Construction firms are in a unique spot right now. On one hand, there’s great demand for their services even in a slowing economy. The Infrastructure Investment and Jobs Act that passed in August 2021 includes around $550 billion in new federal investment in America’s roads and bridges, water infrastructure and more. On the other hand, staffing issues, managing pay across multiple jurisdictions and at different rates, and reporting requirements for government work make managing projects and controlling costs difficult.
The Pain Points
Construction businesses are often too busy trying to get the work done to then need to worry about complex pay and compliance issues. The truth is many construction company executives and administrators don’t know what they don’t know – and that can cause issues down the road as well as missed opportunities.
Here are the three most pressing HR challenges construction firms are navigating today.
Labor shortages: In 2023, the construction industry will need to hire nearly 590,000 new workers on top of normal hiring to meet industry demand, according to the trade organization Associated Builders and Contractors (ABC). Over the past decade, construction workers aged 25-54 have declined 8% and older workers are retiring in large numbers. The lack of qualified skilled workers is concerning too. Low-skilled construction laborers account for more than 40% of construction workforce growth over the past decade, according to ABC. This means these workers must quickly acquire specialized skills. However, many other industries are also competing for this labor force.
Compliance issues: Construction is one of the most complicated industries to administer payroll. Construction firms must adhere to complex laws and regulations while often working in multiple jurisdictions, as well as reporting requirements for unions and public works (government) projects. To accommodate visibility across government jobs, union members, private work and employees/contractors, the entire payroll process must be transparent and accurate.
Uncertain economic conditions: Changes in the economy make it harder for construction firms to manage material and labor costs causing delays in projects and higher costs overall. Without good visibility into payroll, it’s hard to hire the right people and stay on top of labor expenditures.
7 Solutions That Can Help
Many HCM software providers think they can “put a hard hat on a sales sheet” and say they support construction payroll complexities, but it’s not that simple. Because of the complexity inherent in construction payroll, construction companies need a robust approach that understands the challenges of the industry and provides tailored tools that can help.
1. Compensation benchmarks. Knowing what other firms and industries both locally and nationally are paying can save tremendous time in the recruiting process especially when integrated with an applicant tracking system (ATS). Benchmarks can also help business owners retain skilled workers by helping them keep pay and benefits in line with the job market.
2. Certified payroll reports. Essential for government work, certified payroll reports verify that contractors and subcontractors working on federally-funded projects are paying their employees prevailing wages and fringe benefits in accordance with the Davis-Bacon and Related Acts. These records must be filed with the U.S. Department of Labor (DOL) on a weekly basis. Many unions now require similar payroll reports to confirm that their members are receiving the correct pay rate.
3. Automation. In any given week, a construction worker may work on different jobs, governed by different unions and/or government contracts. This all impacts pay rates and benefits as well as report administration. Tracking this manually, even using spreadsheet programs, can be a major headache and major risk. Construction companies need accurate and trustworthy automation that makes tracking this information easy.
4. Mobile access. A highly mobile workforce also needs an easy-to-use mobile application. This gives managers the ability to pay employees or approve timecards right at the job site. Employees can use their mobile devices to view their pay stubs, manage personal information and clock in and out. A comprehensive mobile payroll app should also have built-in geofencing features to ensure workers are logging their time accurately.
5. Project-based capabilities. Construction businesses that have exempt employees working on jobs (e.g., Project Managers) must correctly allocate salaried employees' hours and earnings across different projects for more accurate job costing. Hours worked can’t be lumped into one overhead department and yield the labor visibility needed for tracking true project profitability. Even though the employee may be paid the same amount, how those wages are funded changes depending on the project. When choosing a payroll system, be sure to consider the way it handles multi-project costing and compliance with government regulations.
6. Real-time visibility into payroll costs. To be profitable, construction business owners need immediate visibility into time and attendance and labor costs. Absences and unplanned wage costs can derail a project quickly. Access to this information quickly is important in managing job costs.
7. Tax credit opportunities. Be sure any solution leveraged is capturing information for appropriate tax credits. For example, construction firms can be eligible for the federal Research & Development (R&D) Tax Credit if they have developed or improved products, processes or technologies. Another opportunity is the Work Opportunity Tax Credit (WOTC) which applies when businesses hire new employees from groups that have historically faced employment barriers. Businesses may also still take advantage of the CARES Act Employee Retention Credit (ERTC) by filing an amended tax return until 2024 and 2025. Make sure that your solution helps maintain the data necessary to calculate tax credits, support compliance and deliver process visibility in its reporting capabilities.
Choose an HR Solution Built for the Construction Industry
Labor shortages and disjointed HCM and ERP solutions are among the biggest challenges facing construction firms, greatly impacting their ability to complete projects efficiently and meet compliance requirements associated with union workers and government projects. Many firms are frustrated with the Band-Aid solution approach they’re using to handle payroll nuances and reporting requirements inherent with construction jobs, and the lack of integrated capabilities and compliance guidance provided by current solutions.
When considering the best approach, look for solutions that have been built and are focused on the construction industry, with dedicated resources and expertise to solve challenges unique to the industry.
