Read the article in the CFMA Building Profits magazine - November/December 2020
Copyright © 2020 by the Construction Financial Management Association (CFMA). All rights reserved. This article first appeared in CFMA Building Profits (a member-only benefit) and is reprinted with permission.
By Greg Norris
Even if you are adept at coordinating a complex array of resources, equipment, and materials with meticulous precision, the process of tracking hours, moving them through accounting systems efficiently and paying employees accurately can be challenging and costly.
Removing paper and spreadsheets from the equation and moving to automated electronic data transfer cuts out data entry, minimizes the office workload and inevitable errors, and improves accuracy and speed.
Challenges with Traditional Systems
Payroll processes vary widely across the construction sector, but many contractors still rely on old systems that look something like this:
- Labor hours are entered on paper timecards by the employees.
- Timecards are reviewed by a foreman or supervisor.
- Timecards are passed on to an administrator who re-keys the information into a spreadsheet.
- The spreadsheet is submitted to the accounting department where the data is transferred to an accounting or enterprise resource planning (ERP) system, often through another round of manual entry.
- Payroll is then processed and reports on labor performance are generated.
Challenges with this type of process begin with accuracy. When information is handed off from person to person or from step to step in a process, each handoff introduces an opportunity for errors or misinterpretation.
“When you’re using paper, there are a lot of data issues that arise,” says Eric Sellman, Vice President and General Manager for the civil division at M.A. Mortenson, Inc., who oversees projects throughout the U.S. “Handwriting can be an issue, or people can put hours against task codes that maybe they shouldn’t be assigning those hours to.”
“These outdated methods do not allow for accurate data to be captured,” adds Darren Collins, Vice President at Lancaster Development. “It used to take us multiple points of entry and multiple people to do the entry.”
Collins says Lancaster Development averaged three payroll errors per week prior to moving to a specialized field tracking software. Now, the company has that many errors in a season, he says.
Paper and spreadsheets also necessitate communication between the office and the field to decipher data and clear up discrepancies, which pulls people away from more productive work.
“We process payroll for our civil division in our regional offices and, when we were using paper, there was a lot of back and forth between the field and the back-office and a lot of trying to figure out why things are being sent the way they’re being sent or recorded the way they’re being recorded,” says Sellman.
Contractors that adopt a system with seamless electronic data transfer report cutting the payroll processing workload by as much as 50 percent, allowing them to reassign people previously relegated to data entry to more valuable tasks. They also recognize that the system is scalable. As their businesses grow, and they are paying more people, they do not have to increase payroll processing time and effort proportionally.
Timeliness is also a concern. When timecards are collected weekly and data is transferred manually, it could take another week for the information to be compiled in a report or visible on a dashboard. That’s a two-week lag at best, preventing managers in the field from reacting to up-to-date information about labor performance.
These challenges are not unique to construction. A 2018 study by Kronos and the American Payroll Association (APA) found that 29% of businesses use a payroll system that is at least 10 years old. The IRS estimates that 33% of employers make payroll errors, while the APA reports that payroll error rates are between 1-8% for companies that use traditional timecards.
Three Software-Based Approaches
When contractors opt to move away from paper-based systems and spreadsheets for time capture and reporting, they can streamline the process, automate steps, and cut out many of the data touch points that have an opportunity for error. Options for a software-based system are extensive, but they fall into three general categories.
Construction accounting or ERP systems may offer a time capture module for recording labor hours in the field. Accounting systems that provide this may cover productivity, materials, equipment hours, or some combination of these major field performance variables. The primary selling point for this approach is the promise of a single system for contractors to manage and a seamless movement of data, including payroll data, from the field to accounting.
However, many contractors need performance reporting faster and in a different format than an accounting or ERP system can deliver. Interfaces and reports designed by software suppliers focused primarily on accounting may also be geared more for financial professionals than for the needs of field-based construction managers. For example, a contractor may not need to or want to expose detailed financial data to leaders in the field, when what those employees really need is simplified reports focused on the quantity of work completed or labor hours used to date vs. planned.
Stand-alone applications for time capture occupy the opposite end of the spectrum. Specialized time tracking applications are exactly that. Employee hours can be captured efficiently, usually via a mobile device, and transferred electronically to accounting systems. These applications tend to be easy to use and relatively inexpensive, leading to quick adoption and acceptance.
Contractors opting for this type of standalone system will usually need additional applications to record related field data like productivity, materials used and equipment hours. That introduces complexities in integrating multiple point systems. Cost codes, employee lists and other information must be replicated and kept current in multiple places. Finally, getting a comprehensive report on field performance, including labor costs, requires them to extract and aggregate data from several sources.
Field Tracking Software
Dedicated performance tracking and analysis solutions are used in the field to capture employee hours, production quantities, and material and equipment utilization within a comprehensive electronic daily field log. These field tracking applications can transfer data seamlessly and electronically to other accounting or ERP systems for payroll processing, as well as other accounting requirements. Importantly, they can also generate their own field-focused reporting on the labor and productivity versus the estimate or plan.
Typically, these reports are available daily or even in real time as a field log summary. The immediacy is important, giving teams managing projects insight to make decisions in the field. The data is reconciled later with the accounting system.
“We rely on accounting as the final system of record on project performance and profitability, but our field reporting system gives teams managing projects the daily or real-time data they need to adjust operations while there is still time to change the outcome,” says Rich King, CFO at Schlouch, Inc., a company that provides sitework and a wide range of specialty heavy construction services throughout eastern Pennsylvania. “We’re not waiting for another system or systems to give us a report, and the guys in the field get the data in a format that is easy for them to interpret and act on.”
An Electronic Process
In most heavy construction workflows where software-based solutions for payroll are utilized, foremen enter labor hours for a group of employees into the software from the jobsite. Linking the hours to the appropriate cost or phase codes is also extremely important for reporting and analysis of specific activities.
While laptops and even desktop systems in the office trailer are common, tablets have emerged as the device of choice due to mobility and the fact that they are “always on”. This is especially true for foremen who prefer to enter information on an ongoing basis or at irregular intervals rather than at the end of the day or week. The same tablet can also provide these managers in the field with mobile access to applications the company uses to manage scheduling, dispatching, equipment maintenance, inspections, safety and other related workflows.
Once labor hours are entered and assigned, project managers and supervisors, with proper credentials, can then review and approve the labor data electronically. From there, payroll personnel verify and export the data to the accounting system without having to translate or re-key it.
Software features like electronic signatures, GPS tracking and timestamps add accountability and validity, making it harder for employees to make mistakes in when and where they clock in and out – purposeful or inadvertent – that are common with manual systems.
Software can also make the entry of labor hours faster, easier and more foolproof by limiting the options available and providing simple, intuitive interfaces. The labor section of an electronic field log, for example, can be set up to include only the employees and phase codes that pertain to that particular job as options. This saves the foreman the time of scrolling through extensive lists and it can minimize the chance that the wrong employee or the wrong code is entered.
Good applications will even minimize mistakes when recording labor by automatically alerting contractors about discrepancies in the field log. The system might raise a red flag if total hours for an employee are not equal to the number of work hours based on start and stop times, if start or stop times are outside the time frame for the field log, or if an employee is associated with multiple field logs at the same date or time. These are common errors that frequently go undetected when contractors rely on paper timecards or spreadsheets.
The ability to enter hours individually – on a smartphone, for instance – is an option with some systems. This can be advantageous for companies that have individual employees such as truck drivers or equipment operators that frequently work on their own as opposed to working as part of a crew under the supervision of a foreman.
Daily or Weekly
Most contractors stick with a traditional weekly schedule for collecting labor hours and paying employees. Some, however, have taken advantage of field tracking software to adopt a daily reporting process. The argument in favor of increased frequency is that it provides the most timely picture of labor expenditures on projects.
The type of work being done and the financial impact of labor on that work, relative to materials, equipment, subcontractors, and other variables, may impact the decision. The company culture, particularly when it comes to capturing and using data, can also play a role. Ultimately, daily reporting is worth the effort and can be very valuable, if the management team is actually going to put this data to work to run projects more effectively.
Getting Employee Buy-in
In an industry that still lags others in technology adoption, getting employee buy-in is extremely important.
Before software can deliver benefits, it must first gain acceptance. The software-based solution for capturing and reporting employee hours should be intuitive and easy to use for construction employees in the field, not just for accountants.
Collins acknowledged minimal push back when Lancaster Development implemented field tracking software, especially from older foremen who were comfortable with handwritten reporting. He says it didn’t take long for simplicity and benefits of the software to dissolve that resistance, and that entering hours electronically quickly became second nature.
The benefits, just from saving time in their day really attracted our field staff to using the software,” says Sellman. “Even some of our veterans that had never really turned on a tablet before are very comfortable with collecting time and recording field activities with an iPad.”
Regardless of how easy a software solution may be to use, contractors are wise to tailor the implementation process to their specific expectations, workflow requirements, and employee capabilities.
A clear mandate from senior management and sufficient training are important considerations. Involving end users from the beginning and giving them a big picture perspective of how their success with the software supports broader company objectives are also proven techniques for keeping implementations on track.
An incremental approach with implementing software for payroll processing has been effective for many contractors. They often roll out the new software first to a few of the more detailed and disciplined supervisors. A gradual implementation allows them to work out any challenges and to establish internal champions who can then mentor and encourage others. Doing this during a slower season can also reduce risks and pressure.
Most contractors concur that software adoption hurdles, overall, are getting lower in the construction sector. A growing number of employees in the field expect to use technology and are surprised when their employers hold on to outdated, paper-based processes.
Putting electronic devices – equipped with field tracking software – to work can help contractors across the construction spectrum make the payroll process quicker and eliminate costly errors. Removing paper and spreadsheets from your workflow improves accuracy, efficiency, and helps provide valuable, immediate insight into how labor is impacting job performance.