Several elements must be considered when you run payroll in the construction industry. These include labor costs per job, prevailing wages, and more.

For example, a payroll system that allows employees to track and attribute their time by location can save a lot of time. It also helps ensure you calculate deductions correctly and comply with labor standards.

Deductions

Deductions on the payroll for construction can help your company lower the tax it owes at the end of the year. The process is simple: your business incurs costs throughout a year, but the IRS rules allow you to write off qualifying expenses in a way that decreases the amount you owe at tax time.

Deductions must be categorized appropriately, one of the most vital things to remember. It holds when it comes to labor costs in particular.

Often, construction businesses hire laborers and subcontractors to complete jobs that need to be simplified or more technical for employees to handle. These labor costs can be deductible as long as these individuals are paid according to the proper guidelines.

Another area that can provide valuable deductions is the cost of vehicles used to carry out your business. To claim this, tracking your vehicle mileage and other related expenses, such as gas, oil changes, and repairs, would be best.

Other areas to look for deductions on payroll include advertising and marketing, equipment and materials, phone and internet costs, membership and licensing fees, subscriptions, subcontractor or employee salaries, and more. Again, the right accounting software can ensure your business can take advantage of these essential savings and reduce your tax burden.

Payroll Taxes

One of the biggest challenges that a construction business faces are payroll taxes. Even if you use payroll software to process your payments, you must understand how these taxes work to calculate them accurately.

The federal government requires contractors and subcontractors to submit weekly payrolls to the IRS following regulations.

To avoid penalties and fines, contractors should complete the payroll tax return on time. They also need to ensure that the amounts declared on their 941 quarterly tax return and their year-end W-2s match; otherwise, they could be sending a red flag that may trigger an audit.

Construction payroll taxes are calculated on gross wages and must be paid in full by the due date of each quarterly tax return. They also need to be paid on time for any year-end tax filings.

A payroll tax credit is also available to construction businesses that qualify for it. In addition, employers may claim the Employee Retention Tax Credit (ERC), a fully refundable tax credit, for qualified salaries paid to eligible employees.

The best way to get started with payroll taxes is to hire a construction-specific CPA to help you determine your payroll tax obligations and prepare your payroll taxes. A tax professional can also provide various reports and processes to make payroll tax processing smoother and more tax-compliant.

Overtime

Managing overtime on the payroll for construction is crucial for any company that wants to run a successful business. It can make or break your profit margins and take a significant chunk of money out of your project budget.

Overtime is the extra pay that nonexempt employees are owed for working more than 40 hours in a workweek. Typically, overtime is paid at 1.5 times the employee’s normal hourly rate.

If an employee works two jobs with different pay rates, it’s easy to get confused about which hours they should be paid for. It can lead to errors and violations of overtime rules.

Employers may break the law by failing to record all hours worked. It could include time spent traveling to and from work sites or sitting at a desk for extended periods.

Some contractors also use a piece-rate system for their employees, which can be tricky when tracking time and paying for overtime. For instance, roofers are paid based on how much square footage they produce, while drywall subcontractors are paid based on how many square feet of drywall is hung.

These types of practices are not only illegal, but they can also lead to severe fines and penalties. In 2016 alone, the government imposed nearly $5 million in fines on several companies violating the FLSA’s overtime rules.

Employee Benefits

Providing quality employee benefits is essential to a successful payroll strategy for construction companies. In addition, it gives staff members confidence, stability, and a sense of pride in the organization.

Moreover, offering employee benefits is essential to attracting and retaining top talent.

As a contractor, you must offer your workers a competitive base wage to retain them. Developing a compensation benchmarking process is an excellent way to ensure you’re providing a competitive salary to your workers and not losing any ground in the market.

Understanding the prevailing wage regulations is crucial to pay your employees correctly and complying with the law. In addition to ensuring your employees receive a prevailing wage, providing them with the right fringe benefits and pensions is vital.

To ensure compliance, you must fill out certified payroll forms (WH-347) that contain all required details. These include a breakdown of hours, earnings, taxes, and deductions. In addition, it would be best to document all employee fringe benefits and prevailing wages.

Another critical aspect of a well-planned employee benefits strategy is the ability to access payroll data remotely. Having a mobile solution that allows you to access your payroll information from anywhere makes it much easier for you and your employees to perform payroll duties on the go.