Category: Article

The construction industry continues to face supply chain slowdowns, labor shortages and inflation — though the latter of the three has generally moderated a bit as of late. To monitor and optimally respond to rising contract costs and market changes, contractors need a plan. Here are eight ways you can insulate your company against the higher cost of doing business in today’s environment:

1. Double-down on accurate estimates and timely financial reporting. Generating precise estimates and tracking project expenses in real time are key to staying within budget. Make sure estimated costs have been updated to reflect inflation, wage increases, and other factors.

From there, leverage the right software tools and your company’s historical data to create feasible project budgets and forecast future costs. Use the latest job cost accounting and reporting methods to help identify cost increases before they become problematic.

It’s also important to regularly compare estimated costs to actual costs, as well as to review the likelihood of profitability for all jobs at least once a month. Include both direct and indirect cost allocations and, as appropriate, use the percentage of completion accounting method to recognize revenue.

2. Include a contingency reserve in project budgets. Setting aside a portion of the job budget for unforeseen expenses can cushion the financial blow that all too often comes from surprise cost increases or project delays. Don’t overlook risk management. Identify and assess potential threats early-on and have a plan in place to mitigate them.

3. Build flexibility into contracts. Consider price-acceleration clauses or cost-plus contracts that allow you to adjust the contract price and pass unexpected costs on to the owner. Also, when negotiating a contract, look into the possibility of asking for a deposit to buy and store materials before construction starts.

In addition, clearly integrate change order terms and procedures into the contract. Don’t wait until a job ends to pursue this additional compensation. Process change orders immediately so you can get approval and bill for added costs as soon as possible. Timely cost allocation and revenue recognition, along with supporting documentation, will also make it easier to make a claim under a price-acceleration clause — or defend against a customer’s refusal to pay.

4. Negotiate with suppliers. Let suppliers know you’re comparison shopping to encourage them to offer the best deal possible. If feasible, take advantage of bulk purchasing or just-in-time delivery options to reduce the cost of materials and minimize the risk of price fluctuations. Unless you receive a steep discount for payment in full, use manageable financing for your purchases. Although you’ll likely incur interest charges, spreading out payments should help free up cash flow.

5. Incentivize project managers to meet profitability goals. Whether through compensation or bonuses, when project managers have a clear stake in meeting profitability goals, they tend to be more proactive in managing job costs.

That includes tracking labor hours, staying on schedule, double-checking shipments of materials, and making sure subcontractors arrive on time and fully prepared to work. Project managers should also closely review job-specific financial reports and be empowered to make adjustments as needed. That said, put controls in place to minimize the risk of project managers taking unwanted shortcuts, such as shifting costs from one job to another.

6. Bill and collect proactively. When drafting contracts, include payment amounts and stipulate:

• When they’re due
• How to submit payments
• What penalties may be triggered by late payments

Include any other pertinent information related to paying invoices as well. From there, ensure invoices are detailed and include all supporting documentation showing proof of work. Diligently follow the invoice schedule outlined in the contract and regularly follow up about unpaid invoices.

If you’re not already using it, accounts receivable software such as QuickBooks can greatly help ensure that invoices are accurate and sent out in a timely manner. Set up automated reminders to bill owners, remind them of due dates and, again, don’t hesitate to inquire about past-due invoices.

7. Explore tax credits. In the hustle and bustle of winning and performing work, contractors often overlook tax credits. These are particularly valuable because they lower your tax liability dollar for dollar, freeing up that money to cover costs or build a cash reserve.

For example, though the pandemic-related employee retention tax credit expired in 2021, eligible employers that haven’t yet claimed it may still do so for up to three years retroactively. Eligible companies can claim up to $7,000 per employee per quarter for the first three quarters of 2021, and up to $5,000 per employee for all of 2020. We can help you determine whether your construction company qualifies for this tax credit or other tax breaks.

8. Improve your overall accounting function. Having personnel who truly understand construction accounting and job costing is critical. You may need to invest in additional training or upskilling to ensure that both your in-office and on-site employees are up to the task of optimally managing costs. You can also count on us to help you assess your financial reporting and cost management processes and technology — and identify difference-making improvements.

Depending on your company’s specific situation, we can work with you to streamline your processes and get closer to meeting your goals. Reach out to a member of our construction industry team to get the conversation started.

© 2023 KraftCPAs PLLC

KraftCPAs has been chosen for two new lists — America’s Best Tax Firms 2023 and America’s Best Accounting Firms 2023 — announced by Forbes.

Kraft was one of just six firms in Tennessee to be picked for both lists, which were compiled by market research company Statista through surveys of approximately 30,000 chief financial officers, tax attorneys, accountants, and enrolled agents.

Survey participants who worked for a tax or accounting firm could name up to 10 firms for tax and 10 firms for accounting that they would recommend if their company were not able to take on a client. Survey participants who worked in a company on the client side were asked to name up to 10 firms each in tax and accounting that they would recommend based on their professional experience during the last three years.

Almost 4,500 nominees were considered, with 200 firms chosen for the best tax firms list and 200 chosen for the best accounting firms list. Click here for the full list.

© 2023 KraftCPAs PLLC

Business owners would usually agree that the best way to minimize fraud at any company, including a construction business, is to take a holistic approach. As the owner, you must set the tone at the top regarding a zero-tolerance, fully vigilant attitude toward criminal or unethical acts. And you need to create an organizational culture that features strong values, ethics and internal controls.

Understand your risks

The first significant challenge is understanding where and how you’re at risk for fraud. Be specific and realistic. Your vulnerabilities aren’t necessarily the same as those of similarly sized businesses or even your close competitors in construction. It all depends on how proactively you’ve addressed fraud prevention in the past and what new threats may have arisen.

Examine your risks objectively. The question isn’t whether your long-time bookkeeper might embezzle funds; the question is whether anyone in that job or another could steal from you. When assessing threats, consider both internal and external opportunities for malfeasance and how employees at any level of seniority could work alone or in concert to exploit them.

Once you’ve performed a thorough review of your construction company’s existing practices, consider the overall costs of your primary risks — including the consequences and long-term impact of letting them go unaddressed. Recognize that risk management is more than buying insurance; it’s working to ensure that you don’t need insurance because you’re taking steps to close gaps that fraudsters could exploit.

How you can protect yourself

Next, turn your attention to preventive strategies. If you don’t have a written code of ethics and an updated employee manual, now’s the time to work on both. As mentioned, fraud prevention begins at the top — with a clearly communicated commitment on the part of ownership and management. It isn’t enough that you have a code of ethics; you must be seen following it.

Then look at your internal controls. Did you consider fraud prevention when you designed them? If not, re-evaluate the controls with an eye on closing possible loopholes. Policies to consider implementing or reviewing for efficacy include:

• Separating financial and accounting duties among two or more employees
• Duplicating sensitive tasks, such as double-signing checks over a certain amount
• Reconciling bank accounts
• Performing internal audits
• Engaging an impartial external auditor to review your financial statements

You don’t have to do it all yourself. Train trusted in-office supervisors or staff to spot fraud and do the same for on-site project managers. At the same time, don’t allow employees to create and manage their own fraud prevention policies. For instance, if your IT staff devises its own security measures, someone outside the department should determine whether the measures are appropriate and being followed adequately.

The proper resources

Once you’ve determined your areas of risk and ways to address them, you might discover that you can’t do everything at once. If so, set priorities so you can allocate resources optimally.

Remember, every risk isn’t created equal. Some threats have the potential to cause damage that could cripple the company. But, viewed objectively, these types of threats are unlikely to occur as long as internal controls are in place. Fraudulent financial reporting, for example, can ruin a construction business. However, if financial statements are properly generated and regularly audited by a third party, malfeasance is usually difficult to hide.

Other potential problems may do less damage, but there’s a much better chance that they’ll happen. For instance, an overworked bookkeeper with a heavy mortgage could, with relative ease, exploit operational loopholes to embezzle money. In deciding how best to allocate your fraud prevention resources, assess the probability of different risks rather than simply their severity.

Finally, set up a continuous monitoring system that will allow you to track and adjust controls as changing circumstances require.

Help is available

Fraud risk management can’t be a one-time or even once-in-a-while activity. Construction business owners must constantly evaluate their existing controls — comparing them with legal, regulatory and industry standards. Reach out to a member of our construction industry team for help establishing strong internal controls and develoingp effective processes for monitoring your financials.

© 2023 KraftCPAs PLLC

KraftCPAs PLLC is pleased to announce that Spencer Mercer has been named member-in-charge for the firm’s Chattanooga office. He succeeds Tim Stees, who will retire in late 2023.

Stees was a founding partner of Matheney Stees & Associates PC, which was acquired by KraftCPAs in 2020.

“Tim has been an incredible mentor and leader, and we’ll be working closely together to make the transition as smooth as possible,” said Mercer, who joined KraftCPAs in 2009. “The next few months will be a great opportunity to learn more about his clients and make sure everything’s in place.”

Mercer, a CPA and University of Tennessee graduate, will supervise a staff of almost 20 people and manage client relationships for the Chattanooga region. He has extensive experience in tax planning, consulting, and compliance at both the corporate and individual level.

The cost of goods sold (COGS) can account for 70% of a company’s expenses, according to recent discussions by the Financial Accounting Standards Board’s Investor Advisory Committee. However, some companies skimp on details around the costs they incur to produce goods. To help rectify this situation, the FASB has launched a project to study the disaggregation of income statement expenses.

Identifying the problem

In recent years, investors have clamored for enhanced disclosure of COGS items. The current guidance allows companies to lump expenses into catch-all cost buckets. Plus, significant variances in gross margins can make it difficult to compare financial statements from company to company.

For instance, say investors would like to know how much of the COGS is tied to raw materials and employee compensation — and how much of employee compensation is cash vs. stock-based compensation. Plus, they may want to understand how much of COGS items are fixed versus variable.

Working on a solution

In October 2022, the FASB refined the scope of its disaggregation of income statement project to focus beyond “cost of tangible goods sold; cost of services and other cost of revenues; and selling, general, and administrative (SG&A) to include any relevant expense line (excluding taxes).”

The project aims to address investors’ concerns that companies combine (or “aggregate”) too many expense details under one caption in the income statement. Some investors have argued that overly aggregated expenses can blur the view of what drives profits and hinder an understanding of a company’s future cash flows.

Members of the FASB’s investor advisory committee suggested that disclosures around certain types of residual costs — anything beyond employee costs and depreciation and amortization — would help investors better evaluate financial performance. Of particular interest are discretionary expense items, such as advertising and R&D, that can be material for most companies but can vary substantially by industry.

One suggestion calls for disclosures of expense items at the COGS level by nature and at the SG&A level by function. However, companies vary in the types of expenses they incur. Another suggestion involves using a “hurdle” to determine whether a line item should be disaggregated and disclosed. For example, some members support using a qualitative threshold of 10% of COGS or SG&A expenses — any residual item that exceeds that threshold would need to be disclosed in the financial statements.

Stay tuned

As your company prepares its financial statements, consider what you’re currently disclosing about the components of COGS and SG&A expenses. Are you being transparent about the details? Companies that voluntarily share disaggregated cost data on financial statements can engender trust with investors and lenders. Contact your KraftCPAs advisor to determine the appropriate level of disclosure for your company.

© 2023 KraftCPAs PLLC

 

Every business can be an innovator, and the research tax credit is a way to reward that innovation. If you own a small business or start-up, the tax break has an intriguing feature related to payroll taxes.

Essentially, this tax break allows a business to reduce its federal and state income taxes by a percentage of eligible expenses incurred for qualified R&D activities. The rules are complex and the administrative burden substantial, but the result can be worth the effort.

What’s more, if yours is a smaller business or a start-up, you have an additional reason to consider the research credit. Subject to limits, you may be able to elect to apply all or some of any research tax credits that you earn against your payroll taxes instead of your income taxes.

Who needs it?

Newer companies might take a few years to turn a profit. Even established smaller ones can hit tough years when they finish at a loss and, thus, don’t incur income taxes. In those cases, there’s no amount against which business tax credits, such as the research credit, can be applied.

On the other hand, a wage-paying business — even a new or struggling one — has payroll tax liabilities. The payroll tax election is thereby an opportunity to immediately use the research credit. Since every dollar of credit-eligible expenditure may result in as much as a 10-cent tax credit, the election offers big help to companies that might need relief on the payroll side of taxes rather than the income side.

How can you qualify?

To qualify for the payroll tax election, a taxpayer must have gross receipts for the election year of less than $5 million and be no more than five years past the period for which it had no receipts (the start-up period).

In making these determinations, the only gross receipts that an individual taxpayer may take into account are those from the business. Items such as salary, investment income, or other income aren’t taken into account. Also, note that neither an entity nor an individual can make the election for more than six years in a row.

What are the limits?

Research credits for which a taxpayer makes the payroll tax election can be applied only against the employer’s Old Age, Survivors and Disability Insurance liability — the “OASDI” or Social Security portion of FICA taxes. That means you can’t use the election to lower:

• Your company’s liability for the Medicare portion of FICA taxes
• Any FICA taxes that you withhold and remit to the government on behalf of employees

The amount of research credit for which the election can be made can’t annually exceed $250,000. Also note that an individual or C corporation can make the election only for those research credits which, in the absence of an election, would have to be carried forward. In other words, a C corporation can’t make the election for research credits that the taxpayer can use to reduce current or past income tax liabilities.

Who can help?

As you can see, opting for the payroll tax election — not to mention claiming the research credit itself — isn’t exactly a simple affair. For savvy business owners looking to expertly manage their payroll and income taxes, it’s an opportunity well worth exploring. Contact your tax advisor at KraftCPAs to help assess whether you qualify for the research credit and payroll tax election and, if so, identify and substantiate the expenses eligible for the tax break.

© 2023 KraftCPAs PLLC

Is the amount of inventory on your company’s balance sheet accurate? Depending on the nature of a company’s operations, its balance sheet may include inventory consisting of raw materials, work in progress, and/or finished goods. Inventory items are recorded at the lower of cost or market value under U.S. Generally Accepted Accounting Principles (GAAP).

Estimating the market value of inventory may involve subjective judgment calls, especially if your company converts raw materials into finished goods available for sale. The value of work-in-progress inventory can be especially hard to objectively assess. That’s because it includes overhead allocations and, in some cases, may require percentage of completion assessments.

Why does accuracy matter?

It’s important to get the inventory count right for many reasons. First, you want a reliable estimate of ending inventory so that the profits you record this year are accurate. Your cost of sales — a major expense on the income statement — is a function of the value of beginning and ending inventories.

At the most basic level, the cost of sales equals beginning inventory plus purchases during the year minus ending inventory. If the inventory balance is incorrect at the beginning or end of the year, management won’t know how profitable the company truly is.

In addition, inventory is a major line item on your company’s balance sheet. Lenders rely on inventory as a form of loan collateral. Stockholders look to inventory-based ratios (such as the current ratio or days-in-inventory ratio) to evaluate financial strength. And if disaster strikes, your insurance coverage (which is based on asset values on your balance sheet) should be adequate to cover any inventory losses.

Most companies track the value of inventory through a computerized perpetual inventory system. In this system, the value increases when purchases are made (or as raw materials are processed into finished goods) and decreases when goods are sold. But a count taken from a perpetual inventory system may not always be accurate. That’s why periodic physical counts are part of a strong internal control system.

Why do discrepancies happen?

Possible reasons for differences between the perpetual inventory system and the physical count include:

• Data entry errors
• Inaccurate bin or part numbers
• Shipping errors
• Inventory in the authorized possession of employees
• Theft
• Intentional financial misstatement

Companies that conduct a year-end physical inventory count send a message to would-be fraudsters: We’re watching our assets and taking steps to catch fraud.

Benefits of a physical count

A physical inventory count gives management a snapshot of how much inventory the company has on hand as of a specific date. For example, a manufacturing plant might need to count what’s on its warehouse shelves, on the shop floor and shipping dock, on consignment, at the repair shop, at remote or public warehouses, and in transit from suppliers and between company locations.

Well-executed physical inventory counts have benefits beyond accounting compliance and fraud prevention. They provide opportunities for management to evaluate how to stock items more efficiently, reduce carrying costs and identify actual fraud losses. In turn, more efficient inventory management can lead to improved customer satisfaction and higher sales.

For example, when conducting counts, management should evaluate how the warehouse is laid out. The most commonly used items should also be the most accessible. Employees should navigate the warehouse with familiarity and find items off the inventory listing with ease. Bin and aisle labels should be easy to read quickly. High-value items should be locked away during off hours and counted on a regular basis to reduce pilferage. And plant managers should know how to systematically compute the optimal reorder point and buffer stock levels for key inventory items (rather than just relying on gut instinct) to avoid manufacturing and shipping delays.

We can help

When it comes to physical inventory counts, we’ve seen the best and worst practices over the years, and we can advise you on how to manage your inventory more efficiently. Reach out to a KraftCPAs advisor for details.

First published in the Spring 2022 newsletter of the National Association of Rural Health Clinics.

Medicare bad debts present rural health clinics (RHCs) and other Medicare Part A providers an opportunity to recover reimbursement dollars they might otherwise miss. Provided that a RHC keeps a proper log, its total uncollected Medicare co-insurance and/or deductibles can be claimed on its cost report for 65% reimbursement.

Under 42 Code of Federal Regulation (CFR) §413.89 and the Provider Reimbursement Manual (PRM) 15-1 § 308, a bad debt is allowable when it results from deductible and coinsurance amounts for covered services that are uncollectible from Medicare beneficiaries. The Middle-Class Tax Relief and Job Creation Act of 2012 established the current reimbursement rate at 65%.

What is allowable bad debt?

An allowable Medicare bad debt must meet four criteria to be claimed by a facility:

1. The debt must be related to covered services and derived from deductible and coinsurance amounts.
2. The provider must be able to establish that reasonable collection efforts were made.
3. The debt was actually uncollectible when claimed as worthless.
4. Sound business judgment established that there was no likelihood of recovery at any time in the future.

Undertaking and documenting reasonable collection efforts will satisfy the second requirement, and the completion of those efforts will satisfy No. 4. Then, as long as the amount in question is a deductible or coinsurance amount that was appropriately written off during the period for which the cost report is filed, it is allowed to be claimed.

Reasonable collection efforts required

What constitutes a reasonable collection effort? First and foremost, collection efforts for Medicare beneficiaries must be similar to efforts to collect comparable amounts from non-Medicare patients. Beyond that, the collection policy must include the issuance of a bill on or shortly after discharge of the beneficiary as well as genuine collection efforts such as subsequent billings, collection letters, and phone calls. The regulations also allow for the use of a collection agency in addition to or in lieu of those efforts.

As with many areas of healthcare, the saying “if it was not documented, it did not happen” certainly applies. Any facility looking to claim Medicare bad debt reimbursement will need to maintain supporting documentation for each line on its Medicare bad debt log.

There are a couple of alternate methods to satisfy the second and fourth criteria:

• If a patient is deemed indigent by provider standards, their debt can be deemed uncollectable without going through reasonable collection efforts. However, the provider must have a codified internal policy to analyze assets, liabilities, expenses, and income of the patient. It must also seek to determine that no other source than the patient would be legally responsible for their debt. Documentation supporting these factors must be contained within the patient’s file.
• For patients who have Medicare as a primary payer and Medicaid as a secondary payer (commonly referred to as a “crossover”), billing the state Medicaid program for the unpaid amount and documenting its response will satisfy the reasonable collection effort procedures. The account can be added to the Medicare bad debt log upon receipt of the Medicaid program’s remittance advice.

Medicare bad debt is money lost for many RHCs, so taking time to explore the cost report reimbursement option could be a valuable decision. Reach out to me or any member of the Kraft Healthcare Consulting team for help.

© 2022 KraftCPAs PLLC

 

If you drive infrequently for business, it’s easy to let mileage costs slide. After all, it’s a hassle to keep track of your tax-deductible mileage in a little notebook and do all the calculations that go along with it. And even if you do rack up a lot of business miles, you probably forget to track some trips and end up losing money.

QuickBooks Online offers a much better way with the QuickBooks Online mobile app. Its Mileage tools include simple fill-in-the-blank records that allow you to document individual trips. You can either enter the starting point and destination and let the site calculate your mileage and deduction or enter the number of miles yourself. If you use QuickBooks Online’s mobile app, it can track your miles automatically as you drive (as long as you have the correct settings turned on).

Here’s a look at how all of this works.

Setting up

To get started, click the Mileage link in QuickBooks Online’s toolbar. The screen that opens will eventually display a table that contains information about your trips, but you need to do a little setup first. Click the down arrow next to Add Trip in the upper right corner and select Manage vehicles. A panel will slide out from the right. Click Add Vehicle.

You’ll need to supply the vehicle’s year, make, and model. Do you own or lease it, and on what date was the vehicle purchased or leased and put into service? Do you want to have your annual mileage calculated by entering odometer readings or have QuickBooks Online track your business miles driven automatically? When you’re done making your selections and entering data, click Save.

Entering trip data

You can download trips as CSV files or import them from Mile IQ into QuickBooks Online, but you’re probably more likely to enter them manually. Click Add Trip in the upper right corner. In the pane that opens, you’ll enter the date of the trip and either the total miles or start and end point. You’ll select the business purpose and vehicle and indicate whether it was a round trip. When you’re done, click Save. The trip will appear in the table on the opening screen, and your current possible total deduction will be in the upper left corner, along with your total business miles and total miles. If you want to designate a trip as personal, click the box in front of the trip in that table. In the black horizontal box that appears, click the icon that looks like a little person, then click Apply. Now, the trip will appear in the Personal column and will not count toward your business tax-deductible mileage.

Personal trips can count, too

If you use your vehicle(s) for personal as well as business purposes, tracking some of those miles can also mean a tax deduction. For tax year 2022, you can deduct 18 cents per mile for your travel to and from medical appointments. Note that medical mileage is only deductible if medical exceeds a certain percent of AGI. Be sure to check with the IRS yearly tax code, as they update the mileage amounts annually. And if you do volunteer work for a qualified charitable organization, the miles you drive in service of it can be deducted at the rate of 14 cents per mile. You can also claim the cost of parking and tolls, as long as you weren’t reimbursed for any of these expenses. Obviously, the IRS wants you to keep careful records of your charitable mileage, and QuickBooks Online can provide them. QuickBooks Online doesn’t track these deductions, but you’ll at least have a record of the miles driven.

Auto-track your miles

The easiest way to track your mileage is by using the QuickBooks Online mobile app. You can launch the app and have it record your mileage automatically as you’re driving. Versions are available for both Android and iOS, and they’re different from each other. They also have more features than the browser-based version of QuickBooks Online, like maps, rules, and easier designation of trips as business or personal.

In both versions, you’ll need to click the menu in the lower right corner after you’ve opened the QuickBooks Online app and select Mileage. Make sure Auto-Tracking is on. Your phone’s location services tool must be turned on, too. There are other settings that vary between the two operating systems. You can search the help system of either app to make sure you get your settings correct if the onscreen instructions aren’t clear enough.

Of course, you won’t see the fruits of your mileage deductions until you file your 2022 taxes, but you can factor these savings in as you’re doing your tax planning during the year. Reach out to me or a QuickBooks Pro at KraftCPAs if you’re having any trouble with QuickBooks Online’s Mileage tools, or if you have questions with other elements of the site.

© 2022 KraftCPAs PLLC

Tracking employee time consists of much more than capturing labor hours and issuing paychecks. It’s a complex and critical administrative task directly tied to your business and financial stability.

Improper time tracking in an industry like construction can lead to big payroll mistakes. And when working on public projects, it can result in compliance failures with prevailing wage and tax laws – and potentially adverse legal actions and penalties. By standardizing processes, training employees, and using automated tools, contractors can tackle time-tracking troubles and overcome a common challenge.

Keep up with classifications

Publicly funded projects must pay prevailing wage rates and comply with prevailing wage laws. It’s here that work (or worker) classifications come into play.

For example, if you classify a worker as a laborer when the person is actually doing ironwork, that’s a misclassification that violates the law. It could result in your construction company paying the wrong hourly rate, which includes fringe benefits and tax withholdings.

When a worker moves from task to task in the field, you must track the activity carefully so you can correctly assign and accurately report wage determinations. Unfortunately, it’s easy to overlook changing work classifications on busy job sites. Ensure your workers understand the importance of tracking both their hours and their changing roles in the field.

Verify wage determinations

Wage determinations set the hourly wage and fringe benefit rate for every classification of laborer and mechanic. These rates apply to federally funded projects and come from wage surveys conducted by the U.S. Department of Labor. Some states, counties, and cities have similar laws in place and publish their own prevailing wage determinations for state-funded or municipal projects.

Be sure your administrative staff knows where to find applicable prevailing wage rates for each jurisdiction where you work. For example, federal wage determinations are available on the website for the U.S. System for Award Mangement, a division of the General Services Administration. Most states have a similar online resource, with prevailing rates broken down by area and city where applicable. Don’t assume last year’s rates still apply — they may have changed.

Use checklists to standardize processes

Mistakes are easier to make and harder to correct if you don’t have standard processes in place. Create a checklist that outlines payroll workflow by including every step required to complete the payroll cycle. Include a timeline for submitting hours, as well as steps for the process of verifying time and double-checking work classifications and wage determinations.

Even if you use certified payroll software for reporting, keep a separate checklist that details every task required to remain compliant. Train your accounting staff to mark off tasks as they’re completed and to add notes if issues arise.

Keep good records

If you work on government-funded projects, keeping up-to-date with reporting requirements is critical to staying compliant. Avoid the mad rush to meet deadlines; that’s when mistakes typically happen.

Sometimes, despite their best efforts, construction businesses are investigated for prevailing wage issues. If that happens, you’ll want to produce a clear digital/paper trail indicating that you have sound time-tracking and payroll procedures in place. In other words, those checklists will come in handy.

Prioritize training

It’s already been mentioned but bears repeating: Provide the training your employees need to minimize mistakes and maintain compliance.

Do field workers understand the importance of tracking on-site role changes and how work misclassifications can affect their pay? Does your administrative staff know how to find and verify wage determinations? Do you provide training on these matters when you hire new team members and offer refresher training when prevailing wage laws change?

To minimize classification and wage determination errors, concentrate on continuing education. At minimum, share articles or whitepapers about prevailing wages and general labor laws, schedule time for employees to watch webinars, and send regular reminders to everyone about best practices.

Automate time tracking

Accurate time tracking impacts profitability. To clearly understand the true labor costs for each project, you need to correctly track every hour along with the task being done. Knowing your true labor costs is also key to creating competitive bids for future work. However, when using manual processes, it’s easy to forget to clock in and out on timesheets, which can lead to “guesstimating” the labor time for each task.

An easy way to avoid human error is to use digital time tracking. This single change will remove several manual steps for field and office personnel and reduce data entry mistakes. Cloud-based mobile applications instantly transmit pertinent data from jobsites, allowing managers and accounting staff to see time punches, activities performed, and project locations.

Several apps include advanced features such as geofencing, labor cost data collection, and employee accountability functions. These features make it easier to log classifications and manage wage determinations. Look for a system that makes it as simple as possible for workers to capture hours digitally and integrates well with your payroll system.

Reap the benefits

Payroll mistakes can affect morale, undermine profits, and create legal and tax problems. By tackling the challenge head-on, you can minimize mistakes in your processes and reap the benefits of a more engaged workforce and far fewer dollars wasted fixing mistakes and paying compliance penalties. Contact me or any member of our construction industry team for help assessing the cost-effectiveness and potential liabilities of your time-tracking and payroll systems.

© 2022 KraftCPAs PLLC