Understanding the Davis-Bacon Act & the Need for Payroll Encryption

As a construction business owner, payroll and the various laws and regulations that come with it should be a high priority. The discovery of a noncompliant payroll is no joke and could result in undergoing an in-depth federal government audit. For you, this means a complete review of your company’s files that might eventually lead to large fines or even jail time.

The Davis-Bacon Act, passed by Congress in 1931, requires private contractors to pay “prevailing wages” to employees on all government-funded construction projects over $2,000. Stiff fines and jail time can result if payroll checks are found not in compliance with the act. There are 31 compliance regulations that must be adhered to for every check your business writes.

Davis-Bacon Compliance

Part of the goal of the Davis-Bacon and Related Acts was to create a level playing field for all construction companies working on government contracts.

For example, skilled carpenters could not be brought in and paid $15 per hour when the prevailing wage in the area is $24 per hour. The act also states that overtime, double time and benefits would also be the same for each worker, based upon the prevailing wage and skill set.

Chief financial officers, accountants and payroll managers are all well-schooled in dealing with numbers but there is more to payroll, compliance and keeping employees safe than just numbers. The best way to make sure payroll is free of errors and keep employee data safe is to take advantage of technology. Storing sensitive information digitally is more efficient and safer than relying on
human processes.

Eliminating Human Error

How many checks does your organization handle every week? Can you catch every error every week? Doing payroll by hand every week is time consuming, costly and risky. A large portion of a financial officer’s job is to protect the company and its top executives from catastrophic dilemmas. However, many of these financial executives do not protect their company and its top executives from submitting erroneous noncompliant, illegal payrolls.

Based on a study of 100,000 payrolls, at least 20% of construction company payrolls will contain one or more errors, when audits of these payrolls rely solely on human review. Can a payroll manager really comb over every check, every week and remember every compliance issue
as set forth by the Davis-Bacon and Related Acts? Imagine the same payroll manager looking out of their window and seeing a 78-acre construction site filled with 225 workers — all with unique payroll circumstances.

Would it be possible for that manager to catch every error with a manually prepared payroll? There are 6,975 possible Davis-Bacon Act compliance issues with the aforementioned payroll. It would be easier for a blindfolded golfer to sink a 55-foot putt using a piece of boiled spaghetti as a putter.

Organizing & Protecting Payroll Data

A computer-driven payroll service designed by construction executives with consistent customer service is the answer. But once you eliminate human error with a technological solution, protecting your employee’s data becomes a concern. Data stored this way is termed “at-rest” data, and keeping it safe and confidential is essential.

What happens to typical at rest data in most computers? For many organizations, private at rest data is only protected by the username and code to get into the computer. Encryption is the key to increasing that protection. Encrypted data means that even if someone were to obtain the information,
it would be useless.

According to Attorney Rick Paul, “The primary purpose of encryption is to protect the confidentiality of digital data stored on computer systems or transmitted via internet or other computer networks. Modern encryption algorithms play a vital role in the security assurance of IT systems and communications.”

These algorithms can provide not only confidentiality, but also the key elements of security that include authentication, integrity and nonrepudiation.

Encryption is a key element for a web-based payroll service. Imagine three pristine eggs. Each egg is complete and whole without any human involvement. Then, the three eggs are placed into a blender using the puree setting. The result is a mixture that isn’t usable in a traditional sense. Unless, of course, the pieces could be separated and made to be pristine. Encryption makes at-rest data unusable, until such a time when the information needs to be accessed and used by a trusted source.