Best Practices for Staying Compliant with Construction Payroll

Payroll compliance in the construction industry can be complex and time-consuming, with severe consequences for non-compliance. But that doesn’t mean it has to be overwhelming or stressful. With the right processes in place, you can work through payroll smoothly and ensure compliance. 

Why is payroll compliance so important? It includes following federal, state, and local regulations to ensure employees are paid fairly and taxes are submitted properly. When payroll is out of compliance, it can throw your entire finances out of whack, leading to issues with your accounting — not to mention the challenges it leaves for employees and the consequences of not filing taxes correctly. 

One of the major challenges for payroll compliance is that it includes so many aspects. Compliance isn’t just one box construction companies can check; it consists of many processes and systems that must work together seamlessly to stay in compliance, including benefits, taxes, wages, and employee records. 

A lack of payroll compliance doesn’t always happen purposefully. But regardless of whether the mistake is intentional or not, companies are responsible. When payroll is out of compliance, construction companies risk the following potential consequences: 

• Having to pay back underpaid wages, plus interest and fines 

• Penalties, fines, and an audit by the IRS 

• Criminal prosecution and jail time 

• Lawsuits from employees for underpaid or incorrect wages, plus the cost of legal fees 

• Tarnished reputation among competitors and employees 

5 Unique Challenges of Construction Payroll  

While payroll compliance is complex in any industry, construction brings unique challenges: 

1. Wage and Hour Law 
   

   Every state has a mandated minimum wage, and payroll teams are responsible for ensuring employees meet those regulations. Staying on top of changing wage and hour laws can feel overwhelming, especially when regulations around minimum wage, taxes, break and leave policies, and overtime laws change regularly. Correctly tracking time is challenging for payroll teams and can quickly become very complicated. 
   
   

2. Tracking Complex Work Hours 
   

   Unlike other industries, construction workers often don’t work a typical 9-5 shift and may have multiple job sites, schedules, and projects happening at the same time. Running payroll isn’t as simple as calculating 40 hours of a person’s hourly wage. Instead, payroll teams have to consider and track the complex work hours, including properly accounting for overtime hours. 
   
   

3. Prevailing Wage 
   

   Every state has unique prevailing wage laws that regulate the minimum wage construction workers can receive for government-funded projects. Compliance with these laws is crucial and often under intense scrutiny. To stay compliant with prevailing wage laws, construction companies need a strong understanding of the laws in each state in which they operate, including the details about rates, overtime, and other benefits for each government project. 
   
   

4. Unions 
   

   Many construction workers belong to unions and may be part of a union payroll governed by a collective bargaining agreement (CBA). These agreements define the benefits, working conditions, and wages employees must receive. Some construction companies may have employees of different unions and must navigate the complexities (and potential changes) of CBAs as negotiations unfold and situations change. 
   
   

5. Seasonal/Temporary Workers 
   

   Depending on the specialty and focus, many construction companies hire seasonal or temporary workers to handle a business season or influx of work. These workers often have unique circumstances and should be quickly onboarded with proper time-tracking tools to ensure they are paid properly. Temporary workers may have irregular hours or be working on multiple projects at once, so ensuring they use payroll and time-tracking systems properly is essential but challenging. 

Best Practices for Payroll Compliance 

Even with all the challenges of construction payroll compliance, there are also opportunities and best practices. 

Stay Current on State and Federal Laws 

State and federal laws that dictate wages and other compliance issues change regularly. Get in the habit of checking on current regulations. Many construction companies designate an employee to stay current on laws or check in with industry groups for the most current regulations. These regulations cover everything from prevailing wage and minimum wage to union agreements and employee requirements — all of which directly impact payroll compliance. 

Create Efficient Onboarding Processes 

Many payroll compliance issues arise during onboarding when a new employee is hired and put into the system. Creating an onboarding process that ensures you collect the right employee information and that it is accurate can save compliance headaches in the long run. One of the most important pieces is to ensure employees are classified correctly as employees and not contractors. Employee classification impacts the taxes that are withheld on paychecks. Mistakes can be costly for companies and lead to issues for employees. 

Use a Robust Time-Tracking System 

Payroll issues often arise when employees aren’t paid correctly, either because their time was tracked incorrectly or not properly coded as overtime or special pay. The best practice to avoid this is a time-tracking system that is easy for employees to use. With construction employees frequently working at different job sites and clocking in and out from different locations, a strong mobile or digital system instead of paper or manual entry can streamline processes and help avoid errors. As part of the time-tracking system, ensure managers can easily approve timecards without slowing down the payroll process. 

Leverage Payroll Technology 

Perhaps the ultimate way to stay in compliance is to use construction payroll software that automates much of the process and ensures all the information is included and accurate. These systems can help you stay organized and alert you to any payroll issues before making payments. Payroll software can be integrated into other accounting systems for seamless processes. And with automation, the digital tools can easily calculate payroll, make payments, and file taxes — leaving less room for errors and compliance issues. 

How hh2’s Construction Time-Tracking Solution Can Help 

The best tool to have for your company to avoid compliance issues? hh2’s time-tracking software. Designed specifically for the unique challenges of the construction industry, our tool helps payroll get done easier and more accurately — and 70% faster. hh2’s automated system collects all data in one place and integrates it into accounting systems so that time cards are always coded correctly and processed accurately. 

Instead of worrying about maintaining payroll compliance, hh2 helps construction companies focus on growth and operations. Click here to learn more and schedule a free demo.