Payroll, Certified Payroll & Sales/Use Tax

Payroll & labor burden

Track the fully burdened cost of labor — not just wages, but payroll taxes, workers' comp, and benefits. Burden often adds 20–40%+ to base wages and must hit your job costs to price work correctly.

Certified payroll

On public works jobs (federal Davis-Bacon, state prevailing-wage), you must pay prevailing wages and submit certified payroll reports documenting each worker's hours, classification, and pay. Errors bring penalties and withheld payment — take it seriously.

Sales & use tax

Rules vary by state, but generally:

• Sales tax may apply to materials you buy (or to the contract, depending on the state and whether you're a retailer vs. consumer of materials).
• Use tax applies to materials used on a job where sales tax wasn't paid. Mishandling contractor sales/use tax is a common, costly audit issue — get your CPA's guidance for each state you work in.

The point

Compliance (payroll, prevailing wage, tax) is part of job cost and risk. Build it into your estimates and your books from day one.

Going Deeper (Intermediate)

Never job-cost the bare hourly wage — cost the fully burdened labor rate: gross wage plus the employer's costs:

• Payroll taxes — employer FICA (Social Security + Medicare) 7.65%, plus FUTA/SUTA unemployment.
• Workers' comp — premium per $100 of payroll, by trade class (can be huge for risky trades).
• Benefits — health, retirement, training, PTO. Total labor burden commonly runs 25–40%+ on top of wages.

Advanced / Pro-Level

Public-work payroll adds compliance:

• Certified payroll (form WH-347) filed weekly on Davis-Bacon/prevailing-wage jobs, certifying each worker was paid the wage determination rate (base + fringe).
• Fringes can be paid as wages or into bona-fide benefit plans; classifications must match the determination.
• Tax deposits (941), multi-state and union fringe reporting, and apprentice ratios all apply.
• Misclassifying employees as 1099 to dodge burden is a top audit target with steep penalties.

Practice Challenge

A laborer earns $25/hr. With ~32% burden, what's the rate you should job-cost? (Answer: $25 × 1.32 = $33/hr — costing the bare $25 understates the job and quietly erases your margin.)

In Practice

On a public job, one error in certified payroll can trigger withheld payment and penalties. And forgetting labor burden in your bid means you priced the job to lose money.

Common Mistakes to Avoid

• Underestimating fully-burdened labor cost
• Errors in certified payroll on public work
• Mishandling contractor sales/use tax

Takeaway: Build labor burden, prevailing wage, and sales/use tax into your estimates from day one.

Educational content — not legal, accounting, or licensing advice. Rules vary by state and change; verify with the licensing board and a CPA.