These laws are not static and often change with increased or even reduced regulations. And adherence commonly falls to your company’s human resources department. Tracking, updating and enforcing these HR laws ensures your company’s compliance.
Labor laws tied to wages carry high risk due to the complexities of construction payroll like multiple job sites, varying wage rates and worker classifications. This is especially true for companies managing payroll for contractors, union payroll management, or specialty trade payroll.
Here is a breakdown of labor laws you need to know.
Labor Laws Payroll Needs to Know
Worker Classification
Misclassifying your workers as independent contractors could make you liable for unpaid payroll taxes like the Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA), wage underpayments and overtime.
For example, if a framing subcontractor treats all crew members as independent contractors to avoid payroll taxes, he or she could face payroll taxes, penalties and owed benefits if audited by the DOL or IRS.
The big differentiator between an independent contractor or an employee who is entitled to benefits and overtime under the FLSA is the amount of control the worker has. An independent contractor has complete control over how and when the work gets done, typically negotiating the contract before the work begins.
A construction payroll software solution – custom-built for construction, can help make sure once you classify an employee, the classification doesn’t change between your workforce management system and your integrated payroll software.
Wages and Hours
Failing to correctly calculate or pay overtime—especially with multiple pay rates or blended workweeks—can result in major wage and hour violations.
Administered by the Wage and Hour Division, the Fair Labor Standards Act (FLSA) sets standards for wages and overtime pay. Employers who have nonexempt employees are required to pay at least the federal minimum wage and overtime pay at one-and-one-half-times the regular rate of pay.
Tracking all hours worked can keep employers compliant with the FLSA. A construction time tracking payroll solution, such as Arcoro Time, automates time tracking so no hour or minute is missed. Arcoro’s Time (formally ExakTime) solution can even require employees to sign off on their electronic time cards, creating an employee-substantiated record of time worked, making sure all overtime is accounted for.
State and Local Paid Leave Laws
The FLSA does not mandate payment for time not worked, such as vacations, sick leave or holidays; these benefits are typically determined by employer policies or state laws. There are 24 states with existing PTO payout laws or statutes regarding the payment of PTO accrual. The states include: Alaska, Arizona, California, Colorado, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, West Virginia and Wyoming—and the District of Columbia. It’s important to note that most laws are dictated by existing company PTO policies.
Improper tracking or non-compliance with accrual and payout of paid sick leave can lead to fines or back pay obligations. In California, penalties for violating paid leave laws can include fines, civil actions, and potentially back pay for employees. Fines can range from $50 to $4,000, and the state’s Labor Commissioner can order reinstatement or back pay. If a contractor fails to accrue paid sick leave for part-time laborers per state law, the company could be forced to retroactively adjust payroll and pay penalties if a complaint is made or the company is audited.
A good HR system with time tracking, like Arcoro Manage and Time, can give you more visibility and help employees stay on top of hours worked and PTO accrued. These HR tools can also send automated alerts to employees who could lose PTO if they don’t use it.
Prevailing Wage Laws
Incorrect wage rates or missing fringe benefit calculations for government-funded projects can cause underpayments and DOL enforcement actions.
For example, if an electrical subcontractor on a federally funded school project underpays journeymen electricians compared to the Davis-Bacon wage determination, the employer must retroactively correct payroll and may be barred from future public contracts.
Acts tied to wage rates include:
- The Davis-Bacon Act, requires payment of prevailing wages and benefits to employees of contractors engaged in federal government construction projects.
- The McNamara-O’Hara Service Contract Act, sets wage rates and other labor standards for employees of contractors furnishing services to the federal government.
- The Walsh-Healey Public Contracts Act, requires payment of minimum wages and other labor standards by contractors providing materials and supplies to the federal government.
To simplify prevailing wage payroll and certified payroll reporting, construction companies can turn to construction payroll services with built-in compliance tools for public works projects.
Multi-State Payroll Compliance
Each state may have different rules around tax withholding, wage statements, payday frequency and wage deductions. Not adjusting payroll systems accordingly can create compliance gaps.
Say a general contractor runs payroll from their HQ in Texas but has active job sites in Illinois and Massachusetts. If they apply Texas payroll rules across the board, they could violate wage statements or timing laws in those states.
More specifically, Illinois requires detailed wage statements and mandates that employees be paid at least semi-monthly. Massachusetts law requires timely payment of wages no later than six days after the end of the pay period for most employees. Failing to align payroll systems to these individual state rules can lead to penalties, employee disputes and back pay obligations.
Multi-state payroll management is especially complex in the construction industry, where job sites often cross state lines. The right cloud-based payroll system allows businesses to automatically apply tax rules and labor laws based on job location, reducing compliance risk.
How Great Payroll Software Helps
A robust cloud-based payroll solution provides the flexibility needed to manage various worker types, including union, non-union, full-time and part-time labor. It enables precise rule application based on job site and location, which is critical for companies with multi-state payroll operations or complex wage requirements like prevailing wage payroll or certified payroll reporting.
Modern integrated payroll software connects seamlessly with workforce and time tracking systems, so employee classifications, time records and job cost codes flow directly into payroll without re-entry. This significantly reduces manual errors and ensures regulatory alignment.
Arcoro Payroll’s ability to handle complex deductions and automate tax filings provides significant benefits for construction companies dealing with intricate payroll scenarios. Arcoro Time (formally ExakTime) has features that allow construction crews to review pay stubs, submit hours or update personal details directly from their devices—even in the field. Tools for payroll tax filing automate submissions and help avoid late penalties or misfilings.
Whether managing specialty trade payroll for electricians or payroll for contractors with teams across the country, great payroll software like Arcoro Payroll offers secure audit trails, real-time updates and intelligent workflows. These capabilities help HR and finance teams stay ahead of shifting laws and mitigate the risks that come with regulatory non-compliance.
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