Labor Compliance Newsletter - April 2009
This is the fourth issue of the Labor Compliance newsletter. This quarterly newsletter is intended to achieve greater compliance and consistency throughout the State in our Federal Aid requirements, primarily with respect to payroll and payroll reporting issues. Florida Department of Transportation (FDOT) Secretary Kopelousos has established a goal of "One FDOT - We are one agency, united. Central Office and Districts, including Turnpike, we are one DOT working together." To help make this happen, operational consistency between Districts is essential. This newsletter was established as a common communication tool to all of the stakeholders striving to comply with our Federal Aid requirements - those within FDOT, the consultant community and our contracting partners. It is our common goal to fully comply with applicable Federal Aid requirements and to do so in a manner that is consistent in application, effective in achieving compliance, and efficient in administration. Hopefully, this newsletter will promote these ideals.
|In This Issue|
|Critical Importance of the FHWA-1273 in Subcontracts|
|Changes to Payroll Reporting Requirements|
|Fringe Benefits & Payroll Deductions|
The Critical Importance of the FHWA-1273 in Subcontracts Back to Top
For Federally-funded FDOT work, the requirements for payroll records and payroll reporting are included in the contract documents in the form FHWA-1273 (the 1273), and adherence is prescribed by Special Provision 7-1.1 of the FDOT contract. The 1273 requires that all subcontracts and purchase orders include the Required Contract Provisions contained in the document, and specifically prohibits incorporation by reference in the subcontracts (i.e., the text of the 1273 must be included in the subcontract or purchase order). For your reference, the 1273 may be accessed by clicking the following: FHWA 1273.pdf
The FDOT is currently dealing with a contractor where the subcontractors on the job did not submit all required payrolls during the course of a construction project. Of course, we all know that the prime contractor is responsible for compliance by any subcontractor or lower-tier subcontractor. In the process of attempting to obtain the payrolls, it became known that the subcontracts did not include the required contract provisions, otherwise known as the 1273. In addition to the wage and reporting requirements, the 1273 includes requirements relating to Equal Employment Opportunity and Nondiscrimination, Payroll Record-keeping Requirements, Safety, Environment, False Statements, Debarment, and Lobbying. At the subcontract level, with regard to payrolls, the 1273 creates the contractual obligation for the subcontractor to:
1. Pay certain employees ("laborers" and "mechanics") on the site of work at least the prescribed Davis-Bacon wage rates;
2. Maintain certain payroll-related records and make those records available to the Department;
3. Pay the covered employees at least weekly;
4. Take only those payroll deductions authorized by the Copeland Act and to obtain USDOL permission for certain deductions; and,
5. Submit weekly payrolls along with Statements of Compliance.
In the current circumstance, the contract work is completed and the Department has taken "Final Acceptance" on the project. Meanwhile, the Department is holding a significant portion of the contractor's earnings while the matter is sorted out.
Attempts by the prime contractor to obtain the required certified payrolls have failed, as have direct attempts by the Department. In one instance where a payroll was submitted, the Department asked for certain records to validate the submission
and the subcontractor refused. In the absence of the required contract provisions, action against these subcontractors is precluded. Obtaining certified payrolls and establishing compliance becomes extremely difficult in these circumstances.
By the terms of the 1273, failing to include its provisions in subcontracts is a breach of contract and may be grounds for contract termination. In addition, it may also be grounds for debarment as provided in 29 CFR 5.12.
The most obvious remedy for the missing contract provisions is to amend the subcontract. However, when the performance of work has already occurred, subcontractors may be less agreeable to accept contract amendments that might require supplemental
payrolls and the creation of additional records to comply with the requirements. Further, if the subcontractor was paying employees bi-weekly or monthly or if they were making deductions that required prior approval, an honest Statement of Compliance
becomes a dicey proposition. They cannot go back and make payment weekly, and certain deductions normally allowed might have to be refunded. Anyone in the contracting business would recognize that in such a situation, the prime is in a
poor negotiating position.
All of this unpleasantness can be easily avoided. The FHWA-1273 in its entire text must be included in each subcontract and purchase agreement. In this instance, the term "subcontract" includes rental agreements and purchase orders. Also, the $2,000 threshold for the wage requirements of the 1273 does not apply to the subcontract - it applies to the Department's contracts and specifies when the Department must include these requirements in our prime contracts (that's basically any Federal aid road and bridge contract). What this means is that any agreement (subcontract, rental agreement, purchase order, requisition, etc.) that results in a "covered employee" performing on the site of work needs to include the 1273. For EEO purposes the 1273 also must be included in all purchase orders of $10,000 or more (this is the threshold that applies if no covered employees are on the site of work).
Changes to Payroll Reporting Requirements Back to Top
As many of you might already be aware, the US Department of Labor revised its regulations to better protect the privacy of workers whose information is reported on certified payrolls. On December 19, 2008, the Federal Register reported a change
to the Title 29 of the Code of Federal Regulations, Parts 3.3 and 5.5. The change to reporting requirements no longer requires that employees' full Social Security numbers and addresses be reported on the certified payrolls; the payrolls
need only include an individually identifying number for each employee (for example, the last four digits of the Social Security number) rather than the full Social Security number. There is no change to the records required to be kept by the
employer. The effective date of this change was stated to be for contracts entered into after January 18, 2009.
At this point, the FHWA has not revised their contract provisions, so the FDOT must continue to use the 1994 version. Preliminary guidance from the USDOL says that, "...we are required to apply the labor standards clauses contained in the contract." What this means is that we must continue to require the submission of Social Security numbers and addresses on all existing contracts as well as those entered into after this date with the 1994 version of the FHWA-1273. Any changes to this guidance will be communicated as soon as it becomes known.
For contractors wishing to establish a uniform payroll report for the certified payroll, the FDOT will allow the basic payroll form to omit the full social security number and address for contracts let prior to January 18, 2009, so long as this information
is provided in an addendum to the report and can be clearly associated with the employee. This is consistent with the FHWA-1273 which states, "This information may be submitted in any form desired." Questions regarding this matter should
be directed to the Resident Compliance Specialist.
Fringe Benefits & Payroll Deductions
Back to Top
There are frequent questions that arise relating to fringe benefits and payroll deductions - generally focusing on the reporting of these items on the certified payrolls and the records that must be kept. For employers wishing to claim credit toward fringe benefits required by the Wage Decision, the reporting of fringe benefits is fairly simple; the box for Section 4) a) of the Statement of Compliance is checked to signify the employer makes payments of fringe benefits as listed in the contract (Wage Decision) for the benefit of the employees. If claiming fringe benefits, the employer must have records available to show the value of fringe benefits provided (and such values may not be averaged among employees such as an average for health insurance among single and family coverage). For payroll deductions, the reporting is shown on the payroll form or an addendum and must show sufficient detail for compliance personnel to evaluate. For instance, labeling a deduction as "insurance" is not sufficient for the reviewer to know if it is permissible without USDOL approval (i.e., health, disability or life insurance), or if approval is required (i.e., auto or home insurance).
Contributions made by the employer for Worker's Compensation or Unemployment Compensation may never be claimed as a deduction or fringe benefit. The same goes for the employer portion of the Social Security tax. Also, deductions may not be made for safety equipment required by law.
Records relating to fringe benefits and deductions must be maintained by the employer for a period of three years following date of completion of the contract (subcontractors should be aware that this is interpreted to be three years from the prime's completion of their contract). If fringe benefits are claimed toward the wage requirement, the records must demonstrate, that for each reported employee, payments were made or costs incurred for eligible fringe benefits. Fringe benefits may not be averaged - credit may only be taken toward the prevailing wage requirement for each individual as determined separately. Further, credit may not be taken for fringe benefit contributions made on behalf of employees who are not eligible to participate in the plan (i.e., those excluded due to age, part time). Contractors should be careful to fully understand the rules relating to fringe benefits if they are claimed toward the prevailing wage. For more information, contact the Prevailing Wage Rate Coordinator or the USDOL.
Records relating to deductions should include the following:
1. A detailed accounting of all deductions made and the purpose of each;
2. The employee's consent for all deductions except those required by law (employee's portion of Social Security, Federal or State withholding) or for court-ordered payments;
3. USDOL approval for those deductions requiring such approval (see 29 CFR 3.5 in the following attachment).
View Attachment on 29 CFR 3.5
Deductions for the repayment of loans (considered to be bona fide prepayment of wages) does not require USDOL approval; however, such loans may not include discount or interest. USDOL has allowed reasonable administrative fees for such loans. The Department requires such loans to be in writing with the term of repayment specified and detailed accounting made available on request.
Enforcement Back to Top
The American Recovery and Reinvestment Act (ARRA), better known as the "Federal Stimulus Bill" includes some provisions and funding targeted at compliance and enforcement activities. The ARRA includes expanded "Whistle-blower" provisions. While whistleblower provisions of existing laws have embraced fraud, abuse and unlawful conduct, ARRA goes much further. It extends to alleged gross mismanagement of a contract related to stimulus funds, gross waste of such funds or abuse of authority related to use of stimulus funds, creating a substantial danger to public health or safety, or violation of any law or regulation relating to stimulus funds. In addition, the USDOT Inspector General is adding positions specifically for compliance, enforcement and prosecution activities on ARRA projects and has announced an initiative to improve processes related to suspension and debarment.
It is the goal of FDOT to assure full compliance on all contracts, including those funded from stimulus funds. It is our hope that through communication, coaching, and compliance review activities; any reviews by our Federal counterparts will merely serve to confirm that FDOT and our contracting partners have embraced and complied with all applicable requirements.
Equipment Back to Top
Hydroblasters (or hydro demolition machines) are increasingly used for tasks ranging from striping removal to scarifying concrete to concrete removal. Hydroblasters use water under very high pressure (15,000-50,000 psi) through specialized nozzles
or jets that propel the water at up to 1,500 mph. Hydroblasters require specific safety considerations due to the ultra-high pressure water (it can cut through concrete and just about anything else it encounters). Operators of these machines
should be classified as Hydroblaster Operators or Hydro Demolition Machine Operators (we prefer Hydroblaster Operator). The use of the "Painter/Blaster" classification will not be allowed as that classification was established to cover air-powered
blasting with sand, bead, or soda in preparation for painting. While most modern hydroblasters use robotic-operated jets protected by a shroud, there are also hand lance models. There are many configurations of pumps and jets, some of
which are combined in a single unit. Following are photos of several types of hydroblasting machines: