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Is Payroll Complexity in The Construction Sector Underrated?

Construction Management Software

The global construction industry is expected to be worth over $10.5 trillion by 2023. After the slowdowns and hiccups created by the COVID-19 pandemic, the sector is seeing widespread growth irrespective of region.

With the projected growth volumes, businesses in the sector are on a record hiring spree. Around 7.5 million, or nearly 4.8% of the US population, is employed in the sector. In the coming years, millions of jobs are expected to open for hiring, and the industry may even face a staff shortage.

While the career prospects are brimming on one side, there is a bigger challenge often underrated in the construction sector — payroll management.

Payroll Complexity in Construction — An Overview

Being home to one of the largest workforces in almost any business sector, the construction industry is also the most complex with regard to compensation and benefits management.

A large number of workers, coupled with diverse contractual obligations, regulatory and legal oversights, mandatory compliance frameworks, etc., make payroll management one of the most complex scenarios in the industry.

Even today, most leaders fail to address the complexity of payroll management in the construction sector. In effect, they condemn the finance department to deal with the burden of sub-optimal payroll management solutions.

Payroll complexity in the construction sector is a grave challenge that often needs to be managed from a broader perspective involving leadership and abiding by legal frameworks.

One of the biggest causes of worry and confusion that adds to the complexity of payroll in the construction industry is the diverse range of wage and compensation policies in place.

A single firm may have to maintain payroll records for staff engaged in different payroll agreements or frameworks. Union Payroll, Davis Bacon, salaried workers, hourly workers, all add to the complexity. In addition, there are schedules like daily, weekly, bi-weekly, or monthly, several of these payroll models require construction companies to maintain separate legal audit records and compliance reports.

As such, the web of complexity in payroll management can only be solved if all stakeholders have a clear idea about handling the diversity in payroll contracts.

On that note, let us examine the top two and most popular types of payroll or wage agreements that are in place today in the construction sector:

Union Payroll

The construction sector is one of the most heavily unionized workplaces. Historically there have been several major instances of employee exploitation and unfair practices. Hence, unions have evolved to create a framework of well-being and fair treatment that also benefits companies.

But when it comes to payroll, unionized organizations create separate contracts that may not be in line with regular company payroll profiles. The union sets the wages for the duration of a project or contractual engagement. Workers are relieved from worrying about pay and benefit at any time during their contract. Such contracts may have tenures ranging from a few weeks or months to even multiple years.

Union payroll is also characterized by the Collective Bargaining Agreement or CBA. It is a written agreement between an employer and an employee union that specifies payment terms agreed upon after discussions.

The employer is obliged to pay the rates arrived at through collective bargaining by the union, which represents a fair number of workers. All workers  who are members of a specific union must abide by the CBA that dictates their payment terms.

Certified Payroll

The construction industry often works with different government bodies to realize multiple infrastructure ambitions and future aspirations. However, construction companies must maintain a Certified Payroll when working on federal projects.

A weekly payroll system ensures workers engaged in a particular trade are paid the minimum wages specified by labor rules for designated roles in the geography.

The records must be maintained strictly since  any non-compliance will lead to hefty fines for the business. It is further guided by frameworks set forth by revolutionary labor acts like the Davis-Bacon Act of 1931.

All federal projects require employers to integrate this framework into their payroll systems. There are several aspects to be considered while preparing wage structures, like the type of job roles, the duration of the contract, the local jurisdiction in which the project is executed, and much more.

Wrapping Up

All in all, payroll management is a highly complex endeavor for finance teams in the construction industry. On one side, compliance requirements force a high degree of audit scrutiny, while on the other, there is a web of diverse wage contract agreements.

Manually handling this complexity is impossible in the wake of increasing employee count. Construction companies need to embrace automation and help bring more streamlined payroll management. This is where CEM can make a key difference.

Get in touch with us to explore how payroll automation can be easily achieved in your construction business with our cloud-based payroll management solution. Book a free demo today.