Managers in all fields universally agree on one shared problem: overtime payment.
After all, every hour of overtime worked drives up costs and reduces profits drastically.
If you’re a construction company manager, you know how difficult it is to manage and keep track of hundreds or thousands of workers’ time and attendance.
You’ll need to develop a cost code system to track all your labor hours accurately. And let’s be honest, your ability to be competitive in the bidding process will definitely take a hit without an effective cost coding system.
Some companies that don’t follow effective cost coding practices and refuse to pay overtime for the sake of profits end up getting in trouble with federal law, state law and unions.
Read on to determine how to calculate regular rate of pay, maintain employee satisfaction, and comply with all pertinent laws while keeping your finances in check.
All overtime pay in construction is federally mandated. And employees need to be paid 1.5x their typical hourly rate.
Furthermore, this amount needs to be recorded in the payment system immediately to avoid any future misunderstandings.
Generally, those that are exempt from employee’s regular pay rate are independent contractors. These people work for a specific project, and once the project is completed, they get paid, and it’s adios from there.
Since the law doesn’t recognize independent contractors as employees, you’re not required to pay them overtime.
While independent contractors seem like a quick solution to limited projects, they are far more expensive than regular employees.
Also, the federal government has become harsher in its punishments regarding the recruitment of contractors.
In 2020, the US Department of Labor issued an investigation into a construction company in Guam for suspicious employee overtime pay rate. It turned out that the company repeatedly violated overtime requirements of the Fair Labor Standards Act (FLSA) and was then forced to pay $109,112 in back wages and penalties.
Moreover, according to the FLSA, employees who work ‘white-collar’ jobs such as HR Managers, or Project Managers and earn more than $684/week are exempt from overtime pay.
Whereas, electricians, laborers, janitors, guards, plumbers who are considered as “blue-collar” should not be exempt from overtime pay even if they earn high salaries. Thus, they are entitled to minimum wage and overtime premium pay under the FLSA.
That being said, remember to check your state’s labor laws regarding minimum wage and overtime pay before hiring your employees.
To understand how to calculate the overtime pay, let’s take the following example:
Howard is a construction worker who recently covered Gary’s shift and stayed overtime.
Howard worked 56 hours that week in total instead of the normal 40 hours.
First, you need to subtract the total number of hours worked from the regular working hours:
56-40= 16 overtime hours.
Second, you need to multiply the standard hourly rate by 1.5 (federally mandated factor).
Assuming Howard’s hourly rate is $15/hour, his overtime rate would be:
15×1.5= $22.5
Third, multiply the number of overtime hours with the overtime rate to get the overtime pay amount:
16×22.5= $360
The Cons of Construction Overtime
As a manager, you need to realize that extensive overtime work can affect your finances.
If you are frequently paying workers more than their fair share, you need to be more efficient in project planning and implementation.
What’s more, when your employees get bombarded with extra hours every week, they will be exhausted and less productive.
Also, stressed employees who get fewer hours of sleep are more likely to make mistakes.
Roofing and High Rise workers or Welders, for instance, should be extra careful with their duties. If they are constantly tired and burned out, they will be more at risk of dangerous consequences.
And for you, an increase in work accidents means more medical costs and even lawsuits.
Furthermore, unstable electricity circuits or electricity conservation practices at night can dim a worker’s vision. So, working overtime at night can lead to severe problems.
However, in some cases working at night is necessary when the construction site is close to residential areas in the city. There will be fewer people in the streets, and it will be easier to transport material from one point to another.
If you’re facing constant issues with overtime and witnessing your finances dry up, then follow these steps to manage overtime pay:
Your costs don’t pile up on their own. If you think you need to hire a more competent accountant, then take the step forward.
Also, heavy project loads with staff shortages can hinder progress. And cunning employees who want extra pay can play with the system.
Hence, it’s crucial to identify the problem at hand to manage overtime pay better.
When you have a project that needs at least 10 cement masons, but you only have 5, then expect to pay for more overtime.
However, if your workers are not currently occupied with another task and are willing to learn, you can cross-train them to help out.
Additionally, hiring temporary workers or independent contractors is another solution.
If you have ordered materials and your shipment arrives at 1 pm on Tuesday, while the workers are waiting and chatting with one another since 8 am, you need to reorganize your planning. Or, you need to shift your labor to another task if possible until the shipment arrives.
Moreover, let’s say your specific project can be done in 3 months. So you plan your employee working time and company costs strictly based on that period.
But some delays occur because of shipment and transportation issues, weather issues, or another crew falling behind and you end up pushing your schedule back trying to fit everything into the last few weeks of the project.
Why not over-plan for four months instead of three?
Always keep in mind it’s better to plan earlier than be late and blow your budget with too much overtime.
Working extensively to calculate overtime pay and not having software to input all the data is similar to baking a chocolate cake and not having an oven to cook in it.
That data can’t be accurately transformed into salaries if you’re not recording and storing it in a quick and user-friendly system.
MobiClocks® advanced cost coding features help you track your labor hours by job site efficiently and accurately.
To learn more about how cost coding works, head over to our Knowledge Base and watch one of our videos on cost coding.
In conclusion, overtime pay should be well understood and managed by every employer. You should also keep in mind these crucial points concerning overtime pay:
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