By Jack Biltis, eBacon Inc.

Change orders. Just the phrase can send a shiver down the spine of even the most seasoned construction professional. While often viewed as an operational headache impacting project timelines and budgets, the ripple effects of a disorganized change order process extend significantly into the realm of payroll.

For payroll managers and accountants within subcontracting firms, poorly managed change orders can translate into a vortex of confusion, errors, and ultimately, increased administrative burden and potential compliance issues. We at eBacon are deeply entrenched in the workforce management and payroll challenges of the construction sector and understand these pain points thoroughly. Let’s explore how simplifying your change order process can bring much-needed order and efficiency to your payroll operations.

The Hidden Payroll Costs of Chaotic Change Orders

Think about it. A change order isn’t just about adding a new wall or switching materials. It often involves changes in labor, equipment, and potentially even the prevailing wage requirements for a specific task. When these changes aren’t clearly communicated or documented, the payroll department is left scrambling. Did the crew work overtime on that changed scope? Are there new employees involved with different pay rates or classifications? Without a streamlined process, payroll teams can find themselves:

• Manually tracking down information: Chasing project managers, superintendents, and even individual crew members to understand the labor implications of a change order becomes a time-consuming and frustrating exercise.
• Dealing with retroactive adjustments: Incorrect paychecks due to missed changes necessitate tedious and error-prone adjustments, impacting employee morale and increasing the risk of compliance violations.
• Struggling with cost allocation: Accurately allocating labor costs to specific change orders becomes a nightmare, hindering accurate project costing and potentially impacting profitability analysis.
• Facing prevailing wage complexities: Changes in scope can trigger different prevailing wage requirements. Without clear documentation linked to the change order, ensuring compliance becomes a significant challenge, potentially leading to costly penalties.

These hidden costs erode efficiency, increase the risk of errors, and divert valuable time away from strategic payroll functions.

Establishing Clear Communication Channels for Payroll

The cornerstone of a simplified change order process from a payroll perspective is clear and consistent communication. Payroll needs to be integrated into the change order workflow early on. This doesn’t mean payroll needs to approve every change, but they need to be informed promptly and accurately about any changes that impact labor. Consider establishing dedicated communication channels, whether through email notifications, shared documentation platforms, or regular inter-departmental meetings. Key information that payroll needs to receive includes:

• A clear description of the changed scope of work.
• The start and estimated end dates of the changed work.
• The specific crew members assigned to the changed work.
• Any changes in pay rates, job classifications, or prevailing wage requirements associated with the change.
• The cost codes that should be used for labor allocation related to the change order.

By ensuring payroll is in the loop from the beginning, you proactively mitigate potential discrepancies and delays.

Standardizing Documentation: Payroll’s Best Friend

Standardized documentation is crucial for simplifying any process, and change orders are no exception. Implement clear and concise forms or digital templates for documenting change orders. These documents should include dedicated sections that explicitly address the labor and payroll implications. Consider including fields for:

• Labor hour estimates for the changed work.
• Specific employee assignments and their associated pay rates.
• Applicable prevailing wage rates and classifications.
• Cost codes for accurate labor allocation.
• Approval signatures from relevant parties (project management, client, etc.).

Ensuring these documents are consistently used and readily accessible to all relevant departments, including payroll, is vital for accuracy.

Leveraging Technology for Enhanced Payroll Accuracy

While direct integration with project management software might not be universally implemented, construction companies can still leverage technology to improve payroll accuracy related to change orders. Utilizing robust payroll software with features designed for the complexities of the construction industry can significantly help. Look for systems that offer:

• Detailed employee records: Maintaining accurate information on employee pay rates, classifications, and prevailing wage applicability is fundamental.
• Flexible pay rule management: The ability to easily apply different pay rules based on job codes or specific project requirements is crucial when dealing with change orders that might alter the nature of the work.
• Robust reporting capabilities: Generating reports that break down labor costs by project, cost code, and employee can help in accurately tracking the financial impact of change orders.
• Compliance features: Staying on top of evolving labor laws and prevailing wage regulations is essential in the construction industry.

Implementing a payroll system tailored to the nuances of construction can provide a solid foundation for managing the financial aspects of change orders.

Training and Collaboration: Bridging the Gap

Effective change order management requires collaboration across departments. Conduct regular training sessions for project managers, superintendents, and other field personnel on the importance of accurately documenting the labor implications of change orders and communicating them promptly to payroll. Emphasize the downstream impact of incomplete or inaccurate information on payroll processing, employee pay, and compliance. Foster a culture of collaboration where project management and payroll work together seamlessly to ensure accurate and timely processing of payroll related to change orders.

Regular Audits and Process Review

Even with well-defined processes, periodic audits are essential to identify bottlenecks and areas for improvement. Regularly review your change order process from a payroll perspective. Are there recurring issues or discrepancies related to change order labor? Gather feedback from your payroll team and project management to identify pain points and implement necessary adjustments to your workflow. Continuous improvement is key to maintaining an efficient and accurate system.

Building a Foundation for Efficient Payroll

Simplifying your change order process from a payroll standpoint is not just about avoiding headaches; it’s about building a more efficient and accurate payroll operation. By focusing on clear communication, standardized documentation, and leveraging the right payroll technology, construction subcontractors can significantly reduce errors, improve compliance, and free up their payroll teams to focus on more strategic initiatives. Establishing these foundational elements will contribute to the overall financial health and stability of your business. For more insights into managing the complexities of construction payroll, explore resources available at www.ebacon.com.

About the Author:

Jack Biltis is the co-founder of eBacon, bringing over 20 years of experience in payroll, insurance, and administrative services. At eBacon, a leading construction payroll software company, Jack focuses on innovative technologies that help businesses streamline workforce management operations and improve profitability. Learn more at eBacon.com.