Why do so many construction projects go over budget?
It all boils down to labour costs.
Tracking payroll in construction is complex. There are multiple job sites, different rates of pay for every worker and union rules to follow. Keeping track of it all can be…well, messy.
Let’s back up for a second.
Construction companies are STILL processing payroll like it’s 1999.
Long story short…
Payroll software streamlines the entire process making project management easier and more accurate.
In this article, we’re going to cover:
- Why Labour Costs Are So Important in Construction
- Problems with Manual Payroll Processing
- How Payroll Software Helps with Project Management
- Construction Payroll Software Features You Should Know About
Why Labour Costs Are So Important in Construction
Labour costs are a large percentage of every construction project budget.
We’re talking anywhere from 20% to 40% of your total project expenses being allocated to employee wages, benefits and payroll taxes. Some projects can be even higher.
This means that labour is the single largest expense you have control over on any given project.
Let me explain…
If you know labour costs make up that kind of money on your budget then you know when there are mistakes made with overtime calculations, job costing or following prevailing wage guidelines, it can throw off your entire budget.
These mistakes add up.
There are millions of workers on thousands of job sites every year. Any given employee can have multiple rates of pay depending on which project they’re working on. Some work overtime while others may work at multiple sites during the week.
Trying to keep track of this data manually is where a lot of construction projects go wrong.
Problems With Manual Payroll Processing
Did you know…
According to a QuickBooks study, over 34% of construction companies use manual spreadsheets to complete their payroll. That means everything is tracked on Excel and calculated by hand.
Yikes.
When companies process payroll manually, mistakes happen. Follow those mistakes with missed compliance regulations and you’re looking at some serious penalties that eat away at your bottom line.
That’s why having quality payroll software for construction companies is so beneficial. Not only does it eliminate the chance for error, but it automates the tedious work so project managers have more time to do what’s important.
But that’s just the tip of the iceberg. Construction payroll software can change the game when it comes to how projects are managed from start to finish.
How Payroll Software Helps with Project Management
Construction payroll software does a lot more than write cheques. It allows project managers to have accurate insight into where every dollar is being spent.
Here’s how:
Real-Time Labour Cost Control
Construction projects are only as good as their budget allows. When costs begin to exceed what you had planned, everything starts to crumble.
Payroll software allows managers to keep track of labour costs as they happen. You’ll know how much you’re spending on a particular job site, crew or task. With this kind of visibility it’s possible to catch budget blowouts before they derail your entire project.
You won’t have to wait until the end of the month to realize you’ve gone way over budget on labour.
Accurate Job Costing
Figuring out which jobs actually made you money is difficult in construction.
If you don’t have accurate job costing, how do you know what to bid on future projects? How can you competitively bid against a company who knows what it costs to finish a job similar to yours?
Payroll software allows you to link every hour worked to a specific project and cost code. Not only does this help with year-end audits, but your job costing records will be insanely detailed helping you bid more accurately on future projects.
Easily Manage Compliance Issues
There are more payroll compliance requirements for construction companies than just about any other industry.
Contracts from the federal government require certified payroll reports. The Davis Bacon Act dictates what wage rates need to be paid. Every state has different overtime regulations. Union projects come with an all together new set of rules.
If you miss any of these you could be fined quickly.
Payroll systems automatically track compliance requirements. Whether it be calculating prevailing wages, generating certified payroll or making sure each check adheres to regulatory requirements. The software does it all.
Time Tracking
Construction crews are constantly at different job sites. An employee may work four hours at one job site and then four hours at another job site the same day. Then, the next day they could be at two more locations.
Traditional timesheets don’t make sense with this type of work. Timesheets get lost. People forget to enter their hours. By the time payroll comes around no one really knows if John from Tulsa worked at the Johnson job site or not.
Payroll software these days come equipped with mobile time tracking. Employees can clock into a job site and clock out using their phone. Their location is GPS verified and every hour is automatically applied to the correct job code.
Better Business Decisions
What most people don’t realize about payroll software is…
Now that you have all of this data compiled accurately you are able to make better business decisions. What crews are over-producing? What types of projects lead to your best profit margins? Where are you spending more on labour than you should be?
These types of questions allow project managers to:
Readjust staff levels, reallocate resources and make educated decisions on what jobs to bid in the future. All because they finally have access to accurate data.
Construction Payroll Software Features You Should Know About
Construction payroll software isn’t all created equal. There are important features that construction specific software has that regular payroll apps may not offer.
When looking for payroll software for construction firms, make sure the system you choose includes:
- Tracking hours across multiple job sites. Construction workers will rarely if ever work at just one job site. That’s why time tracking should allow workers to log their hours from multiple job sites.
- Job costing features. Every hour an employee works should be tied to a project and job code.
- Ability to create certified payroll reports. If you work on federal contracts you’ll need payroll software that can create certified payroll reports. Most payroll software won’t have this feature.
- Capability to calculate union specific rates. Every union works on different pay requirements. Make sure your payroll software can manage multiple unions at once.
- Prevailing wage compliance. If you work on projects for the government you’ll need to make sure your payroll software can calculate prevailing wage rates. These wages will vary from job to job based on location and trade.
Payroll software that specializes in construction takes the guess work out of payroll. Inaccurate payroll software only leads to more work for you.
Wrapping Up
Tracking payroll when you have multiple job sites, multiple rates of pay and union members all on the same project can be challenging.
Old school methods of processing payroll using spreadsheets are no longer effective. They’re time consuming, prone to error and cause major compliance headaches that could cost you thousands.
By taking advantage of construction payroll software, project management becomes that much easier.
Having access to real-time labour costs, accurate job costing, automatic compliance management and better overall decision making become possible. If you don’t have control over your labour costs, how can you expect to have control over your projects?
Payroll is the biggest expense you have control over on any construction project. Make sure you have everything you need to manage it properly.