530: How To Manage Your Construction Company Payroll Effectively

This Podcast Is Episode Number 530, And It's About How To Manage Your Construction Company Payroll Effectively Payroll is one of those things that starts simply enough. You start your construction business and hire a few employees, and things tick along. It's straightforward enough to keep everything in line at first, but what happens to most companies is… they grow!

This is a great thing, but it also means that payroll becomes more complicated. As such an essential aspect of your business, payroll must run smoothly. Getting paid is, after all, the primary reason that most people come to work.   One of the biggest challenges contractors face is keeping track of overtime hours. With so many employees working on different job sites and projects, it isn't easy to calculate their overtime pay accurately. Complying with all federal and state labor laws is another essential aspect of a construction payroll system. This includes appropriately classifying employees as exempt or non-exempt, withholding the correct amount of taxes from their paychecks, and providing accurate wage statements.  

Here are some tips for managing payroll effectively:

1. Simplify

Payroll is one of those things that can be overly complex, and the importance of simplifying it can't be overstated. Many small and medium-sized companies have quirks in managing their payroll. This can make it difficult for somebody else to step in or for someone new to be trained.

Keep things as simple as possible wherever you can. One way to do this is by switching to direct deposit. This will drastically reduce the work put into issuing and tracking payments.

2. Schedule

At least once per year, and preferably more, it's essential that your payroll professional take some time to create a payroll calendar. This will allow them to highlight any dates that may cause a lag in your employees' pay.

It will also allow you to plan for any potential shortcomings or other issues arising from holiday closures or oddities in the calendar. Making a payroll mistake is a surefire way to lower employee morale, so it's important to be aware of these dates ahead of time.

Once compiled, distribute the calendar to your managers so that they can communicate the information to their employees. This will keep everyone apprised of any potential delays in getting paid that may come up.

3. Automate

The computer can be your best friend. Finding the right software to help with payroll can automatically take care of simplifying and scheduling, freeing up valuable time for your payroll specialist.

It also eliminates the potential for human error in payroll processing and creates a crystal-clear picture of your finances. Many options are available these days that are easy to learn and straightforward to maintain.

4. Brush up

Payroll rules and regulations can change frequently and for any number of reasons. It's important to stay informed on any changes in your region and proactively plan for them.

A lot of time can go into correcting a payroll error, so know what's happening to avoid this. With more and more employees being hired remotely, it's also important to be aware of any regulations about those geographically located in a different area from your business.

5. Get help

There comes the point for all growing trade businesses where they have to outsource their payroll processing; if this is you, congratulations! It is truly a milestone.

There are many options out there regarding hiring a payroll specialist, and many of them are available online. Choose the one best suited for you and your business needs without leaving your desk. This takes the pressure off you to know all the nitty gritty details about payroll processing. By hiring an outside professional, preferably a construction payroll specialist, you can ensure your employees will be paid correctly and on time.

Payroll Options

While every contractor recognizes the flaws of using ineffective tools, they may still be losing money due to inefficient payroll tools and processes. When contractors ask us which payroll option we recommend the most, we often say Direct Deposit. As usual, the reasons are simple and related to our primary role as "Profit and Growth Specialists for Contractors."

Option 1 - Paper check looks like the least expensive. Calculate payroll, handwrite or print a paycheck, hand it to your employee, and done.

What is the first thing an employee does after getting a paper paycheck? They go to the bank or the check-cashing store and get cash! Nowadays, you can deposit a check using your bank's mobile app, but let's say your employee wants to cash it immediately:

If they are paid for travel time to and from the job site, they will typically cash their paycheck to the job site or take a break as soon as the bank opens. Having this scenario in mind, there are three costs to consider: 

#1 Travel Time - See how much ten minutes can cost your company and Multiply By Three! Because it will take ten minutes each way to detour to and from the bank or payday advance company, plus ten minutes inside the building.

For example, you pay your employee $25.00 per hour, which means every ten minutes of doing personal business on company time costs you $5.94, multiplied by three equals $17.82. If Your Company Earns 10% Net Profit, you need to sell another $178.20 worth of work to compensate for your loss. If there is more than one worker in the company vehicle, multiply everything by that number.

#2 Cost Per Mile - To operate the company vehicle, which varies depending on the type of vehicles your company uses. Generally, the numbers range from $1.25 to $1.75 per mile. This considers Fuel + Insurance + Repairs + Maintenance + Registration + License divided by the number of miles driven. In this example, we estimate a three-mile detour at the middle range of $1.50 per mile = $4.50. This is towards the lower-end cost and may not reflect the current prices. 

#3 Delays On The Job - In construction, you are dealing with project-based systems, not operations or manufacturing-based operations. Every additional day you have to mobilize and de-mobilize costs you money. For example, if it takes (15) minutes for (4) workers to get set up in the morning and the same amount of time at night, your total costs could be $121.92

The total cost for paper checks is between $15.00 and $50.00 per employee. To get the actual results for your company, some analysis would need to be run, or you would look in your Business Process Management System (BPM) for the answers.

Option 2 - Direct deposit could cost an additional $5.00 per payroll and $0.99 per deposit. Direct deposit drops into your employee's bank account one minute after midnight on the day payroll is due. Having a Professional Bookkeeper prepare the payroll is less with direct deposit because of the time saved in making and printing the paper checks, setting them aside for you to sign them, stuffing them in the envelopes, and taking time to pass them out.

Option 3 - A debit Card is similar to a direct deposit. The difference is that the employee does not need a checking account.

Final thoughts

Everything runs smoothly during your regular pay schedule when timecards arrive on time. When employees do not turn in their timecards on schedule and expect you to have their checks ready, no worries; we have you covered. When Payroll Processing gets too complicated, it's time to outsource it. 

Payroll is most effectively managed when it's simple, straightforward, and coordinated. By ensuring that our employees are paid fairly and on time, we can help to create a positive and productive work environment. When it starts getting tough to keep it that way, it's likely a sign that your company has grown and you're ready for more robust support. 

About The Author:

Sharie DeHart, QPA, co-founded Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on managing the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com