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Payroll Tips for Contractors


Processing payroll is a critical administrative task that directly ties to your construction company’s labor costs, profits, and ability to comply with labor laws. Yet staying on top of payroll can be daunting. Depending on the job, your payroll staff may have to account for union requirements, prevailing wage rates, and certified payroll — not to mention various tax rates and rules of multiple jurisdictions. Because of such complexities, mistakes are common.

Making payroll processes more accurate and efficient isn’t easy, but there are ways to help simplify these tasks. Here are some suggestions for preventing common yet costly mistakes.

1. Reduce Manual Steps (Go Digital!)

Eliminating as many manual tasks as possible will help human error and streamline processes. For example, try to:

Improve time tracking. For instance, if you manually enter paper timecards, it’s easy to key in the wrong information. With labor-tracking apps, staffers don’t have to process the payroll themselves. Instead, time records are sent wirelessly from the field, allowing manager and accounting employees to see time punches, activities performed and job locations. Today’s time-tracking systems often offer advanced options such as geofencing, labor cost data management and employee accountability capabilities. These functions can make it easier to log work classifications, manage wage determinations and handle reporting.

Use the right software. Payroll software enables you to access data when you need it, eliminating the need to hunt down hardcopy receipts, old timecards or checks. This makes the auditing process faster and tax information easier to compile. A good construction payroll system also can help assign union, prevailing wage and fringe benefit rates. It should offer multistate, multilocality and multi-job processing to automatically calculate different tax and pay rates and deductions. It also should be able to handle the general ledger ramifications of when a worker moves from the field (direct costs) to the shop (indirect costs) or to the office (general and administrative labor costs).

Switch to direct deposit. If you’re still cutting paper checks, stop. Electric funds transfer systems eliminate the time and expense related to physically printing out and mailing checks, and employees will receive their pay sooner. Plus, if there’s an error on a paystub, it can be corrected immediately.

2. Integrate Payroll with Projects

Having systems in place to tie payroll to projects can help with scheduling, estimating, budgeting and reporting. Many construction-specific accounting software applications, for example, offer payroll features to help automate and streamline functions. These functions include:

  • Timecard entry,
  • Direct deposit,
  • Standard payroll and certified payroll reports (such as prevailing wage reporting and statements of compliance), and
  • Equal employment opportunities (EEO-1) and benefit/deduction reporting.

3. Separate Payroll and Operations Accounts

Establishing a dedicated payroll checking account helps prevent overdrafts. For example, what if one employee is writing payroll checks (believing money is in the general account), while another employee simultaneously writes checks for other expenses against the same balance. Whether you balance the books yourself or have an accountant do it, separating your payroll from your operations account makes bookkeeping easier. It also helps ensure the money dedicated to your team’s paychecks is safe.

4. Create Standardized Checklists

Each payroll cycle requires staffers to follow a number of different steps – such as collecting hours, verifying date, ensuring the correct pay and withholdings, and issuing funds. Prevailing wage work requires additional steps, such as verifying wage determinations and work classifications, managing fringe benefits, and reporting. Even if you use certified payroll software, keep a separate checklist that details every task required to complete the payroll cycle and remain compliant. Tick each task as it’s completed and add notes if any issue arise.

5. Train Employees to Track Classifications

Workers should understand the importance of logging both their hours and their roles correctly. If employees are classified as carpenters but spend part of their day on non-carpentry work, they much report their actual activities. As a worker’s classification changes, so does that person’s prevailing wage rate. Failing to accurately track and record a worker’s classification throughout the day can lead to financial penalties and legal troubles.

6. Integrate Technology

When choosing software and technology tools, ensure that the separate platforms can “communicate” with each other. If you can’t export date from one system to another, you might be stuck with information “silos” and have to manually transfer information back and forth – which can lead to errors. So, for example, time and attendance systems should feed directly into your payroll and reporting systems. 

Companies Large and Small

These tips apply to any size construction business. But if you own a small company and don’t have the staffers to manage payroll accurately and efficiently, consider outsourcing this function to an accountant or payroll service.

For more information about payroll for contractors, contact Tom Bailey via our online contact form.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC

Contact Tom Bailey, CPA, CVAView Profile

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