CEM Products/Updates Payroll and Compliance

5 Things That Can Go Wrong with Construction Payroll

Construction Payroll software

Payroll and benefits administration is often one of the most challenging departments in any business. While a larger workforce represents a huge challenge in payroll management itself, the issue becomes complex when there is further diversification of wage codes or categorization of workforce billability.

But it’s in the construction industry where the true scale of this challenge is revealed. Whether it’s regulatory and compliance norms or handling the effects of union influence, enabling a seamless payroll processing mechanism is a headache for leaders in the construction industry.

Consider this; the US Department of Labor Investigation, after a federal investigation, recovered $229k in minimum and overtime wages that were owed to 809 workers in New Orleans. Back in 2021, the department was responsible for recovering back wages worth almost $36 million for more than 21,000 construction workers.

In most cases, challenges arise because most finance departments in the sector are unaware of what could go wrong while managing construction payroll. On this note, let us explore the top 5 things that can go wrong with construction payroll:

Inaccuracies in Calculating Union Benefits and Wages

The construction industry is undoubtedly one of the largest unionized sectors in the world. There are many labor unions and associations to which employees are affiliated.

Not only are these unions involved in arranging resources for projects, but they also negotiate wages and benefits in alignment with the relationship between the construction business and the union. These wage structures and benefits are often dynamic and change over time per market needs and demand.

However, most construction payroll processing departments may make the mistake of calculating different wage structures incorrectly due to several factors. The consequences of inaccurate wage settlements can result in growing feuds between the company and unions, ultimately halting projects and bringing losses to everyone involved.

Manual Management of Payroll

A 2022 survey by EY revealed that 20% of the payrolls in the US have errors, each amounting to an average of $291 . These errors could even cost businesses as high as $705 per error.

The construction sector is known for its heavy usage of spreadsheet programs like MS Excel for payroll management. Such measures helped in the late ’90s or early 2000s but not today. Use of such trivial tools will lead to errors making their way into  payroll processing, thereby disrupting one of the most critical functions of the business.

Compliance Risks

As the construction sector employs a large number of people, there is strict oversight from government agencies at both state and federal levels. In addition to union wage structure and benefits programs, government agencies mandate construction companies to:

  • Pay their employees prescribed minimum wages
  • Allocate standard work hours
  • Arrange for workplace safety and other employee protection measures.

Traditional payroll systems used by construction companies can omit or ignore these mandates when calculating wages or benefits.. The consequences can be very severe and range from huge monetary fines to even the closure of a business for  non-compliance.

Incomplete Visibility

Settlement of wages often happens when field managers or supervisors report the actual worked hours to the billing or finance team. The construction sector is often plagued by inefficiencies in reporting primarily because of the manual management of such data. As a result, payroll processing may not happen correctly due to a lack of real-time visibility into insights supplied by field managers.

Delays from field managers in updating the exact information can result in missed payments, leading to lawsuits and other critical challenges. The key point to consider here is that there needs to be end-to-end visibility into real-time operations at a construction site. Field managers must be able to log and report the right information at the right time to ensure that payroll errors do not occur.

Poor Security

Sensitive corporate or employee data may be available for direct access through the payroll system if there is no proper security audit done on these systems. Such vulnerabilities can be easily exploited by external threats. In fact, according to IBM’s Cost of a Data Breach Report 2022, the average cost of a critical infrastructure breach amounts to a whopping $4.83 million.

So, there is a need for powerful security measures like access control, encryption of data, etc., to ensure that the confidentiality of employee and business information is maintained, and data integrity is assured.

Wrapping Up

As construction businesses go ahead in their journey to digitize operations, they must consider the best business practices for all aspects of their company, especially in their payroll processing. The risks of compliance and poor data security are critical threats that can undermine the entire industry. To mitigate these risks and challenges, construction companies must adapt to the latest construction management technologies like CEM’s suite of solutions for man aging payroll. Get in touch with us to know how we can help transform your construction business’s payroll process seamlessly.