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The grand slam: Construction-specific payroll

Editor’s Note: This is the fourth article in the series, “Software Feature Line-Up,” by Mike Ode. Each Article focuses on must-have accounting software features.

Construction payroll can be one of the most challenging aspects of running a construction business. Union reporting, multiple states and localities, varying pay scales, multiple job classifications, deductions, withholdings and tax reporting are just some of the things that contractors must deal with each and every pay period. And since nothing has a greater impact on job profitability than labor costs, more and more contractors are turning to technology for help in controlling labor costs and simplifying the entire payroll process.

Not all accounting software applications are the same, however, especially where construction payroll is concerned. Just as a finely crafted Louisville Slugger will surely outdistance a wiffle bat, sophisticated job cost accounting systems offer more payroll productivity and efficiency than general business payroll and accounting software.

So what specific features should contractors consider when evaluating a system’s payroll capabilities? There are at least nine features that can help automate and streamline the payroll process… and provide contractors with a competitive advantage:

1) Timecard Entry: Flexibility is key when it comes to payroll timecard entry. A construction accounting system’s payroll module should support unlimited timecard styles (paper, spreadsheets, or remote systems, for example) as well as methods of delivery (via fax, phone, the Internet or intranet). Above all, the system should seamlessly integrate with third-party timecard applications. Other notable timecard entry features include: timecard designers (so contractors can create their own customized timecards) with pre-defined defaulting and protected fields to help prevent errors and save time; equipment and production tracking from timecards; and timecard proofing reports.

2) Multi-State, Multi-Locality and Multi-Job Processing: It’s not uncommon for construction employees to work on a number of jobs in multiple states and localities – all in a single payroll run. It’s also not uncommon for laborers to work under various trade classifications and/or receive different pay rates – all on a single timecard. As a result, many contractors require the capability of automatically computing different tax rates, deductions and changing pay rates, depending on job location. In addition, with the ability to assign an employee’s time to multiple jobs and phases and automatically calculate various deductions, contractors not only save time on payroll processing, but they ultimately gain a greater understanding of how and where labor job costs are being spent.

3) Job Cost and General Ledger Information: Contractors need a system that integrates Payroll with General Ledger and Job Costing modules in order to track and manage job costs effectively. Good construction accounting software assigns a job number to every labor and employer burden dollar so that data can be pulled from either General Ledger or Job Costing by job. The result is that the balancing of Job Costing and General Ledger is seamless and automatic. The integration of payroll data to the General Ledger can lead to another advantage: overhead allocation reporting, which allows contractors to determine the net profit (rather than gross profit) of each job.

4) Certified Payroll: The inability to produce Certified Payroll Reports – such as Prevailing Wage and Statement of Compliance – can be a major roadblock that prevents contractors from competing on government-funded jobs. Most construction-specific accounting systems should be able to instantly produce these reports for any payroll period. In fact, the sign of a good Certified Payroll feature is the ability to re-run a report from prior periods, even after the correction of errors or omissions.

5) EEO and Benefit/Deduction Reporting: Many contractors need help preparing detailed reports – in precise formats – for other government agencies and reporting requirements. With the ability to generate reports detailing the total number of employees on a job, the number of minority workers on that job and the number of minority hours worked within a specific period, good construction-specific systems eliminate the need for manual preparation of Equal Employment Opportunity reports. Sophisticated systems should also include a generous number of user-defined deductions that allow for instant computation of liability insurance, garnishments, employee loans, 401K deductions and so on. Finally, the software should be flexible enough to allow users to define how their deductions are calculated (hourly, with or without overtime factors, percent of gross, fixed amounts, or based on trade classifications) as well as when (weekly, concurrent, one-time, recurring) and where (multiple state/job classifications).

6) Standard Payroll Reports: In addition to Certified Payroll and other previously-mentioned payroll reports, contractors should consider the other types of reporting they may need from their payroll software. For example, the software should be capable of generating various federal and state payroll tax reports, including year-end W2s (both printed and magnetic), and it should generate such on-demand reports as timecard history, detail report by job, and accrued time off.

7) Security Controls: Security controls that can guarantee both confidentiality and transparency are necessary software features since sensitive salary information is held within the payroll module. Examples of such features include: the ability to control which users have access to data at various pay levels, the option of creating and assigning an unlimited number of user IDs and passwords, and easy-to-follow audit trails that detail every element of change (e.g., user, date, time, transaction type and old vs. new values).

8) Direct Deposit: Direct deposit is a money-saving feature for contractors and a convenience for employees. It also helps avoid problems of fraud and increases payroll department productivity. Unfortunately, not all payroll software supports ACH (Automated Clearing House) direct deposit capabilities to allow the software to produce a file that can be sent to the bank or uploaded on the bank’s website. This feature enables the direct deposit option to be done as quickly and seamlessly as possible without re-keying check information on the bank’s website.

9) Distinguish Between Direct/Indirect and G&A Costs: As often happens, a construction company employee who typically works in the field may also log a few hours in the shop or office. A good construction payroll system, therefore, needs to be able to handle the G/L ramifications of an employee moving from the field (direct costs) to the shop (indirect costs) or office (general and administrative labor costs).

For labor-intensive contractors, construction payroll presents many challenges. Not only do contractors need to satisfy complex reporting requirements, but they also depend on the information derived from payroll to analyze ongoing job costs. Fortunately, many of the time-consuming payroll processes, tasks, and reporting methods are no longer necessary today. Thanks to ongoing advancements in construction-specific accounting technology, contractors can handle payroll tasks with greater efficiency and less risk.

Mike Ode is the president of Foundation Software, author and developer of FOUNDATION for Windows construction accounting software. For more information on FOUNDATION, visit Ode can be reached directly by phone at 800.246.0800, or email

Published in Construction Business Owner – June 2009