Introduction:
As construction organizations grow, managing the payroll process can be challenging. Complexities such as workers who are considered “dispatched employees” or “on-call employees”, combined with the varying rules for overtime pay in different countries, have made this process increasingly difficult.
What is Payroll?
Payroll refers to processes that cover examining paperwork and making payments to workers every pay period. This includes things like calculating gross wages based on hours worked and deductions for income taxes or garnishments from wages. Some organizations also benefit from integrating payroll software into their accounting processes so they can automate payments of things like annuities, pensions and other retirement plans without any manual input or processing errors.
Who is Affected?
Construction organizations that are on the verge of a payroll crisis tend to be those that are just starting out or smaller in size, although this issue can affect any construction organization. It is often a result of one of two reasons:
- The organization has not set up a formal payroll system in place. This can happen when a company is focused only on the day-to-day operations and hasn’t taken time to fully understand all their responsibilities with regard to the payroll process.
- The payroll needs to be implemented but the necessary software does not exist, forcing the organization to outsource either the whole process or parts of it.
These issues are often the most difficult to overcome.
What is a Payroll Crisis?
The term “payroll crisis” refers to the inability to pay all or most of their workers. This can happen because the organization has not yet implemented a formal payroll process, or it may be due to an overwhelmed payroll software system.
Many companies start out with only one employee, and those employees comprise what’s known as a “payroll unit” that includes benefits, overtime rates and the like. As they grow, they often add more employees, but not all are considered “regular employees.” These may be people who do specific jobs (e.g. heavy equipment operator) or people who are hired as on-call employees to complete specific jobs.
Construction payroll issues can be avoided by taking the time to understand all payroll responsibilities and when to contact payroll administrators for help. A lot of companies even outsource the payroll process to three weeks after their first full paycheck, so that any missed payments would not have an immediate impact on their operations.
Workers who do not get paid regularly can have a serious impact on operations, which then causes other expenses that may be preventable if they were aware of it early on in the hiring process.
How Can a Payroll Crisis Affect Operations?
Larger organizations can experience problems as soon as they start hiring additional workers. If a company has only one or two employees, the cost of hiring additional workers can be relatively small. The additional wages are easier to handle. However, as the number of employees grows, the impact on general office costs can cause a strain on other areas of the budget.
Those costs tend to include things like:
- Individual expense increases: rent and utilities
- Expense increases due to overtime pay
- Increased travel expenses (as employees will often be used in different locations)
Payroll issues can also have an impact on daily operations by causing delays in payments that trigger extra expenses down the road.
In some cases, companies have even been forced to close down for a few days due to a lack of funds even though there is money in the bank.
What is Payroll Software?
Payroll software is a software program designed to help the organization with all payroll responsibilities, including setting up and maintaining pay records, issuing paychecks and managing taxes. Some certified construction payroll software allows employees to access their pay via an employee portal that makes it easier for them to check their wages (or other employee information) anytime they want.
It’s important to note that it’s not just “payroll software,” but there are specific programs dedicated solely to payroll processing.
These programs are often the most cost-effective way for construction companies to comply with payroll laws, especially since payroll requirements differ depending on the country in which you operate and/or where your employees were hired.
Key Results:
For construction companies that are experiencing a payroll crisis, it is important to prioritize the information and make sure that all employees receive their wages as quickly as possible. Additionally, if a company cannot pay all employees, it is best to focus first on:
- Base wages of those who have worked longer (e.g. higher level managers)
- Employees who are responsible for training or other activities that help with the success of other contractors
Conclusion:
As construction organizations operate in different countries and experience growth, it is important to set up formal payroll practices without sacrificing the everyday operations of the organization. A good strategy for avoiding a payroll crisis is to work with an external company that understands construction needs and payroll regulations.
It’s also important to realize that there are many specific rules and regulations when it comes to international payroll issues, especially when workers and employers are located in two different countries. Paying attention to those details will help avoid costly mistakes during the hiring process.
