This article was written by Kit Dickinson, Industry Executive, Business Development, ADP: https://www.linkedin.com/in/kitdickinson/
This article originally appeared on Accounting Today here.
Even in an evolving economy, construction firms today have a lot of opportunity for new work. The Infrastructure Investment and Jobs Act that passed in 2021 includes around $550 billion in new federal investment in America’s roads and bridges, water infrastructure and more. However, there may be challenges for some firms in taking on publicly funded work for the first time. Considerations like managing pay across multiple jurisdictions, at different rates, and reporting requirements for government work could make managing projects and controlling costs more difficult. This may be a new landscape for many of your construction clients.
Construction businesses are often too busy trying to get the work done 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.
Your role as trusted advisor to these firms is to help your construction clients navigate this world with solutions and tools that will make their lives easier and their businesses more profitable.
Managing the Complexities of Public Projects
Government work tends to require more compliance considerations than private projects. As an example, take a concrete company that has primarily worked on local residential buildings, apartments and similar private projects. But with the number of publicly funded projects now out for bid due to the Infrastructure Bill, the firm decides to pursue this work. What’s involved?
More staff, different skill sets. First, staffing will likely change. In addition to the company’s current crew, they may have to add more labor, possibly outside their locality. They may need to hire different types of engineers, or project managers or any number of skilled workers they don’t currently employ in order to meet the government’s requirements and stay compliant.
Working across jurisdictions. Staffing in different municipalities, cities and states will require knowing prevailing wages and laws in those localities. For example, let’s say the concrete company is based in Springfield, Illinois, but wants to bid for a project in Chicago. The government contract may require hiring union workers in the city. Now the company needs to learn how to manage and pay unionized employees as well as provide accurate, compliant reports for the government contract.
Understanding prevailing wage laws. The Davis-Bacon Act, first passed in 1931, requires government contractors and subcontractors doing public works of more than $2,000 to pay their laborers in line with the locally prevailing wages and fringe benefits for similar work in that municipality. An asphalt paver in New York City, for instance, is probably paid a different wage than an asphalt paver in Albany, New York. The goal of the law is to make wages more precise and realistic to location so that construction workers receive fair pay. The U.S. Department of Labor (DOL) updated regulations concerning the Davis-Bacon Act and these rules went into effect on October 23, 2023.
Staying compliant. Taking on government work requires another layer of record-keeping and reporting. Certified payroll reports that verify that contractors and subcontractors working on federally funded projects are paying their employees prevailing wages and benefits must be filed with the DOL on a weekly basis. Many unions now require similar payroll reports to confirm that their members are receiving the correct pay rate. The government is also hiring more compliance officers to ensure contractors are paying the correct wages and issuing fines and penalties when they find companies out of compliance.
The Right Tools to Get the Work and Stay Complaint
Due to these conditions, administering payroll in construction can get complicated. To accommodate visibility across government jobs, union members, private work and employees/contractors, the entire payroll process has to be transparent and accurate.
In order 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.
The best payroll solution will also enable business owners (and their accountants) to easily take advantage of applicable tax credits. For example, construction firms can be eligible for the federal research and development (R&D) tax credit if they have developed or improved products, processes or technologies. Likewise, the Work Opportunity Tax Credit (WOTC) applies when businesses hire new employees from groups that have historically faced employment barriers. Make sure that your client’s payroll solution helps maintain the data necessary to calculate tax credits, support compliance and deliver process visibility in its reporting capabilities.
Now, more than ever, your construction clients are going to look to you for guidance. Your expertise and knowledge can help them grow their business by winning government contracts. Part of that expertise is knowing the tools and systems needed to execute these projects and stay compliant. Look for payroll solutions that have been built for the construction industry with dedicated resources and expertise to solve challenges unique to these businesses.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
