The construction industry faces unique payroll challenges. Unlike most other businesses, construction companies must handle wages not just for regular employees, but also for independent contract workers and union contractors.
Additional complications can arise when jobs cross state lines or span several locations, resulting in additional laws and regulations affecting payroll, taxes, and withholdings.
If you need help cleaning up your construction payroll, you’re in the right place. We’ll show you how to do that.
Why is Construction Payroll Difficult?
Construction payroll is challenging for many reasons. A lot of companies in other industries work with contractors, but the practice is particularly common in the construction sector. Even in 2019, when the percentage of self-employed people in the industry was lower than the 2010 all-time high, almost a quarter (22%) of individuals in this field worked for themselves.
To put things into perspective, the number of self-employed workers across all industries in the US was 15.4% that year—and 15.7% in 2021.
Payroll for contractors can be more complicated than for full-time employees, for several reasons. HR teams will have to ensure that self-employed workers submit their invoices for the month on time—and verify that the numbers are correct. These factors, coupled with variable pay rates, present significant administrative challenges.
Although the sector has begun modernizing in recent years, much of the construction industry still lags behind other industries in the use of technology. Adoption of software solutions has been slow, which can result in manual payroll processing taking longer than it should.
Common Construction Payroll Issues
For workers, joining a union has several benefits. Along with ensuring fair pay, unions can also help those with construction skills to seek work and receive support when they need it. For construction managers, an advantage of working with union workers is the assurance they’ll have the skills needed. Trade union membership in the US rose in 2021; the map below shows member distribution:
At 13.6%, the average construction industry union membership was higher than the national (10.3%).
When it comes to payroll, challenges with unions vary. You’ll need to ensure that payments meet agreed rates and are on time—and be prepared to provide appropriate documentation.
Multiple Job Sites
Many construction companies work directly with recruiters to find their employees. While having a wider pool of people to choose from is a good thing, you must also consider how it will affect your payroll workflow.
When working with recruitment agencies, you’ll often have to pay the recruitment company; who will then pay the construction workers. This can make tracking more difficult, and you must also have an effective system to deal with any disputes or discrepancies that arise.
If you operate a larger firm, you might have ongoing projects in multiple states. As such, you’ll probably have to contend with more payroll-associated difficulties.
Operating in multiple states involves a wide range of challenges. You will have to deal with different standards and legislation, and you might need to contend with various time zones—which can make communication more difficult.
Regardless of the state(s) you operate in, you will have to deal with compliance requirements effectively. Building and worker safety regulations are two crucial areas, but you might also need to consider data protection and how you process information to meet local requirements. For example, California has the California Consumer Privacy Act (CCPA), while Utah has the Utah Consumer Privacy Act (UCPA).
If you operate elsewhere in the world, such as in Europe, you might also need to deal with stringent legislation like the General Data Protection Regulation (GDPR).
Tips for Avoiding Common Construction Payroll Mistakes
Tip 1: Conduct regular audits of your data
One of the best ways to remain compliant with data privacy laws is to regularly audit the information you store. The best policy is to keep only what is absolutely necessary and remove employees’ information from your platform at the appropriate time.
When conducting data audits, assess your protection systems and ensure all information you store is encrypted. This helps to avoid security breaches and the hefty financial penalties that follow.
Construction technology is increasingly crucial to the industry, and investment in this area increased by over 200% between 2009 and 2019.
What kinds of construction technology will help you enhance your payroll solutions? Below are two potential opportunities worth exploring.
Many construction workers are paid hourly, and working schedules are sometimes inconsistent. As such, tracking time is one of the most important aspects if you want to ensure that your payments are accurate each month.
When investing in a time tracking solution, choose something that’s user-friendly and requires little manual work. You should also look for capabilities that enable your workers to easily clock their hours and protect their information. It will also need to use encrypted software.
Managing your payroll will never be entirely pain-free, but using payroll services can ease much of the discomfort. With these solutions, you can manage all of your workers from a single interface regardless of where they are, and easily tweak contracts based on the relevant labor legislation.
There are many payroll services available and pricing varies. Take the time to compare solutions and find the best fit for your needs.
Tip 3: Ensure your tools are equipped to support the construction industry
The construction sector faces several unique challenges. Business managers must refine their tech search to find the best solutions.
When considering payroll and time-tracking solutions, look for software that has:
Employee time-off calendars
Efficiently Managing Your Construction Payroll Requires a Lot of Effort
Modernizing your construction technology is critical if you want to enjoy a successful future in the sector. Becoming more efficient will help you maintain clear oversight and improve your operational processes. Organizing your payroll is perhaps the most essential aspect of managing your business, and you’ll find several tools to help you—including scalable and compliant software.