Payroll deductions the Copeland Act allows on certified payroll

The Copeland "Anti-Kickback" Act of 1934 exists because contractors were paying the prevailing wage on paper and taking part of it back at the pay window. The regulations that implement it, 29 CFR part 3, list what may be deducted from a laborer's or mechanic's pay on a federally funded job. Everything else needs the Department of Labor's approval or is prohibited.

Item 6 of the Statement of Compliance reads: "All workers on the project have been paid the full weekly wages earned, and no rebates or deductions have been or will be made either directly or indirectly, other than permissible deductions as defined in 29 CFR part 3." Column 8 of the WH-347 is where the reviewer checks it.

Deductions allowed without asking

Section 3.5 lists the deductions you may take without applying to the Department of Labor.

Taxes and other legal requirements. Federal and state income tax withholding, Social Security and Medicare, and any other deduction required by federal, state, or local law. State disability insurance where it exists, for example.

Repayment of a bona fide wage advance. If you advanced a worker cash without discount or interest and with no strings on how they spent it, you may deduct the repayment.

Court-ordered payments. Garnishments and child support withholding orders, as long as the deduction is not in favor of the contractor, a subcontractor, or an affiliate, and there is no collusion.

Benefit contributions the worker chose. Contributions to funds for medical care, pensions, death benefits, disability, unemployment benefits, vacation pay, savings accounts, or similar. Four conditions (29 CFR 3.5(d)): the deduction is not otherwise prohibited by law; it is either voluntarily consented to by the worker in writing before the work period, with consent not a condition of employment, or provided for in a collective bargaining agreement; the contractor, subcontractor, or any affiliate gets no profit or benefit from it, directly or indirectly, in the form of a commission, dividend, or otherwise; and the deduction serves the convenience and interest of the worker.

Credit union payments. Loan repayments or share purchases at a credit union, at the worker's request.

Charitable and governmental contributions. Voluntary contributions to agencies like the American Red Cross, and to charities recognized under section 501(c)(3).

Union dues. Regular initiation fees and membership dues, where a collective bargaining agreement provides for the deduction. Fines and special assessments are excluded.

Board, lodging, and facilities. Up to the "reasonable cost" under section 3(m) of the Fair Labor Standards Act, with the additional records that 29 CFR 516.25(a) requires.

Safety equipment of nominal value the worker buys to own. Safety shoes, glasses, gloves, hard hats, when the law does not require the contractor to furnish them, the price does not exceed the contractor's actual cost or return the contractor any profit, and the worker consented in writing beforehand or a bargaining agreement provides for it. Equipment OSHA requires the employer to provide is outside this.

Deductions that need approval

Anything not on the section 3.5 list may be deducted only with the Secretary of Labor's permission under section 3.6. The Department grants it when 4 findings are made:

1. The contractor, subcontractor, or any affiliate does not profit or benefit from the deduction, directly or indirectly.
2. The deduction is not otherwise prohibited by law.
3. The worker voluntarily consented in writing, before the work period, with consent not a condition of employment, or a collective bargaining agreement provides for it.
4. The deduction serves the convenience and interest of the worker.

Requests go to the Wage and Hour Division in writing. A common example is a worker-requested payment to a third party that does not fit an existing category. (Board, lodging or other facilities at no more than reasonable cost need no approval: 29 CFR 3.5(i) permits them, with the extra records 29 CFR 516.25(a) requires.) Approval covers the specific deduction described; a new type of deduction needs a new request.

Deductions that fail

Some deductions cannot pass either test because the contractor benefits or the law prohibits them:

• Charges for tools, equipment, or uniforms the job requires and the employer is obligated to supply.
• A "fee" for transportation to the site in the company truck.
• Deductions for breakage, shortages, or damage.
• Deductions to cover the employer's share of any tax or insurance.

These are the kickbacks the Act was written for. A deduction that returns money to the contractor is a rebate under box 6 of the Statement of Compliance regardless of what it is called.

How to report deductions on the WH-347

Column 8 has 4 sub-columns: tax withholdings, FICA, other (which must be specified, with an addendum listing each deduction when the figure combines several), and total deductions. Enter the actual amounts deducted from the worker's full weekly pay. The instructions say not to prorate them to the project; the deductions are what they are, and column 7B carries the total gross they were computed on.

Anything in "other" should be identified. The instructions say to describe it under Additional Remarks on page 2: "401(k)," "union dues," "child support order." A reviewer who sees $85.00 under "other" with no label will ask, and an unlabeled amount that turns out to be a tool charge turns a question into a finding.

For a worker with 2 classification rows, report the deductions once, on the first row, alongside 7B and column 9.

The interaction with fringe

A worker's own contribution to a health plan through payroll deduction is a permissible deduction under section 3.5, with written consent. It is not the employer's fringe contribution, and it does not count toward the fringe obligation. Only the employer's payments into the plan are credited in column 6B. The worker's share reduces net pay in column 8 and leaves gross in 7A alone.

Records

Keep the written consents. The regulation ties several permissible deductions to consent "in writing and in advance of the period in which the work is to be done," and an investigator asking about a 401(k) deduction will ask to see the enrollment form. Keep court orders, union agreements, and any Department of Labor approval letters in the same project file, for 3 years after the prime contract is complete.