Outsourcing Payroll for Construction: Key Considerations and Expert Tips

Outsourcing Payroll for Construction: Key Considerations and Expert Tips

Do you know that most construction businesses face compliance challenges? With numerous labor laws, compliance requirements, and unique payroll complexities, construction businesses often struggle to stay on top of their payroll responsibilities. If this sounds familiar, you are not alone

According to a recent study, 74% of companies have stated that they outsource payroll to leverage industry experts and to stay compliant with tax regulations.

For the construction industry, outsourcing can save time, improve accuracy, and enable businesses to manage a growing workforce effectively. But before outsourcing payroll, it’s essential to understand key considerations and what to expect from your payroll service provider.

Key Consideration for Outsourcing Construction Payroll:

Prevailing Wages and Certified Payroll: Both are compliance-related requirements but focus on different aspects. Prevailing Wage laws like the Davis-Bacon Act mandate minimum wage rates for employees involved in government-funded projects based on their job type, location, and role. It ensures fair pay for the employees. Non-compliance can result in legal complications.
On the other hand, businesses must submit certified payroll reports (Form WH-347) to demonstrate compliance with wage requirements. These reports detail employee pay and hours worked on government projects. Poor reporting practices can lead to penalties.
Some contracts may require the construction company to report their Certified Payroll through programs such as LCP Tracker or a proprietary state system like Maryland requires.
When outsourcing a payroll service provider, ensure they can integrate with certified payroll systems, provide built-in certified reporting features, and handle complex wage calculations.
Union Deductions and Benefits: Unions are common among construction industry employees. If your employees are unionized, your payroll system must deduct union dues and contribute them to union benefits like pensions or health plans.
Before outsourcing a payroll provider, ensure they can handle multiple unions, automate union deductions, and generate detailed reports on contributions.
Job Costing and Labor Allocation: Accurate job costing and labor allocation are essential for profitability. Job costing allocates time, material, and expenses incurred for a specific project. It helps to track all the costs so that the company can determine expenses and profits. Labor allocation is the process of distributing labor hours and payroll expenses.
Choose a payroll provider that tracks labor costs against project budgets. If you have an accounting system, ensure the payroll service provider can integrate with your accounting system for seamless and error-free calculations.
Time Tracking: Construction employees work on multiple sites and schedules. So, accurate time tracking is necessary to ensure proper payroll processing and compliance.
When outsourcing a payroll provider, ensure they can integrate with your time tracking tool to eliminate errors and seamless payroll processes.
Employee Classification – W2 and 1099: Construction companies often employ W-2 employees and 1099 contractors. Misclassifying workers may lead to tax penalties.
A payroll service provider should diligently classify employees and issue W2 and 1099-NEC accurately.
Overtime and Workweek Compliance: Construction businesses often run payroll every week. This is because employees are accustomed to weekly payrolls, and it eases the transition process to other companies.
Construction employees work irregular schedules due to the project scope, which leads to overtime calculations. It is essential to know the state and federal overtime rules. It is usually 1.5x regular pay over 40 hours a week.
Ensure the payroll service provider understands the federal overtime rules and can handle complex overtime calculations.
Workers’ Compensation Integration: Workers’ compensation insurance is mandatory in high-risk industries like construction and manufacturing.
Choose a payroll provider that can integrate pay-as-you-go workers’ comp to calculate premiums based on actual payroll data, avoiding large upfront costs.
Tax Compliance and Reporting: Payroll taxes in construction include federal, state, and local taxes, as well as unemployment taxes and deductions for Social Security and Medicare.
When outsourcing a payroll service provider, ensure they accurately calculate the taxes for employees working in multi-state or local jurisdictions and file payroll taxes on your behalf.
Fringe Benefits and Per Diem: Construction employees often receive fringe benefits like health insurance, benefits, or per diem for travel expenses.
Ensure the payroll service provider knows which benefits are taxable and accounts them correctly. Ensure they can track per diem payments and ensure compliance with IRS limits.
These are key considerations when outsourcing a payroll provider for your construction business. Review their industry expertise, the clients they have handled in your sector, and client testimonials to make an informed decision.

How PeopleWorX Can Help You:

PeopleWorX understands that construction payroll is different from most industries. We can help you with your unique needs and provide strategic yet measurable solutions to manage construction workforce management.

Along with payroll, our experts can help with HR functionalities for your construction business, such as onboarding, creating an employee handbook to have company policies to safeguard your employees and workplace, employee self-service, and more. (Read here why managing HR functionality is important.)

Ready to take your construction workforce management to the next level? Contact PeopleWorX today and learn more.
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