Chapter 15: Payroll Review and Confirmation

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• 15-1 Introduction
• 15-2 Initial Review
  • 15-2-1 Construction Administered Contracts
  • 15-2-2 Other Division Administered Contracts
• 15-3 Payroll Confirmation
  • 15-3-1 Payroll Confirmation of Construction Contracts
  • 15-3-2 Payroll Confirmation of Service Contracts
  • 15-3-3 Review the Fringe Benefit Statement

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15-1 Introduction

Payroll analysis is one of the methods used to verify compliance with contract special provisions and with federal and state labor laws. Even if a contractor correctly fills in payroll documents with all the proper prevailing wages, correct classifications, and hours that match the daily reports, the contractor may not be in compliance. Payroll confirmation by cross-checking daily reports, employee interviews, complaints, or other source documents may show that a contractor has falsified records. Labor Compliance may also complete a full audit and source document review.

15-2 Initial Review

15-2-1 Construction Administered Contracts

In accordance with California Labor Code 1776, and Caltrans Labor Compliance Policy Bulletin 11-01, “Labor Compliance Program Investigations,” within 30 days of receipt, the Labor Compliance staff must check certified payrolls submitted by the contractor or subcontractor for the following items:

• Employee name
• Complete address
• Full Social Security number
• DIR work classification with appropriate group number, when applicable
• Check number
• Straight time and overtime worked each day
• A signed Form CEM-2503, “Statement of Compliance”
• Form CEM-2501, “Fringe Benefit Statement,” with the first submitted payroll or when there is a change in the fringe benefit schedule
• Verify that the contractor’s fringe benefits were paid to a third-party trust, an approved private plan, or in cash.
• Verify that the fringe benefit statement shows to whom and where they were paid.
• If a craft is apprenticeable, confirm that the mandatory training fund payment was made to an approved training program or the California Apprenticeship Council and captured on the fringe benefit statement.

The Labor Compliance staff should follow these steps when checking certified payrolls and contact the resident engineer for clarification or questions:

1. Gather all documents pertaining to the contract, including:
1. The resident engineer’s daily reports
2. Apprentice agreements
3. Weekly listings
4. Any interviews that may have taken place
2. Verify that the daily and weekly status reports match.
3. Check the daily reports for accuracy and completeness. Make sure they include:
1. Name of contractor all subcontractors performing work
2. Employees’ names
3. For each item of work involving equipment, list the name of the operator with equipment operated, and name of the operator’s employer
4. Classifications of employees
5. Hours worked
6. Description of work performed
4. Compare the daily reports against the payroll record:
1. Names of workers should agree on both documents
2. Verify the number of people represented on both documents
3. Compare classifications to type of work listed in the daily report
4. Verify that the number of hours listed on the payroll meets or exceeds the hours listed on the daily report
5. Check the payroll:
1. Check that the wage rate is correct for the proper classification
2. Check that the contractor paid overtime when employees worked more than 8 hours in a day and 40 hours in a week
3. Verify workers were paid at the appropriate shift, overtime, holiday or Saturday and Sunday premium rates as required by the classification
4. Verify that apprentice agreements are on file for apprentices listed
5. Verify that travel and subsistence was paid if the project is in a subsistence area.
6. All other deductions are explained on the weekly payroll or on the statement of compliance
6. Sign and date all certified payroll documents that are checked.

15-2-2 Other Division Administered Contracts

For service contracts, including A&E, the contract manager or designee will complete the following steps during their review.

• All data elements are reported on the certified payroll record, Form CEM-2502, “Contractor or Subcontractor Payroll”:
• Contractor or subcontractor name and address
• Caltrans contract number
• Name, address, Social Security number of each worker
• DIR work classification
• Straight time and overtime hours worked each day and week
• Actual wages paid to each journeyperson, apprentice, worker or other employee in connection with the public work
• Check number or direct deposit transaction number
• Project location
• Form CEM-2503, “Statement of Compliance,” is completed and signed showing whether the fringe benefit amount went to the fund or employee. Other deductions must be indicated and explained in item 4 of the statement of compliance in the “Remarks” section.
• The fringe benefits statement shows the amount the employer is paying per hour and to whom.

15-3 Payroll Confirmation

Payroll confirmation is defined in California Code of Regulations, Title 8, Section 16432 (8 CCR 16432), “Investigation Methods for Labor Compliance Program-Definitions and Minimum Requirements, Including Review, Confirmation and Audits of Payroll Records; On-Site Visits; and Early Resolution of Audits,” and is a verification of the accuracy of certified payroll records, including:

• Names, classification and reported hours compared with Caltrans project records, including daily report entries
• Confirmation of benefit payments
• Trust fund statements
• Employee interviews
• Canceled payroll checks
• Employee timesheets
• Earning statements
• Bank statements

The confirmation process is performed at random and is for at least 1 worker and a minimum of 1 weekly payroll per month for the prime contractor and subcontractor. If an issue is found, then all payrolls must be checked.

• Other documentation that confirms hours of work, classification, and payments made

Once payroll entries are confirmed, write "confirmed," date and method confirmed, and the analyst's initials on confirmation document.

15-3-1 Payroll Confirmation of Construction Contracts

Consult with the assistant resident engineer or resident engineer to obtain all supporting information necessary for payroll confirmation or when there is a conflict between the daily report and payroll records. Check to see if there were previous violations from a contractor or subcontractor.

Confirm the prevailing wage rates by verifying that:

• The correct wage rate used for the proper classification or group with single or double asterisks, and check for increases
• The basic hourly rate paid is equal to or higher than required
• Overtime was paid for any day showing more than 8 hours worked
• The Saturday or Sunday wage rate was paid, if applicable
• The shift differential for night or weekend work was paid, if applicable
• The authorized deductions were made, and verified and documented
• The journeyperson rate was paid to a non-registered apprentice

15-3-2 Payroll Confirmation of Service Contracts

The contract manager must obtain all supporting information for payroll confirmation or when there is a conflict between the Caltrans project records and submitted payroll records. The confirmation steps for service contracts include:

1. Confirm prevailing wage rates:
1. Determine if a contractor’s classification is correct:
1. Based on work performed and not the title of the worker within the company
2. Listed the correct wage determinations or classifications
3. Used the scope of work to determine the type of worker
4. Noted employee names and tools or equipment used.
2. Determine if the rate and calculations on the payroll are accurate:
1. Verify the basic rate and fringe benefits
2. Verify that deductions are identified and authorized
3. Determine if the reported hours are correct:
1. Verify that correct wage rates are paid for straight time
2. Verify that overtime is paid appropriately
3. Verify shift work, holiday, and Saturday or Sunday rates are paid appropriately
4. Perform independent verification of reported prevailing wage payments through:
1. Worker interviews documented on Forms CEM-2504, “Employee Interview: Labor Compliance/EEO,” or CEM-2504(Spanish), “Entrevista de Empleado: Cumplimiento Laboral/IOE.” Examination of paychecks or paycheck stubs
2. Direct confirmation of payments from third party recipients of fringe benefits
5. Confirm that the certified payroll records match the daily account of work performed on the daily reports, task orders, and truck tags.

15-3-3 Review the Fringe Benefit Statement

The fringe benefit statement (FBS) captures all payments made directly to a fund, plan, or program, such as health benefits, a trust fund or to a fund authorized by the employee, for example, a 401k plan.

An employee working in a classification must be paid at least the total hourly rate (base rate plus fringes) identified on the determination.

The employee’s total hourly rate is the hourly rate of pay or base rate, identified on the payroll plus any fringe benefits identified on the employer’s FBS as claimed for payment by the employee.

The fringe benefits can be paid to third parties or to the employee on their paycheck as cash.

Fringe benefits paid directly to a third-party trust, or fund, or program, by the employer are considered part of the employee’s total hourly rate

A contractor may receive credits for payments made in accordance with California Labor Code 1773.1.

The FBS should capture what a contractor is paying to the third parties to receive credit toward the total hourly rate.

This credit on the FBS cannot reduce the basic hourly rate paid to the employee.

A contractor or subcontractor may take credit up to the aggregate amount of fringe benefits as show on the DIR wage determination toward the total hourly rate.

• Example: The wage determination shows the rates of $1.00 vacation, $2.00 health and welfare, $5.00 pension, $0.75 training, $0.25 other. The total allowable fringe benefits credit is $9.00.
• A contractor whose benefits are for health and welfare and training may show $4.00 health and welfare and $0.75 for training for a total of $4.75 credit on their FBS. The other $4.25 must be paid to the worker as cash.