In general, workers in the construction industry fall into one of two categories: employees or independent contractors. Under the FSLA, workers designated as employees are entitled to certain rights such as minimum wage and overtime pay. Misclassification of workers is an ongoing issue in the industry. In some cases, this misclassification is intentional—such as when employers hoping to save money or gain a competitive advantage wrongly classify employees as independent contractors. In other cases, misclassification is the result of oversight. Whether intentional or not, incorrect classification of workers has consequences for both employees and employers alike. It is critical that contractors classify workers correctly to both protect employee rights and avoid significant penalties themselves.

What happens when workers are misclassified?

Beyond creating unfair competition in the industry, the misclassification of workers can negatively impact employees and also have serious consequences for employers.

Impact on Employees

Employees misclassified as independent contractors may be denied minimum wage, overtime pay, and other FSLA-protected rights. Those involved in public works projects might also be denied prevailing wage—a violation of prevailing wage laws. Misclassified workers can also face unfair tax burdens when classified as independent contractors, as they become solely responsible for paying taxes typically shared between an employer and employee (i.e. Social Security and Medicare taxes).

Consequences for Employers (Contractors)

When an employee is misclassified, the contractor is responsible for paying any unpaid wages and benefits owed to the employee, including employer taxes such as federal and state unemployment and workers’ compensation. The contractor may also face civil and criminal penalties (up to $2,500 for the first violation and $5,000 for repeat violations per employee), as well as related legal fees. Fines on federal and state withholding taxes not withheld and paid could be as high as 100% of the tax owed. Other risks include potential lawsuits and civil liability. In severe cases, contractors may even face criminal prosecution and temporary debarment from public works jobs.

What is the law?

Last year, in response to the ongoing issue of misclassification, the U.S. Department of Labor passed a final rule revising guidance on classifying employees versus independent contractors under the Fair Labor Standards Act (FLSA). This final rule, effective as of March 11, 2024, rescinded the 2021 Independent Contractor Status Under the Fair Labor Standards Act rule. The 2024 final rule applies to all employers subject to the FLSA.

Under the FLSA, workers are considered employees if they are economically dependent on the employer for work. Alternatively, workers are considered independent contractors if they are in business for themselves.

According to the DOL’s Fact Sheet 13, a worker’s classification depends on the “economic realities” of the relationship between the worker and the employer. To assess these economic realities, contractors must consider all of the following six factors:

1. Opportunity for profit or loss depending on managerial skill: Does the worker experience profits or losses as a result of their own decisions and efforts?
2. Investments by the worker and the potential employer: Does the worker make capital or entrepreneurial investments?
3. Degree of permanence of the work relationship: What is the nature and duration of the work relationship?
4. Nature and degree of control: How much control does the employer have over the performance of the work and the economic aspects of the relationship?
5. Extent to which the work performed is an integral part of the employer’s business: Is the work critical to the employer’s principal business?
6. Skill and initiative: Does the worker use their own specialized skills to perform the work and support the business?

If the economic realities of the relationship prove that the worker is economically dependent on the contractor for work, that worker is considered an employee.

What else do you need to know when classifying workers?

• A person’s title or label at work is not relevant in determining status as an employee or independent contractor.
• Factors such as where the work was performed, when and how the worker was paid, and whether the worker is licensed by state or local government do not determine worker classification.
• A worker cannot choose to waive employee status and be classified as an independent contractor.
• According to the Wage and Hour Division, a worker may be an employee even if the worker agrees to be paid off the books, receives a 1099 tax form, signs an independent contractor agreement, is registered as an independent contractor or other business entity under state law, or agrees with the employer on independent contractor status.

Conclusion

It is important that contractors familiarize themselves with the guidelines for worker classification to prevent potential repercussions. Classifying your workers correctly is key to protecting worker rights and avoiding negative consequences for your business. For additional details and guidance, visit the DOL’s Frequently Asked Questions page, Small Entity Compliance Guide, and Fact Sheet 13.

Minority- and women-owned businesses in New York State experience certain advantages when it comes to government contracting in the construction industry. It’s important to understand the benefits of a Minority- and/or Women-owned Business Enterprise (MWBE) certification, as well as the steps required to earn this certification in New York.

The MWBE certification program in New York State was established in 1988 as a way of expanding business opportunities for minority and women business owners. The program, which is designed to encourage diversity in government contracting, grants certain advantages to businesses possessing an MWBE certification.

In accordance with New York State regulations, the current MWBE participation goal for state-funded contracts is 30 percent. This regulation applies to state contracts “with a value (1) in excess of $25,000 for labor, services, equipment, materials, or any combination of the foregoing, or (2) in excess of $100,000 for real property renovations and construction.” Contractors must demonstrate a “good faith effort” to reach this 30% participation goal.

Because contractors on state-funded projects are required to meet this participation goal, subcontractors certified as MWBEs stand a better chance of being awarded public works jobs.

What qualifies a business as an MWBE?

A business is considered an MWBE if it meets the following criteria:

• The business must be at least 51% owned, operated, and controlled by a U.S. Citizen(s) or U.S. permanent resident(s) who are women and/or members of designated minority groups (i.e., Black, Hispanic, Asian-Pacific, Asian-Indian, Native American or Alaskan Native).

According to the law, businesses applying for MWBE certification must prove that the ownership is “real, substantial and continuing, and the minority members and/or women must exercise the authority to independently control the day-to-day business decisions.”

• The business must have legal authority to conduct business in New York State.
• The business owner must not have a personal net worth exceeding $15 million after allowable deductions.
• The business must have been in operation for at least one year at the time of application.
• The business must qualify as a small business, employing no more than 300 individuals.
• The business must be for-profit, operate independently of other firms, and must be an active business.

The State has created an online MWBE Certification Assessment Tool to help applicants determine whether they meet the criteria for certification.

What are the benefits of MWBE certification?

Advantages of having a MWBE certification include the following:

• Eligibility for procurement and contracting opportunities with New York State agencies and authorities.
• Placement on the certified MWBE directory, where state agencies and vendors can search for and contact subcontractors.
• Access to lending and bonding programs available exclusively to certified MWBEs.
• Access to alerts for upcoming procurement opportunities (when you register with the NYS Contract Reporter)
• Access to a network of support services and business development workshops.

What are the steps for certification?

1. Once you have established that your business meets the criteria of an MWBE, you will need to review the required documentation for the MWBE application. Required documentation differs based on the type of business you operate (corporation, LLC, partnership, or sole proprietorship). Some examples of required documents are: resumes for owners and other key employees, W-2s, tax returns, copies of licenses and certifications, current leases and deeds, etc. For full lists of required documentation for each type of business, you can refer to the guidelines on Empire State Development’s website.
2. Once you’ve prepared the required documentation, you can begin the application process. The application is free of cost and can be used for both certification and recertification. You can access the application on the New York State Contract System Timelines for certification approval vary, but approval can take up to two years in certain cases.
3. It’s important to thoroughly review your application before submitting it. Errors in your application can lead to delays in certification. Please note: if denied certification, you will have to wait another two years before re-applying. Because the application is extensive, you may want to consult an attorney who can review your application for you.

In summary, having your small business certified as an MWBE can open up major opportunities for growth, exposure, and network expansion. If your women- or minority-owned business meets the qualification criteria, you may want to consider MWBE certification as a way to take advantage of available opportunities in New York State and propel your business forward.

Among the many technologies driving advancements in our world, drones are highly transformative, especially when it comes to the construction industry and their ability to increase accuracy, promote safety, and improve efficiency. Drones or Unmanned Aerial Vehicles (UAVs) are remote-controlled, high-tech devices that have become invaluable when it comes to site surveys and mapping, inspections, 3D modeling, and more. Adding drone capabilities to your business offerings is easier than ever thanks to an ever-growing list of options and resources.

What drones can do for your business

Drones complete critical tasks in less time and at a fraction of the cost of traditional methods. This includes but isn’t limited to, site surveying and mapping, inspections, and 3D modeling.

Site surveys and mapping are time-consuming, labor-intensive activities that pose safety risks. Drones significantly mitigate these challenges. They provide a bird’s eye view of a construction site, capturing high-resolution images and videos. This aerial perspective enables companies to identify potential issues, measure distances, and assess the landscape while reducing the need for manual labor.

When it comes to inspections, a drone’s ability to reach inaccessible or dangerous areas is proving invaluable. Previously, inspectors had to physically climb structures, risking their safety to check the integrity of buildings. Now, drones equipped with advanced cameras, sensors, and GPS technology can inspect structures with improved accuracy and detail.

As for 3D modeling, by capturing multiple aerial images from different angles, drones allow businesses to create highly accurate models and maps and enable construction teams to assess terrain, plan layouts, and identify obstacles. As a result, issues are addressed, plans are adjusted, and resources are optimized before construction begins.

In addition, 3D models can be used for progress monitoring. By comparing a project’s current state with a model, construction companies can track progress, maintain schedules, and manage resources more effectively.

Undoubtedly, the use of drones in construction will continue to grow thanks to enhanced capabilities from integration with the Internet of Things (IoT) and Artificial Intelligence (AI). AI-powered drones can already perform tasks autonomously, analyze data, and predict potential issues. Meanwhile, the IoT enables real-time data sharing and analysis, facilitating better decision-making and project management.

Construction companies using drones attest to the fact that they save time and money while promoting safety. The majority of large construction companies already use them. While uptake among smaller construction businesses has been slower, it is growing and presents an opportunity to be more profitable and distinguish your business from its competitors.

Getting drone capabilities off the ground

How do you get a drone program off the ground? Start by learning more. There’s an abundance of information online. Plus, drone manufacturers post valuable information on their websites, discussing everything from drone features and capabilities to use cases and important considerations.

Going a step further, you may want to explore online classes or certificate programs available at a growing number of community colleges to help you (or someone on your team) prepare to earn certification to operate a drone (as required by the Federal Aviation Administration).

Consider defining how you would use drones in your business. Create a budget and prioritize the drone capabilities you want, as both will prove useful when you research which drone hardware and software will best meet your needs.

You may have a few options for operating a drone. Depending on what’s available in your area, you can have someone on staff get certified to operate the drone; subcontract a licensed drone operator; or contract with a business specializing in offering drone services for construction.

Make sure whoever you use is familiar with federal, state, and local laws governing the commercial use of drones. Some municipalities don’t allow them to be used at all (largely due to privacy concerns). Others have restrictions, such as how close they can be flown to land. Requiring ongoing training is one way to stay up to speed on changing drone regulations, technology, and capabilities.

Finally, as your drone program and capabilities take off, develop a standard operating procedure covering aspects like mission planning, flight operations, data management, maintenance, and emergency procedures to ensure operations run smoothly and safely.

Investing time to launch drone capabilities as part of your construction business can have big payoffs now and in the future. Now is as good a time as any to get started.

Mentoring was once reserved for building senior leadership talent pipelines – not anymore. Today, over 70% of Fortune 500 companies make mentoring a fundamental part of their recruitment, retention, and engagement strategies for many employees. The fact is, when done right, mentorships can be a win-win, and their resurgence couldn’t have come at a better time.

We all know the statistics – the average age of retirement in construction is 61 and today more than 1 in 5 construction workers is over 55. As if the talent shortage isn’t bad enough, issues are compounded when you consider the pending loss of institutional and on-the-job knowledge that will accompany workers into retirement. Before construction managers, project managers, and experienced tradespeople leave the workforce, it’s imperative to tap into their wealth of knowledge and set up future workers – and your company – for success.

Gen Zers and Millennials make up about 40% of today’s workforce and they’re unlike any predecessor. They place a premium on having a purpose and being valued and respected. Being in the first two digitally native generations, they want continuous learning. Both work/life balance and professional development are important. If a company’s values, culture, and environment don’t align with their priorities, they may not stick around for an interview much less a job.

Unlike what these employees learned in a classroom, apprenticeship or internship, mentorships can help provide insights into your company culture, the value proposition your company and their profession offer, and soft skills like decision-making, active listening, communication, and collaboration.

Mentor programs are used to build leadership and communication skills; provide networking opportunities; improve quality and safety; promote employee ownership of professional development; navigate on-the-job challenges; provide a window into career opportunities and professional development; expose new employees to all aspects of a job; foster diversity and inclusion; break down silos; hasten the pace of merger and acquisition integration; and more.

By pairing a workforce entrant with an experienced employee, new employees gain insights into why things are done a certain way, the rewards and challenges of a construction career, what clients really expect, or even the best way to stay safe on the job (which is valuable considering 60% of on-the-job injuries involve employees with less than a year of service).

A mentor program can also serve as a retention tool for existing talent. When more experienced workers are asked to share experiences, skills, and knowledge, they feel valued and have another reason to put off retirement – in fact, retention rates are higher among mentors than non-mentors.

Today’s mentoring programs come in many formats – one-on-one, group, or even online – and last anywhere from a few months to a few years. Some build a talent pipeline by offering mentoring to high school or college students. Others focus on new hires or any employee seeking development. There are even reverse mentorships, where experienced business leaders pair up with new workers to learn about growing up with technology and other traits of Gen Z and Millennials.

Numerous construction associations offer mentor programs as part of their skill building toolkits. Still, many employers build customized programs targeting employee and company priorities. Software is available to help track and facilitate program activities.

Visible executive support is vital to help build support of the program; foster participation; and market an employee value proposition. “We have the best people. We learn from each other. We help each other succeed.” Those are potent selling points to employees that value living a meaningful life.

To maximize ROI, a program should have a formal structure and process for recruiting and training mentors, goals and success measures, and prescribed activities and timelines. One way to promote effectiveness is by conducting a pilot; asking for feedback; and making adjustments before launching companywide.

One challenge to prepare for is motivating existing employees to step up as mentors. Consider what’s in it for them. Plan for special recognition in company communications and at events. Share success stories. Provide incentives ranging from gift cards and extra time off to bonuses.

While there is no magic bullet for resolving current staffing challenges, mentoring programs check off a number of boxes in terms of delivering value to recruits, employees, companies, and clients. Interested in learning more? Our Visions Human Resources affiliate staff is available to work with your team on mentor programs (as well as other recruiting and retention tools), while RBT CPAs can free you up by taking on your accounting, tax, bookkeeping, and audit responsibilities. Give us a call today.

The new lease accounting standard – ACS 842 – took effect for private and non-profit organizations for fiscal years starting January 1, 2022 (or 2023 for non-calendar year-end entities). While that means at the earliest your organization must account for all leases on your financial statements by the end of this year, there’s a lot of work to be done to meet the new standards. If you haven’t started, now is the time. If you wait until year-end, it will probably be too late.

First, a number of departments/functions may be affected by the change. This includes accounting, tax, real estate, equipment leasing, procurement, treasury, information technology, and legal. Consider creating a task force with representation from all impacted areas to put together a project timeline and plan. Second, there are several activities you’ll need to complete, from policy development to data management and extraction to technology design, workflow, implementation, and more.  So, if you haven’t already started, you need to catch up now.  Waiting for year-end is not an option.

If you need a refresher or to get reacquainted with ACS 842, following is an overview (originally published by RBT CPAs in August 2021). As always, the RBT CPA professionals are available to answer any questions you may have and to support your tax and accounting needs. Give us a call.

As a part of daily operations, most contractors have leased vehicles, buildings, trucks, construction equipment or other items to keep costs down and business running smoothly. Did you know that, in a matter of months, your leases will be accounted for differently due to the new lease accounting standard? While previously only capital leases were recorded on the balance sheet, effective for fiscal years beginning after December 15, 2021, all leases will be on the balance sheet. That translates to January 1, 2022 for calendar year entities, and fiscal 2023 for non-calendar year end entities. What does this mean moving forward? It means contractors need to make sure they have a thorough handle on all of their leases. Now is the time to review and evaluate contracts.

The new definition of a lease under ASC 842: “a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.” This slight change means that all contracts should be evaluated to determine if they fall within the scope of this new criteria. Contracts that were previously considered leases may no longer meet the lease criteria and vice versa. Be mindful of lease language when you are reviewing your contracts.

There will still be two categories of leases. The leases formerly known as capital will now be called finance leases. The classification criteria remain essentially the same as under the existing standard; the only major difference is the elimination of the bright-line percentages.  All leases that do not meet one of those criteria will be classified as operating.

If a lease contract includes a non-lease element, that non-lease component must be accounted for as a separate contract distinct from the lease itself. For example, the cost of an equipment lease that includes a maintenance contract must be allocated between the two elements and accounted for separately.

Lease liabilities for operating and finance leases will all be accounted for in the liability section the same way capital leases currently are: split between current and long-term. The offset to the liability will be a right of use (ROU) asset. There will be two lines: a ROU asset – operating lease line, and a ROU asset – finance lease line. These ROU assets are all long-term.

The new standard was designed so that there should be minimal impact to your income statement. Operating leases will continue to be recognized as a straight-line expense over the life of the lease. Finance leases will continue to be frontend loaded because the interest is higher at the beginning of the lease than at the end.

The most significant impact will be on the company’s current ratio. Because the ROU assets are all long-term but the lease liability is split between current and long-term, the current ratio will be negatively impacted. This change will be particularly important for entities with debt covenants that reference the current ratio. If you have significant operating leases that may create an issue with your debt covenants, connect with your bankers now and make sure that they are aware of the new standard.

Ultimately, it’s important that both the borrower and the lender understand that this is a reporting change, not a change in a company’s financial situation. Having this conversation early on instead of waiting until the last minute will avoid confusion, and a lot of headaches.

Optimism is high about construction industry prospects thanks to the Infrastructure Investment and Jobs Act.

There are going to be more jobs, opportunities, and investments. Before partaking in the coming construction boom, businesses must prepare to navigate some storms; digitalization of the construction industry can help.

On one front, supply chain issues and the resulting impact on prices – and profit margins – are continuing (although price increases feel more like riding a rollercoaster than a rocket, as was the case in 2021).

On a second front, there’s talent – or the lack of it. With the great resignation and silver tsunami underway, there are more jobs than people to fill them. One source says there are currently over 345,000 open construction jobs nationwide. No doubt, that’s driving competition and the pay and benefit packages employers need to win and retain talent.

On a third front, there’s the geo-political climate which is filled with uncertainties and unrest, and will no doubt exacerbate supply chain issues and operating costs (due to things like rising oil and gas prices, for example).

Combined, these forces impact everything from profitability and productivity to competitiveness.

Although construction is one of the biggest industries in the U.S., it is also the least digitalized.

Digitalization – which is the process of integrating digital technology into all facets of a business and its operations – may act as a compass to help construction firms navigate choppy waters and get into position to maximize productivity, profitability, and future growth.

Digital construction solutions are commonly used for project planning, management, and documentation. To maximize impact and potential, digital solutions can modernize construction with:

• Artificial Intelligence (AI) to automate tasks and enhance building designs (extending longevity).
• Building information modeling (BIM) tools to review projects in real-time; improve collaboration between engineers, architects, and construction staff; and streamline planning.
• Cloud technology to manage and store data; integrate suppliers and contractors; and address data gaps.
• Internet of Things (IoT) so smart equipment can self-maintain and operate, while sensors and monitoring systems reduce waste and carbon footprints.
• Machine learning for monitoring progress and identifying issues.
• Software to promote project management and data analytics.
• Virtual reality (VR) and augmented reality (AR) for simulations, planning, and risk reduction.

Construction digitalization can deliver a myriad of benefits to construction firms, engineering partners, employees, vendors, and clients.

Firms can use digital construction solutions to optimize operations; identify and mitigate safety risks; manage projects, procurement, and supply chain; provide real-time updates; collaborate, get approvals, and make decisions or problem-solve in real-time; reduce waste; minimize errors; increase productivity, agility, and profitability; align with clients’ systems and processes; identify and rectify issues before they escalate; improve workflow and document tracking; reduce costs to increase bid competitiveness; and promote growth readiness.

Consulting firm McKinsey found firms with digital procurement, supply chain, and on-site operation solutions increased productivity by 50% as compared to firms with analog solutions. It also found digital transformation reduced costs by 4 to 6 percent and increased productivity by 14 to 15 percent.

What are the current issues facing the construction industry in 2022?

According to Dodge Data and Analytics, 95% of employees are willing to use digital tools and 84% of field employees indicate these solutions already impact the way they work. As reported by ConstructionDive.com, 92% of construction business owners and 96% of contractors have digital transformation strategies. So the issue isn’t getting employees on board.

When it comes to technology infrastructure, a JBKnowledge survey shows, 22% of companies surveyed use six or more apps for daily operations; 92% of construction workers use smartphones, 83% use laptops, and 65% use tablets at work; and nearly 50% of firms have dedicated IT departments or resources. So, the issue isn’t a fear of technology or building a technology infrastructure.

Issues appear to rest in the piecemeal nature of using multiple solutions that don’t integrate or share data; are not accessible by all who may need information; and aren’t being maximized. A new thought process is emerging that indicates the answer may lay in simplifying by adopting connected construction strategies and technologies.

Engineering firms, contractors, construction firms, and others involved in the value chain can use connected emerging platforms to bring people, processes, job sites, and assets together to work efficiently and effectively. By connecting, automating, and integrating everything into one platform, people work smarter, operations are more efficient, and businesses are poised to maximize success.