On the one hand, their services are in high demand even in a sluggish economy. The Infrastructure Investment and Jobs Act of August 2021 includes nearly $550 billion in new federal investment in America’s roads and bridges, water infrastructure and more. On the other hand, staffing issues, compensation in multiple jurisdictions and different rates of pay and benefits, and reporting requirements for government jobs make project management and cost control difficult.
The construction business is too busy trying to get the job done to worry about complex reimbursement and compliance issues. That’s why outside advisors like accountants are hired. The truth is, many construction company executives and administrators don’t know what they don’t know—and that can lead to serious problems down the road, as well as missed opportunities.
Here are three of the most pressing issues for construction firms today:
Labor shortage: According to trade organization Associated Builders and Contractors, the construction industry will need to hire about 590,000 new workers in addition to normal hiring in 2023 to meet industry demand. The number of construction workers aged 25-54 has declined by 8% over the past decade, and older workers are leaving the workforce in large numbers. The lack of qualified staff is also worrying. More than 40% of the growth in the construction workforce over the past decade has been accounted for by low-skilled construction workers, according to the ABC. This means that these employees must quickly acquire specialized skills. However, many industries outside of construction also compete for this workforce.
Compliance Issues: Construction is one of the most complex industries in payroll administration. Construction firms must comply with complex laws and regulations when often operating in multiple jurisdictions, as well as reporting requirements for labor unions and public works (government) projects. With increased scrutiny from government, union members, clients and employees, the entire payroll process must be accurate.
Uncertain economic conditions: Volatile changes in the economy make it difficult for construction firms to manage material and labor costs, leading to project delays and higher costs overall. Without good visibility into payroll, it’s hard to hire the right people and stay on top of labor costs.
Too many human capital management software providers think they can just “put a hat on the sales sheet” and say they do construction payroll, but it’s not that simple. Due to the inherent complexity of construction payroll, construction clients need a solid solution that understands the industry’s challenges and provides tools that ease the pain, such as:
Compensation benchmarks derived from millions of real-time data points can enable construction firms to hire competitively. Knowing what other firms and industries are paying, both locally and nationally, can save a huge amount of time in the recruiting process, especially when integrated with an applicant tracking system. The benchmarks also help business owners retain qualified workers, adjust pay and benefits in line with the labor market.
Certified payroll records are essential for government operations. Certified payroll reports certify that contractors and subcontractors working on federally funded projects are paying their employees prevailing wages and benefits in accordance with Davis-Bacon and related acts. These records must be filed with the US Department of Labor on a weekly basis. Many unions now require similar pay slips to confirm that their members are being paid correctly.
Many jurisdictions require automation. In any given week, a construction worker may work a variety of jobs managed by different unions and/or government contracts. All of this affects pay rates and benefits, as well as account administration. Keeping track of this manually, even using spreadsheet programs, is a major headache and a big risk. Your client’s payroll solution should provide accurate and reliable automation that makes tracking this information easy.
A mobile payroll app is a must for construction businesses. A highly mobile workforce also needs an easy-to-use mobile app. This gives managers the ability to pay employees or approve time cards directly at the workplace. Employees can use mobile devices to view their pay stubs, manage personal information, and log in and out of different jobs or projects. A comprehensive mobile payroll app should also have built-in geofencing features so workers are where they need to be when logging time.
Project-based businesses that outsource salaried employees (eg, project managers) must properly allocate salaried employee hours and revenue to different projects for more accurate job costs. Labor hours cannot be broken down into a single overhead unit and provide the labor visibility you need to track the actual profitability of a project. Although the employee may be paid the same amount, how these salaries are financed varies from project to project. When you’re helping your construction clients choose a payroll system, be sure to ask questions about how it handles multi-project costing and complies with government regulations.
To be profitable, construction business owners need immediate visibility into time and attendance and labor costs. Absenteeism and unplanned salary costs can quickly derail a project. A sophisticated HCM solution provides managers with this information quickly and in real-time through an accessible mobile app.
Your construction client’s payroll solution should collect information for the appropriate tax credits. For example, construction firms may qualify for federal research and development tax credits if they develop or improve products, processes, or technologies. Another possibility is the Work Opportunity Tax Credit, which applies when businesses hire new employees from groups that historically face barriers to employment. Businesses can also take advantage of the CARES Act employee retention credit by filing an amended tax return through 2024 and 2025. Ensure that your construction clients’ payroll provider maintains the necessary data to calculate tax credits, support compliance and provide process visibility into them. Reporting capabilities.
Labor shortages and disparate HCM and ERP solutions are the biggest challenges facing construction firms, greatly impacting their ability to complete projects efficiently and meet the demands of union workers and government projects. Many firms are frustrated by the Band-Aid approach they take to the nuances of payroll and reporting requirements inherent to construction work, and the lack of integrated capabilities and compliance advice/updates provided by current solution providers.
Finding the best solution to meet their needs is a struggle for many firms who lack the knowledge and direction of available integrated options. With limited leadership and resources to devote to this pursuit, firms turn to outside consultants—such as accountants—and peers for advice. In your role as a consultant, guide your construction clients on an HCM solution focused on the construction industry.