively looking to solve their financial pain, they can and do strongly identify with pain points – such as losing money on a job – which makes them open to solutions, as long as they are fairly simple to implement.
Contractors, who feel that business management is a necessary evil, tend to keep accounting, project management, inventory, estimating and job costing details in their head, on paper, in spreadsheets or even sometimes with an accountant. They are simply too busy with other things – like making sure that their employees show up on the job site, that materials arrive on time, and that they get the job completed in their allotted timeframe. That is, until there business grows to a point where keeping these details in their “head” becomes too much and they find that they not only want, but need, information NOW in order to be able to make better day-to-day operating and financial decisions. For the construction industry, this critical “need-it-now’ information turns into a need for instant access to detailed estimating, purchasing, job costing, and cash flow information.
Initially, many contractors will purchase QuickBooks because they hear it’s drop dead simple to use or another contractor suggests they purchase it to help them keep track of their accounting needs – so off they go to the local office supply store and come home with their QuickBooks software, they get the program installed and crack open the manual………only to discover that while they can read a set of blueprints the QuickBooks manual is like reading Greek! As contractors they tend to think in terms of cost codes and QuickBooks speaks of items – quite a difference. Some manage to get it up and running…sort of…and still keep doing things manually because they just can’t figure out how to do it in QuickBooks or they find that QuickBooks simply cannot do what they need it to by itself, and they are still left with keeping stuff in their heads or in spreadsheets.
As a ProAdvisor working with a client in the construction industry, one of your first tasks is to find out what type of construction activities they are involved in as well as any special reporting requirements they might have.
- They can perform work on Residential, Commercial, or Government funded projects
- Their jobs may be Fixed Price, Fee only, Time & Materials (also known as Cost Plus), or Purchase Agreement – Sale at Closing
- They may be a Union Shop
- They may need to submit Certified Payroll Reports
- They may need to submit billing using the standard AIA (American Institute of Architects) format
- They may need to track work to be completed by a single subcontractor or several
- They may need to track the expiration dates of their subcontractors Worker’s Comp and General Liability insurances
- Their jobs may last a few weeks, a few months or even a few years
We all know that QuickBooks®, properly set up, will give you the ability to provide valuable job costing and management reports for your clients, so it is important that you take the time to find out exactly what each client would like to see, what special requirements they must track and report, and above all……what information they would find to be most useful on a day-to-day basis. The answers you receive will determine how you will then proceed to:
- Set up the accounts they will need in their Chart of Accounts
- Set up the various items they will need in their Item List and how they are linked to accounts
- Set up special items they will need in their Payroll Item List and how they are linked to accounts
- How Estimates and Invoices will be structured and used
- How Purchase Orders will be structured and used
You will undoubtedly find that your clients in-house management reporting needs do not perfectly line up with financial-statement or tax return reporting requirements – but you will find it worthwhile to help them retrieve the information that they desperately need – even if it means a bit more work from you on a periodic or year-end basis.
Thinking that every contractor you come in contact with will need to track the exact same things in the exact same manner is a common mistake that I see a lot of Advisors and CPA’s make. This mistake usually leads to a QuickBooks® file that “under performs”, tracking of a lot of things in complicated Excel spreadsheets, and frustration for the contractor.
Now don’t get me wrong, I have nothing against complicated Excel spreadsheets; I’ve created and used them myself for many years because I had no other choice. But let’s face it, we all know that the more times the same data has to be entered in different programs, the higher the risk of costly transposition errors – with some of these transposition errors causing the contractor to not be paid or payment being delayed.
