Payroll in the construction industry is a unique challenge, filled with complexities that can overwhelm even the most experienced accountants and controllers.
From navigating the intricacies of certified payroll and precise job costing to tackling multi-state taxes and ever-changing compliance requirements, managing construction payroll demands expertise and attention to detail. To help you streamline your processes and avoid common pitfalls, we’ve compiled the top five do’s and don’ts of construction payroll.
Do: Accurate Job Costing
Accurate labor costs are the backbone of effective construction project management, directly impacting your ability to stay on budget and maintain profitability. To ensure precision, it’s crucial to update labor cost information weekly. Regular updates allow you to reflect actual costs, giving you real-time insights into your financial standing.
This practice not only helps you monitor ongoing project expenses but also empowers you to make informed adjustments when necessary, such as reallocating resources or identifying inefficiencies.
Detailed cost reports, broken down by job and cost code, are essential tools. These reports provide a granular view of where your money is going, enabling you to pinpoint trends, track variances, and identify potential problem areas. For instance, consistently going over budget on certain jobs might signal that your initial labor estimates are too low, revealing an opportunity to improve the accuracy of your bids and forecasts.
Do: Pay All Local Taxes from Job Sites
Tax compliance is non-negotiable in the construction industry, especially when working across multiple locations. Failing to account for local tax liabilities can lead to audits, penalties, and unwanted attention from the IRS or local tax authorities.
The complexity arises because tax obligations often vary by job site, depending on the local jurisdiction’s specific requirements. To avoid costly mistakes, it’s essential to stay vigilant and ensure all local taxes are accurately calculated and paid for each job site.
Leveraging technology that automatically accounts for local tax rates based on a job site’s GPS location can be a game changer. Automating this process with a program like ConstructionPayroll.com reduces the risk of human error, ensures compliance, and saves valuable time. Taking these proactive steps not only keeps your payroll in check but also protects your business from legal and financial trouble.
Do: Ensure IRS Compliance
In addition to local taxes, be sure to pay your federal and state taxes on time! Track accurate tax liability and ensure payments are made on time to avoid penalties, late fees, and interest charges. These fees can add up over time and become very costly, so staying IRS compliant is critical.
Do: Know the True Cost of Payroll
Payroll costs are more than the gross paycheck amounts. Workers’ compensation and liability insurance, union benefits, and any additional fringe benefits add up and need to be accounted for at the job level.
Do: Outsource Payroll to Professionals Who Know Construction
Construction payroll is complex and requires detailed tracking of labor costs along with tax and government agency reporting requirements.
Experience in general payroll processing isn’t enough. Your payroll provider must be able to track and accurately process all the complexities of construction-specific payroll. Ensure that whoever is running your payroll knows how to report to all government agencies and can correctly manage prevailing wage reports and union/fringe benefit reporting.
Don’t: Overpay Insurance-Related Costs
This can happen when you don’t break down your costs by pay type (such as overtime) and work description for workers’ compensation and liability insurance. If you don’t break costs down by job function, all workers may get lumped into the highest insurance cost bracket, resulting in overpayment.
Don’t: Forget Certified Payroll
Certified payroll comes up on county, state, and federally funded projects. When certified payrolls are required, progress billing payments on a project may be withheld until the certified payroll reports are submitted.
Any delay in submitting your certified payroll reports can delay payment on a project, directly affecting your company’s cash flow.
Don’t: Enter Duplicate Data
When data needs to be entered multiple times, it’s easy to make mistakes and generate errors. If an error is made, it can be difficult to track down the source, wasting valuable time. Ideally, you want one simplified data entry point that contains all the information needed to transfer data to your accounting software and minimize payroll risk.
Don’t: Pay Too Much for Payroll
Prevailing wage rates can vary between jobs, and it’s easy to overpay if you don’t know the correct pay rates and benefits for each job. Avoid paying top-tier wages for every role and avoid unnecessary additional liability with unions and other reporting agencies. Automated rates based on job and work classification are a must.
Don’t: Outsource to Someone Who Doesn’t Know Construction
If your payroll provider doesn’t understand the complexities of payroll in construction, you will spend more time and money dealing with payroll-related reporting issues.
They may not have the expertise needed to handle the details of your business accurately and efficiently. Like any specialized field, you want an expert—just as you wouldn’t want a dentist performing open-heart surgery. They may be great in their field, but not for that specific need.
Put Your Trust in Construction Payroll Experts
Ultimately, payroll in construction has complicated needs that a generic payroll provider may not meet. If you want to eliminate frustration, late fees, and uncertainty from your payroll while processing up to 20 times faster, give ConstructionPayroll.com a try.
Let’s talk. Get a free quote today!