What Payroll Records Must Construction Companies Keep — and For How Long?

A wage claim. A prevailing wage audit. A union grievance. In construction, any one of these can surface years after a project wraps, and if your payroll records aren’t in order, you could be exposed to penalties, back wages and legal liabilities.

Here’s a look at what triggers payroll audits and records requests and what construction companies are required to keep and for how long.

Understanding What Triggers a Payroll Audit or Records Request

For most construction companies, a payroll audit or records request comes as a surprise, but it doesn’t have to be. Understanding what typically triggers them helps construction companies stay ahead of risk.

Employee Wage Complaints

This occurs when a current or former employee files a complaint with the Department of Labor (DOL) alleging unpaid wages, overtime violations or incorrect deductions. The DOL may then request payroll records going back several years.

Prevailing Wage Investigations

On federally or state-funded projects, the DOL or state labor department conduct routine and complaint-driven audits to verify workers were paid the correct prevailing wage rates. Certified payroll reports are typically the first thing requested.

IRS Payroll Tax Discrepancies

If your payroll tax filings don’t align with other reported income or if deposits are late or inconsistent, the IRS may initiate an employment tax audit and request supporting records, such as W-2 and W-4 forms.

Union Grievances

If a union employee or their representative files a grievance over wages, benefits or fringe contributions, your records will be reviewed to verify compliance with the collective bargaining agreement (CBA).

Routine DOL Investigations

The DOL conducts both targeted and random investigations of employers in industries with high rates of wage violations, and construction is consistently near the top of the list.

When any of these situations arise, the process typically begins with a formal records request. Companies are given a window to produce the requested documentation. If records are incomplete or missing, the consequences can escalate quickly.

Federal Requirements Under the Fair Labor Standards Act (FLSA)

The FLSA establishes baseline employment standards for minimum wage, overtime and recordkeeping, and it applies to every construction company in the US.

The law requires employers to maintain payroll records as proof of compliance, which is why accurate recordkeeping isn’t optional.

Under the FLSA, payroll records — hours worked, wages paid and deductions — must be maintained for a minimum of three years. Timecards and wage rate tables must be kept for at least two years.

Davis-Bacon and Certified Payroll

For federally funded projects, the Davis-Bacon Act requires certified payroll records to be maintained for at least three years after project completion.

State-funded projects are oftentimes subject to their own prevailing wage laws — also referred to as “Little Davis-Bacon” acts — which carry separate recordkeeping requirements that vary by state.

If your company works on both federal and state public projects, you’ll need to know the reporting and recordkeeping requirements for each.

Multi-State Requirements

Federal requirements set the minimum for recordkeeping obligations, but many states go further.

Depending on where your company operates, state law may require payroll records to be kept for anywhere from four to six years or more.

If you work across multiple states, you’ll need to consider each location’s requirements and apply them independently.

Union Obligations

For employers who have union employees, recordkeeping obligations extend beyond standard payroll. Construction companies are typically required to maintain records of dues remittance, fringe benefit contributions and benefit fund reports in accordance with the CBA.

Requirements vary by union and agreement, so review your CBA carefully or consult with union representatives to get a better understanding of how long you need to maintain payroll records.

IRS Payroll Tax Records

The IRS requires companies (including construction-specific businesses) to maintain their employment tax records — like W-2s and W-4s — for at least four years after the tax was due or paid.

This also includes payroll tax filings, records of wages paid, taxes withheld and tax deposits.

Potential Penalties

There are several potential consequences for incomplete or missing records, including:

• Back wages plus liquidated damages
• Civil penalties of more than $2,000 per FLSA violation — each incident is penalized separately, so costs add up fast
• Debarment from Davis-Bacon projects
• IRS penalties ranging from $50 to $580 per tax return

In many cases, the burden of proof falls on the construction company — meaning if the records aren’t there to support your position, the claim may be decided against you regardless of what actually occurred.

Protect Your Records With the Right Payroll System

Understanding what records to keep is only half the battle. The other half is making sure they’re securely stored, organized and accessible for as long as they’re required so you’re prepared in case of an audit, wage claim or union grievance.

For construction companies managing multiple projects, states and trades, that’s a significant undertaking without the right payroll system.

Payroll4Construction is a leading construction payroll service built to make compliance easier by helping contractors:

• Store and organize payroll records in compliance with federal and state retention requirements
• Produce documentation quickly when audits, wage claims or prevailing wage reviews arise
• Maintain accurate certified payroll reports
• Manage multi-state tax filings

To learn more about Payroll4Construction, speak to an expert today.