Construction payroll compliance may seem like a daunting task. Complexities such as prevailing wage work, outsourcing and submitting reports, and construction reporting can quickly become overwhelming.
In this guide, I'll discuss the unique challenges of construction payroll and how to overcome them.
What Is Construction Payroll?
Simply put, construction payroll is the total amount of wages and salaries paid from a company to its employees. The primary goal of construction payroll is to ensure that employees get paid accurately and on time. However, ensuring that contractors and employees submit accurate reports on their working hours and complying with regulations can be an administrative nightmare for businesses.
Why Is Construction Payroll Unique?
Construction payroll deals with many complexities that other industries don’t have to worry about, such as prevailing wage, union payroll and multistate/multicity requirements.
Payroll laws frequently change, which can confuse companies and distract them from their day-to-day jobs. Not following correct payroll laws leads to inaccurate payroll and can be detrimental to your business. It can also erode employee trust and create problems with the unions.
On a larger scale, a single mistake can lead to serious repercussions such as lawsuits and fines. Submitting incorrect payroll amounts for taxes can result in penalties that range from 2% to 15% of the total payroll.
The best way to stay on top of your construction payroll, ensure you are compliant and reduce the likelihood of mistakes is to use a dedicated construction payroll service. These services can reduce the burden of the following construction payroll complexities.
7 Things That Make Construction Payroll Unique
1. Multiple Jobs
Keeping track of employees across multiple jobs and unions at different rates can add an additional layer of complexity to construction payroll. It can be difficult for construction companies to juggle job costing reports with enterprise resource planning (ERP) software and create certified payroll reports for government agencies. On top of that, construction companies will need to make sure that their workers are compensated with the correct federal and overtime pay.
2. Multipay Rates
If employees perform more than one job for the same company, they may earn multiple pay rates. For example, a construction worker may earn an hourly wage on one site but a different rate on another site. When overtime is added into the equation, it can make it more complicated to track hours for each worker and their pay rates. It also makes it more of a challenge to pay the correct rates for the correct duties performed.
3. Multistate & Multicity Requirements
Multistate payroll refers to the process of managing the payroll of employees who live in one state but work in another. It can also apply to businesses that operate in more than one state or an employee that works in multiple states. Multistate and multicity requirements can be particularly complex, because you must factor in managing various regulations, deadlines, and federal and local laws.
Although multistate payroll doesn't impact federal taxes, it gets tricky when calculating state-specific taxes and withholdings or when processing payroll for employees who work under various trade classifications or receive different pay rates. Some states require tax reciprocity for employees and companies in neighboring jurisdictions. This means that employers will need to calculate taxes, withholdings and reports for workers who are employed in more than one jurisdiction. If this is done incorrectly, it can result in employees being underpaid and legal action being undertaken against the employers.
Construction payroll software can help to automate different tax rates, deductions, locations and pay rates. It can also save employers significant time by assigning hours worked to multiple jobs, with automatic calculations of various deductions.
4. Construction Labor Shortage
With the prevalence of the construction labor shortage, companies are in high competition for skilled workers. That’s why it’s more important now than ever to ensure you are paying your employees correctly and on time — if not, it will be hard to retain your employees.
5. Certified Payroll
If your construction company is working on any special projects, such as military or government-funded federal projects, then you will need to fill out a certified payroll form (WH-347) for every one of your workers to ensure that your company gets paid for the project. This form is a reporting tool to ensure compliance — documenting information about the fringe benefits and prevailing wage for the workers. Details required for compliance include personally identifiable information, worker classifications, hourly rates, daily and weekly numbers of hours worked, deductions made, actual wages paid, detailed fringe benefit plans and programs and detailed information regarding apprenticeship programs.
6. Prevailing Wage
Prevailing wage laws require employers to ensure that their employees are paid no less than the prevailing wage rate — the hourly rate paid to similarly employed workers in a certain location. The challenge for construction companies is that the prevailing wage for each employee is unlikely to be uniform across the board because there are so many kinds of workers from different localities on a construction site.
Employers will need to be able to match employees to the proper job codes and wage rates to create an accurate, certified payroll. Failure to do this could result in incorrect wages being paid and the wrong information being submitted to the government.
7. Union Payroll
Union payroll varies between different states and comes with different tax rates, fringes and compliance requirements.
To manage union payroll effectively, you will need flexible software that can easily set up multiple user-defined deductions to take all the different variables and union payroll deductions into account. This will save you from the stress of calculating payments for multiple tax jurisdictions and out-of-state unions. It should be able to process multiple unions and job codes and allow you to produce manual checks as required.
Ensuring that wages are accurately tracked and reported is vital for staying compliant with regulations and union requirements. This is another reason why investing in essential construction payroll software is essential. Not only will it help to cut costs by providing accurate project reports and tax filings, but it will also help to provide vital documentation and facilitate discussions with union leaders.
Construction Payroll Reports
Contractors can manage their jobs and their business more efficiently by reviewing reports from their payroll service. Some important reports include:
- Job costing: Job costing accurately tracks all costs associated with a job, including labor, materials and overheads — allowing companies to make reliable estimates of said costs. In construction-specific software, job costing is part of a standard payroll package.
- Job labor: Job labor reports summarize the total hours (including overtime) and labor costs on each job.
- Job hour variance: Job hour variance reports contain estimated hours and costs versus actual hours and costs of your business's labor. Typically, they summarize by job but, if necessary, can go into more detail, like comparing actual to estimated cost and hours for each type of work, and comparing actual to estimated hourly labor rates.
- EEO minority compliance: The U.S. Department of Labor collects employee information, including worker's minority percentages, classifications, trades and totals of federal and nonfederal work hours to ensure they are meeting affirmative action regulations. You will need to ensure that all of this information is accurately documented and processed so that you do not lose federal contracts or have legal penalties.
- Workers’ compensation: Each state has its own laws for workers' compensation requirements, and typically, construction businesses have stricter requirements than others. It is the company's responsibility to submit the workers' compensation payroll report, and particular payroll reports are needed if you are going through an audit.
Construction payroll software can calculate and automate the aforementioned reports for you so that you do not have to memorize every local, state and federal requirement.
Benefits of Using Construction Payroll Software
The complex nature of construction payroll makes it difficult to reduce errors and comply with state and federal regulations without the use of construction software. Software allows contractors to easily manage the complexities of payroll while remaining in control. Contractors maintain approval rights but alleviate themselves of the burden of double data entry and tracking tax filing deadlines.
Construction payroll software can also help in the following ways:
- Automate manual processes: Construction payroll software automates processes that you would otherwise have to input on spreadsheets and other clunky systems. It easily allows you to maintain compliance so that you don’t have to comb through each individual payroll calculation and make lists of jurisdictions, employees and states. Automated timekeeping can reduce admin and labor costs by ensuring accuracy and verifying that employees are on location for work.
- Manage cash flow: Small construction businesses often face cash flow challenges. Construction software can eliminate the need to sift through spreadsheets to track down individual records and transactions. It can also provide real-time tracking that allows you to address cash shortages, make payments and budget.
- Enhance visibility: Construction payroll software enhances the visibility into your business, allowing you to manage workforce time and access real-time dashboards and fast, custom reports — anytime, anywhere.
- Save time with one partner: When your construction accounting software and your payroll provider is the same company, you can save time and simplify entries with just one software, removing the need for double data entry and eliminating redundancies.
How to Choose the Best Construction Payroll Software
Now that you understand the benefits of construction software, the next step is to select the right payroll software for your business. The following considerations can help ensure you choose the best one for your business needs:
- Assess your payroll requirements: Make a list of everything you need the software to do. This could include accounting for seasonal workers, unions, the number of employees, multistate/multilocality/multijob processing and pay slips, for example.
- Maintain compliance: Any worthwhile payroll software will help to ensure that you remain compliant with state and federal regulations while remaining user-friendly and accurately delivering payroll on time.
- Compare features: Different payroll systems will vary in their features and functionality. This is another reason for assessing your payroll requirements above. Defining the features you need, such as job costing, will make it easier to compare different software and select the best one.