If you’re a contractor or subcontractor working on HUD-funded projects, you already know how complicated certified payroll compliance can be. The Davis-Bacon Act (DBA) and HUD wage determinations set strict standards for how workers must be classified and paid, but many contractors still make costly mistakes that lead to payment delays, compliance violations, and penalties.
I’ve seen firsthand how small payroll errors can turn into major headaches. A contractor I worked with once overlooked a wage determination update, and after an audit, they had to pay back wages and penalties totaling over $50,000—a mistake that could have been easily avoided with better payroll tracking.
To help you stay compliant and avoid common pitfalls, let’s break down the top HUD payroll mistakes and how to fix them before they cost you time and money.
1. Misclassifying Workers
Why This Happens
One of the biggest (and most common) mistakes in HUD payroll is worker misclassification—where an employee is assigned to the wrong wage classification on the certified payroll report (CPR).
This happens for a few reasons:
✅ Contractors assume job titles and wages can be used interchangeably.
✅ Subcontractors list workers under lower-paying categories to reduce payroll costs.
✅ Contractors don’t fully understand HUD wage determination requirements.
Why Misclassification Is a Big Problem
❌ Back Wage Claims: If workers are underpaid due to misclassification, HUD and DOL audits can force contractors to pay back wages and penalties.
❌ Payment Holds: Government agencies can pause contract payments until misclassifications are corrected.
❌ Legal Trouble: Repeated violations can result in debarment from federal contracts.
How to Avoid It
✔ Use the Correct Wage Determination – Always check the official HUD wage classification list to match workers with their correct roles.
✔ Train Your Payroll Team – Make sure project managers and payroll staff understand Davis-Bacon classifications.
✔ Use Payroll Compliance Software – Platforms like Elation Systems help ensure proper worker classification before payroll submission.
2. Incorrect Fringe Benefit Calculations
Why This Happens
Fringe benefits are a critical part of HUD payroll compliance, but they are often calculated incorrectly. Some contractors:
❌ Forget to separate fringe benefits from base wages.
❌ Miscalculate cash equivalents when benefits aren’t provided.
❌ Fail to track benefit contributions correctly on certified payroll reports.
Why This is a Big Problem
If fringe benefits aren’t properly documented or calculated, contractors can be penalized for failing to meet Davis-Bacon wage requirements. Workers may also file wage disputes, leading to costly audits.
How to Avoid It
✔ Clearly Separate Base Wages & Fringe Benefits – Certified payroll reports must list both amounts separately.
✔ Use Certified Payroll Systems – Elation Systems automatically calculates fringe benefits for accurate reporting.
✔ Keep Detailed Records – Track and document benefit payments vs. cash equivalents to avoid compliance issues.
3. Missing Certified Payroll Report Deadlines
Why This Happens
HUD projects require weekly certified payroll reports (CPRs), but many contractors miss submission deadlines due to:
❌ Disorganization or lack of tracking systems.
❌ Errors in payroll data that cause delays.
❌ Not realizing reports must be submitted even if no work was performed that week.
Why This is a Big Problem
❌ Payment Holds – If reports aren’t submitted on time, HUD funding for the project can be delayed.
❌ Fines & Penalties – Repeated late submissions may trigger DOL audits.
❌ Project Compliance Issues – Contractors risk losing their contract eligibility for future projects.
How to Avoid It
✔ Set Payroll Reminders – Schedule weekly submission deadlines for certified payroll reports.
✔ Automate Reports with Elation Systems – This ensures all required payroll data is included and submitted on time.
✔ Submit “No Work Performed” Reports – Even if no work was done in a given week, you must still submit a report for compliance.
4. Not Monitoring Subcontractor Payroll Compliance
Why This Happens
Many prime contractors assume subcontractors are handling HUD payroll compliance correctly—until an audit reveals errors.
Common issues include:
❌ Subcontractors misclassifying workers.
❌ Failing to pay correct fringe benefits.
❌ Missing payroll report deadlines.
Why This is a Big Problem
❌ Prime Contractors Are Responsible for Subcontractors’ Mistakes – If a subcontractor fails to comply with HUD wage laws, the prime contractor faces penalties.
❌ Project Payment Holds – Government agencies can suspend payments due to subcontractor errors.
How to Avoid It
✔ Require Subcontractors to Use Elation Systems – This allows you to track their payroll compliance in real time.
✔ Conduct Monthly Payroll Audits – Check subcontractor payroll reports for errors before they escalate.
✔ Establish Clear Payroll Compliance Expectations – Require subcontractors to submit certified payroll reports on time and in the correct format.
5. Using Outdated Wage Determinations
Why This Happens
Wage determinations change periodically, but many contractors:
❌ Assume the same wage rates apply to every project.
❌ Forget to check for mid-project wage updates.
❌ Use wage determinations from previous years without verifying accuracy.
Why This is a Big Problem
❌ Workers May Be Underpaid – If wage rates increase but aren’t updated, contractors must pay back wages.
❌ Fines for Non-Compliance – Using outdated wage rates violates Davis-Bacon Act requirements.
❌ Delays in Certified Payroll Processing – Errors in wage rates trigger corrections and re-submissions.
How to Avoid It
✔ Check for Updates Before Every Project – Review SAM.gov for the latest wage determinations.
✔ Monitor Contracts for Mid-Project Wage Adjustments – Some contracts require updated wage rates after a set period.
✔ Use Payroll Compliance Experts – Seek professional assistance to verify wages are accurate and up to date.
Final Thoughts: Stay Compliant & Avoid HUD Payroll Mistakes
Handling HUD-certified payroll the right way is critical for keeping projects on track, workers paid correctly, and contracts in good standing.
By avoiding these common mistakes, you can ensure Davis-Bacon Act compliance, prevent audits, and streamline payroll processing.
📞 Need Help with HUD Payroll Compliance?
Wilson-Bird & Associates specializes in Elation Systems support, Davis-Bacon Act compliance, and certified payroll troubleshooting.
Call today to simplify your HUD payroll process and stay fully compliant!