How to do payroll for a construction company: Step-by-step guide

For contractors, payroll timing and accuracy are pivotal due to strict reporting and compliance requirements. Even small errors, like a missed deadline or an incorrect classification, can cost you thousands in fees.

On top of that, employees often change job duties and need to be paid different hourly rates throughout one project, which makes running payroll a complex process that’s prone to mistakes. But the right technology streamlines payroll workflows and reduces errors. 

In this guide, you’ll learn how to do payroll for a construction company and which mistakes to watch out for.

What is payroll in the construction industry?

Payroll is the process of compensating employees for their work. Tax regulations and data management make payroll complex for any employer, but construction companies also need to manage variable pay rates, specific reporting requirements with strict deadlines, and job-based labor cost tracking. You need to calculate each worker’s gross wages and their take-home pay, often using these elements:

• Hours worked
• Job classifications
• Local and federal wage laws
• Fringe benefits
• Taxes
• Overtime
• Union agreements (if applicable)

This process starts by tracking employee hours in the field and getting timesheet data to the office. Then, whoever is handling payroll needs to calculate wages, withhold and remit taxes, and deduct any offered benefits.

Types of construction payroll

Companies frequently have to run different types of payroll, which often overlap. Here are the most common:

• Prevailing wage payroll for public projects: You need to keep track of prevailing wages for publicly funded jobs. You’ll also need to submit certified payroll, a weekly report that proves you’re paying workers the proper rates and fringes. Miter generates certified payroll reports tailored to federal and local laws, helping teams comply with Davis-Bacon rules and state-level prevailing wage requirements.
• Multi-state payroll scenarios: Contractors with multi-state operations have to comply with each state’s unique withholding requirements and income tax rates. More than that, companies often must pay employees based on where they work, not just where they live. And contractors taking on projects in new states need state-specific tax accounts and IDs. 
• Union payroll: Union workers are paid according to the terms of a collective bargaining agreement (CBA), which dictates wage rates, overtime rules, fringe benefits, and deductions like union dues. Managing union payroll means staying current with each CBA your company operates under, applying every rule correctly for each worker and project, and submitting required union reports on time.
• Hourly payroll at different rates for field workers: Hourly payroll applies when employees are paid per hour, whether they work on private, union, or public projects. This means hourly work often overlaps with nearly every other type. Individual employees can even fall into multiple rates during the same pay period if they work under different classifications or in different locations.
• Salaried payroll: Salaried employees receive a fixed paycheck rather than hourly rates, which simplifies time tracking and payroll. However, tracking salaried labor to jobs is still valuable because it helps with job costing and schedule organization.

Why is construction payroll important?

Tight, clean payroll contributes to smoother processes, trickling down to streamlined month-end closing and a better employee experience. On the other hand, inaccuracy leads to delays, penalties, and employee distrust. Here are the main areas that payroll affects:

• Compliance: For any job, contractors have to comply with regulations like the Fair Labor Standards Act, worker classification, and workers’ comp. Public works jobs have even more red tape, ranging from Davis-Bacon laws to certified payroll reporting. And if any employees are part of a union, companies also need to comply with CBAs. Failure to follow these rules can have serious consequences, including IRS penalties, employee lawsuits, and in some cases, imprisonment.
• Cost control: Payroll accuracy is directly tied to your ability to scale your operations and secure profitable projects. Precise payroll data improves estimating and budgeting accuracy, letting you make stronger bids on new jobs. On the flip side, inaccurate payroll leads to poor job costing, which hurts profit visibility, throws off estimates, and damages your bottom line.
• Worker trust: Construction is a demanding, dangerous job, and competition for talent is fierce. Companies need to pay laborers fairly and accurately to attract and retain skilled workers.

How to do payroll for a construction company

Office teams typically run payroll manually or via a construction payroll system. While the core steps are basically the same, the direction you choose has a big impact on speed, accuracy, and control. Here’s how to run payroll in a construction company, with tips for both manual and automatic processes.

1. Collect and verify time from the field.

Accurately tracking jobsite hours is the foundation of construction payroll, affecting everything from compensation to compliance reports. Workers often travel to different jurisdictions and change work classifications. This can happen in the span of one project, so office teams need granular data to tag every hour worked with the right employee, job, and classification. Traditionally, workers fill out paper timesheets, then submit them to supervisors, who have to manually review, approve, and deliver each sheet to the office. 

Systems like Miter Time Tracking let workers clock in and out of unique jobs from a mobile device or site kiosk. They seamlessly sync time data to payroll and accounting systems so supervisors can sign off on hours and accounting teams can stow them in the books. Teams can enable geofencing and GPS tracking, so they can block or flag out-of-bounds clock-ins and prevent time theft.

2. Assign hours to jobs, cost codes, and classifications.

Once you have time data for each employee, you need to assign the hours to the correct project, classifications, and cost codes. Here’s a quick explanation:

• Jobs: The specific project the employee worked on

• Classifications: Defined job roles that define the cost of the work

• Cost codes: Standardized numerical codes that break down expenses into categorized components

Miter Time Tracking is purpose built to capture the time data you need for payroll processing. Miter makes it easy for employees to tag hours with the right cost codes when clocking in or submitting time sheets. Then Miter applies the right classification to each entry, and all this data flows right into payroll.

3. Apply correct wage rates and overtime.

Teams need to review timesheets to make sure they follow local and state wage laws, like hourly pay and overtime rates. For contractors managing multi-state projects, public works jobs, and union employees, applying the right rates is even more complicated. This process is research heavy and error-prone when done manually. 

Miter’s payroll software for construction automatically applies the correct wages based on time-tracking data. With Miter Payroll, teams can automatically apply different rates based on factors like job location, prevailing wage or union status, and classification, eliminating manual calculations. 

4. Calculate payroll taxes, deductions, and fringes.

Next, companies withhold taxes from each employee. Many employers also process standard payroll deductions for employee benefits, such as health insurance or retirement contributions. In certain situations, additional payroll requirements apply. For example, union employees may have union dues deducted, and contractors working on union or prevailing wage jobs must also account for required fringe benefits, either through benefit contributions or cash-in-lieu payments.

Teams that process payroll manually typically need to cross-reference a stack of documentation and spreadsheets to get this step right. This is especially complicated for teams operating in multiple states.

Platforms like Miter handle payroll calculations for you, including managing taxes, benefits, and deductions. Miter also applies child support garnishments and workers’ compensation premiums without manual calculations.

5. Review for accuracy and submit.

Teams then need to verify payroll and correct any errors. Manually, this involves carefully scrutinizing and cross-referencing data, then running payroll. It’s possible, but it’s labor intensive and takes hours of effort to correct a few mistakes.

A top-tier payroll system flags errors instantly, letting teams review, amend, and approve payroll much faster.

6. Submit required payroll and compliance reports.

Most contractors are required to file several types of payroll reports and workforce reporting to stay compliant, and the specifics depend heavily on project type and location. Contractors on public projects must submit certified payroll reports — typically weekly under federal Davis-Bacon rules, though some state prevailing wage laws vary — disclosing wages, hours, project details, and employee information. 

Contractors working under a CBA must submit union reports that detail hours worked by classification and benefit fund contributions. Beyond project-specific reporting, all contractors are also responsible for federal obligations like quarterly 941 payroll tax filings. On top of that, depending on the jobsite’s state, you may face additional requirements around EEO compliance, apprenticeship utilization, or DIR reporting.

Drafting reports takes hours of administrative labor and results in error-prone calculations. But the right payroll software generates full reports instantly, helping you manage payroll compliance and comprehensive audit trails without the headaches.

7. Sync payroll data to your accounting system for job costing.

Payroll processing doesn’t end once you’ve paid your team and submitted reporting. Syncing all the data you’ve collected and calculated with your accounting software lets you maintain tidy records and enables accurate job costing. Digital platforms that connect with your ERP and accounting systems funnel data automatically without software juggling and data entry. 

10 common construction payroll mistakes and solutions 

Here’s a look at common payroll pitfalls for contractors and ways to avoid them:

• Assigning hours to the wrong job: Use job-coded time tracking features to instantly apply the correct classification and cost code to every hour worked.
• Choosing incorrect pay rates: Keep organized pay-rate tables that connect wages to jobs and employees.
• Miscalculating overtime: Choose software that automatically applies overtime rules based on state and local laws and other policies.
• Tracking field time improperly: Utilize mobile, GPS-powered systems to ensure accurate tracking across jobsites.
• Relying on manual data entry: Use automation and centralized, integrated software to reduce repetitive tasks and human error.
• Miscalculating fringe benefits: Fringe rates vary by project type, classification, and jurisdiction. Automate fringe calculations in your payroll system, and keep benefit documentation current.
• Making multi-state tax errors: Choose platforms that instantly apply local tax regulations to payroll processing.
• Making certified payroll mistakes: Use specialized platforms designed to handle certified payroll. Without them, teams might make mistakes, which can lead to fines, back wage payments, and bans on future bids.
• Misclassifying workers’ comp: Assign workers to the right risk classification codes based on their job duties, and conduct routine audits to ensure compliance.
• Failing to deduct union dues: When applicable, align payroll processes with current CBA requirements so your software makes automatic deductions.

If you find yourself making these mistakes when running payroll, it’s time for a new solution. Integrated software can automate error-prone tasks, keeping your payroll compliant and your projects on track.

Simplify construction payroll with Miter

Construction payroll is complex enough, but multiple spreadsheets and manual data entry make it worse. To stay on top of payroll and maintain compliance, you need modern systems to replace outdated methods.

Miter’s construction payroll software gives companies a practical solution. It unifies time tracking, job costing, and wage calculations in one platform. Miter saves you precious time and lets you focus on higher value work. With Miter, American Roofing and Metal does payroll 85% faster, saving two-and-a-half days every week.

Gain financial visibility and stay compliant without getting bogged down by manual tasks.