How to Do Payroll For a Construction Company: Tips & Tools

Construction companies have one of the most difficult payroll processes of any industry. There are a lot of moving parts that open you up to accidentally calculating employee wages inaccurately, failing to remain tax compliant, and winding up legally liable. 

In this post, we’re going to walk you through how to do payroll for a construction company, breaking down all the necessary steps to follow to ensure you’re compliant with state, local, and federal laws. We’ll also include a few tips and tools that will help you streamline this process so it’s as simple, quick, and easy as possible.

Why construction payroll is complex

Construction payroll is complex because it has special considerations that don’t come into play when running payroll for other industries:

Job costing

Construction companies are rarely working on a single job at a time. Generally, you’re juggling multiple jobs that each have their own project budgets and timelines. 

To accurately track project profitability or invoice clients properly for hourly work (depending on how you get paid), you need to be able to not only track the total time your employees work, you also need to track the time they spend working on specific jobs.

Variable pay rates

Not only do you need to be able to track time by job, but you may also need to be able to track time spent working on variable rate jobs, which may include prevailing wage jobs or variable rate shifts.

If you take on prevailing wage jobs or pay your workers differently depending on what shifts they’re working (i.e., higher rates for overnight or weekend shifts), you’re going to need a way to distinguish between hours where they should receive regular pay and hours where they should receive variable pay.

In bookkeeping, this is known as split payroll, and it increases the complexity of calculating pay exponentially.

Certified payroll

If you do take on prevailing wage jobs, you’re also subject to a process called certified payroll. Certified payroll requires that contractors and subcontractors report prevailing wages in accordance with DBRA on a weekly basis, even if work is temporarily halted. 

Government contractors are required to submit this using Form WH-347, and must include contractor or subcontractor names, workweek, project and location, workers, withholdings, work classifications, hours worked, and more.

Field workers

Construction workers generally work in the field. It’s not cost-effective to have them commute to and from the office to clock in and out before driving to the job site, particularly if your worksites are spread out across a wide area.

Without the right tools, this can make time tracking more complicated as you need a way to capture accurate clock in and out times for employees you might never see during a shift.

Subcontractors

If you subcontract project work out to other construction companies, this can make payroll more complex as well. In addition to tracking time for and paying your employees, you’ll have to manage a separate payment process for any contractors you hired as well.

Union requirements

If your employees are part of a union, there may be additional requirements detailed in your collective bargaining agreements, such as when employees must be paid, what rates they earn for working specific shifts, and more.

How to do payroll for a construction company in 4 steps

Despite all these factors we’ve mentioned, it’s still very possible to handle payroll for a construction company and ensure there are no issues. Here’s a step-by-step guide.

Step 1: Track employee hours

The best way to simplify the process of running payroll is to use a timekeeping system that caters to how construction companies operate. You’ll need to be able to track time by jobs, role, and rate of pay. You also need a way for your workers to clock in and out from the field.

Paper timesheets don’t really work well for capturing all of this complexity, and having employees come to the office to punch in and out is a waste of time and money.

For this reason, we recommend you look into a digital time-tracking system. These systems offer many different ways for employees to clock in and out. They track time by projects, worker types, and pay rates automatically. And many also offer built-in payroll services that will save you an incredible amount of time.

Related Reading: The Best Construction Time Tracking Software

Step 2: Calculate all time data

If you’re using time tracking software, it automatically calculates employee hours and pay for you, including regular hours, overtime, and any hours that were worked on variable rate jobs/shifts. All you need to do is access your timesheet reports.

If you’re not using time tracking software, you’ll have to calculate employee pay manually. You can use a clock-in clock-out calculator to expedite this process.

Step 3: Apply deductions

The next step is subtracting any deductions from the gross amount of pay earned for each employee to determine their net pay.

Common deductions include:

• FICA (Federal Insurance Contributions Act)
• Federal, state, and local taxes
• Any wage garnishments (such as child support)
• Any additional withholdings, including voluntary withholding deductions such as union dues, 401k contributions, health insurance premiums, and more.

Once you’ve applied all the necessary deductions, you’ll be left with a construction employee’s net pay and can move on to the next step.

Construction payroll software can help significantly with this step and the next. You simply set it up with all of your company’s and employees’ information and enter your timesheet data, and it automatically calculates all of your deductions for you.

Step 4: Make your payments 

Once you have pay calculated for all of your employees and contractors, it’s time to pay your team. You can cut checks for each employee or pay them through your company’s bank via direct deposit.

You may also need to make payments on taxes, benefits, etc. based on the amounts you withheld from your employees’ paychecks.

Payroll software can also help with this step by automatically sending payments to your employees, providers, and tax organizations for you.

Common mistakes to avoid when running payroll

In the quest to make sure payroll runs smoothly, there are a few common errors to avoid.

Not actively combating human error

Typos happen, but you should actively try to avoid them as much as possible. When you have typos in payroll, employees aren’t paid correctly, and you have to do a lot of work to fix things.

Failing to prevent time theft

No employer wants to believe that their workers are actively taking steps to steal time from them. But the truth is that time theft isn’t necessarily malicious. Sometimes, it’s accidental — born from bad habits or committed out of ignorance.

This is why it’s important to make sure you have an updated, comprehensive attendance policy that outlines everything relating to timeliness and tardiness in the workplace, including how that relates to employee time theft and corrective actions you’d take to amend it. 

Additionally, if you’re using time tracking software, you should have various options — like GPS tracking, geofencing, and facial recognition — to prevent time theft that you may want to enable. 

Misclassifying workers

Misclassifying workers — particularly classifying workers who should be employees as independent contractors to avoid paying taxes and benefits — is illegal. It’s crucial to understand employment law and make sure your employees are classified, and therefore being paid, properly. 

Failing to control overtime

There are two sides to controlling overtime:

• Properly accounting for all overtime hours in your workplace.
• Limiting the amount of overtime hours that happen.

Properly accounting for all overtime hours is critical to ensure that your workers are properly compensated whenever they have to work outside the standard 40-hour workweek. 

The FLSA leaves it up to business owners, not their employees, to keep track of all time in the workplace, and they have strict regulations pertaining to overtime.

Meanwhile, limiting overtime hours to only when they’re absolutely necessary will help significantly reduce your labor costs. As a bonus, not having to calculate overtime hours and pay — in addition to regular and variable time and pay — will save you a lot of time when manually running payroll.

Relying on manual processes

Speaking of doing things manually: even though using manual methods to handle timekeeping and run payroll are free, they’re also flawed, manipulatable, and slow.

And even if you manage to run a completely error-free payroll manually, week after week, there’s still the invisible cost. The time it takes you to complete this is time that you could be spending on running and growing your business.

Track employee time and run payroll with Buddy Punch

Buddy Punch was built with flexibility and simplicity in mind due to our experience managing 20 employees at three different locations and realizing how suboptimal it was to track time and run payroll manually. 

With limited options on the market at the time, we turned to developing our own software to make time tracking and running payroll a breeze. 

Today, Buddy Punch functions as an all-in-one tool for workforce management. We’re all about saving you time, so here are the bullet points on how Buddy Punch can be useful for construction companies:

• Workers can clock in and out in multiple ways. They can download Buddy Punch onto their phones to clock in and out via our mobile app, you can set up a time clock kiosk at your job sites by download the app onto a tablet, they can clock in and out by sending a text message, or you can use group punch to have a site foreman clock everyone in and out at the same time.
• If your employees are using the apps to clock in and out, Buddy Punch’s interface is extremely simple, meaning that even your least tech-savvy employees can quickly clock in or clock out without any instruction on how to do it.
• Employee timesheets can be easily edited by admins in case of errors.
• In addition to time tracking, you can use Buddy Punch to run payroll. Or you can connect it to your existing payroll provider via an integration.
• It comes with multiple additional features that help you prevent time theft and reduce labor costs, such as GPS tracking, geofencing, photos on punch, facial recognition, and overtime alerts. All of these features are completely optional. Turn them on or off for everyone or for specific employees.

Should you do payroll yourself or outsource it?

There’s one last method of handling payroll to cover: whether you should be bothering to deal with it at all. Outsourcing your payroll entirely to a third-party service is always an option. 

These accountants tend to be experts who can help you navigate tax compliance, especially if they work locally. They can reduce your administrative burden and guarantee that payroll is handled properly, which can make them worth the cost.

The trade-off is that you lose control over your payroll and have to compromise some of the security of your employee data. There is also something to be said for understanding what’s happening in your business on the technical side, especially if you end up needing to troubleshoot forms or a process for the IRS.

The bottom line 

The unique challenges of handling payroll for a construction company make it important for a business owner to fully understand and streamline the process to ensure their business runs as smoothly as possible. What’s most important is taking any and all desired steps to streamline the process for yourself and your employees.