Davis-Bacon payroll deductions: which ones are allowed without approval

On a Davis-Bacon job, you may only take deductions from a worker’s pay that the rules allow. 29 CFR 3.5 lists the deductions you can make without asking the Department of Labor. Anything not on that list needs approval first. Knowing the list before the weekly payroll goes out is far easier than fixing a wrong deduction afterward.

Why are deductions limited on federal jobs?

The rules come from the Copeland Act, also called the Anti-Kickback Act. Section 3.1 describes the regulation as aiding enforcement of the Davis-Bacon wage requirements, and it applies to the related acts as well as the Davis-Bacon Act itself. The regulation in 29 CFR Part 3 sets out which deductions are fine and which are not.

The WH-347 instructions say all deductions must follow 29 CFR Part 3, and anything outside section 3.5 needs prior Labor Department approval. Our guide to what certified payroll is covers that statement. This post goes deeper on the deductions themselves.

Which deductions are allowed without approval?

Section 3.5 of the regulation (as published in the eCFR) allows these, in plain terms:

• Legal withholdings. Deductions required by federal, state or local law, such as income tax withholding and Social Security taxes.
• Wage prepayments. Repaying an advance of wages, but only if it was a true prepayment made without discount or interest, and the worker had complete freedom to use the money.
• Court orders. Amounts a court process requires you to pay to someone else. This does not apply if the payment is in favor of the contractor, a subcontractor or an affiliate, or if there is collusion.
• Benefit plan contributions. Contributions to funds for medical care, pensions, death benefits, disability or accident coverage, insurance, unemployment benefits, vacation pay, savings accounts or similar benefits. Extra conditions apply (see below).
• Credit unions. Deductions the worker requests to repay loans to, or buy shares in, credit unions.
• Government or quasi-government agencies. Voluntarily authorized contributions to groups such as the American Red Cross.
• Charities. Voluntarily authorized gifts to charities described in 26 U.S.C. 501(c)(3).
• Union dues. Regular initiation fees and membership dues, but not fines or special assessments, and only if a collective bargaining agreement provides for them.
• Board, lodging and other facilities. Up to the “reasonable cost,” when the rules of the Fair Labor Standards Act and 29 CFR Part 531 are met. Extra records under 29 CFR 516.25(a) are required.
• Safety equipment. Items of nominal value that the worker buys as their own, such as safety shoes, glasses, gloves and hard hats. This is allowed only if no law requires the contractor to provide the item and the deduction does not break the Fair Labor Standards Act or any other law. Limits on cost and consent also apply.

Read the regulation itself before you rely on this summary. Each item has conditions that this short list cannot show.

What extra conditions apply to benefit plan deductions?

Plan contributions are a common source of trouble. Under section 3.5(d), all of these must be true:

1. The deduction is not otherwise prohibited by law.
2. The worker agreed in writing, before the period in which the work is done, and that agreement is not a condition of getting or keeping the job. A bona fide collective bargaining agreement can provide for the deduction instead.
3. The contractor, subcontractor or any affiliate gets no profit or other benefit, directly or indirectly, such as a commission or dividend.
4. The deduction serves the convenience and interest of the worker.

Safety equipment deductions in section 3.5(j) are allowed only if the equipment is not required by law to be furnished by the contractor and the deduction does not violate the Fair Labor Standards Act or any other law. They have a similar consent rule. The cost may not exceed what the contractor actually paid, and it may not include any return to the contractor when the item comes from a third party.

What if a deduction is not on the list?

You can ask for approval. 29 CFR 3.6 lets a contractor or subcontractor apply to the Secretary of Labor for permission to make a deduction that section 3.5 does not cover. The Secretary may approve it only if the deduction meets conditions much like those above: no profit or benefit to the contractor or an affiliate, not otherwise prohibited by law, voluntary advance written consent (or a bona fide collective bargaining agreement), and it serves the worker’s convenience and interest.

The practical point: do not start taking a new kind of deduction and sort it out later. Get a written answer first.

How do deductions show up on certified payroll?

The Labor Department’s WH-347 form has columns for gross pay, deductions and net wages paid for the week. Your internal payroll records must also back up each amount. Under 29 CFR 5.5(a)(3)(i), records on a covered contract include deductions and actual wages paid, and they must be kept during the work and for three years after all work on the prime contract is finished.

For a deeper look at the form, see how to fill out a WH-347. If your fringe benefits are paid into plans, Davis-Bacon fringe benefits explains the hourly credit. Do not mix the two up: a fringe contribution you pay is not the same as an amount you deduct from the worker’s wages.

A short checklist before payroll closes

1. Match each deduction code in your payroll system to a paragraph of section 3.5. If you cannot, stop and ask.
2. Keep the signed, dated consent forms for plan, safety equipment and similar deductions.
3. Confirm that no deduction pays you or an affiliate anything.
4. Check that gross, deductions and net on the report match your payroll register.
5. Ask a qualified professional about anything unusual, such as garnishments, loans or housing charges.

Where Payrung fits

Payrung is being built to turn your payroll export into submission-ready certified payroll, with gross pay, deductions and net wages carried over to the report without retyping. It is not built yet. Join the waitlist.

This article is general information, not legal or tax advice. Deduction rules depend on your contract, your state and the facts, so check with a qualified professional.