INSIGHT

Construction Payroll Compliance in 2026: What Contractors Need to Know Now 

Richard Walker, Stacy Litteral • February 3, 2026

Services: Payroll Services Industries: Construction

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Construction payroll has always been complex. In 2026, it’s become even more challenging. 

The Department of Labor continues to increase enforcement activities across the construction sector. Companies that fail to comply face serious consequences—back wages, penalties, and potential debarment from federal contracts. A single mistake on a government project can cost your company thousands of dollars and damage your reputation with clients and bonding companies. 

The regulatory landscape keeps shifting. New forms, updated wage determinations, and changing state requirements mean you can’t simply rely on last year’s processes. Your competitors who invest in strong compliance systems are winning more bids and avoiding costly violations. They’re not smarter, they’re just more prepared. 

But here’s what many contractors miss: compliance isn’t just about avoiding penalties. Companies with optimized payroll systems report fewer project delays, better cash flow management, and stronger relationships with clients. When you can demonstrate solid compliance capabilities, you become the contractor that clients want on their high-value projects. 

This article will walk you through the critical compliance requirements you need to master in 2026, the common pitfalls that trip up even experienced contractors, and practical steps to strengthen your compliance program this year. 

Federal Requirements You Can’t Ignore 

Federal construction projects bring opportunity and obligation in equal measure. You need to understand what’s required before you bid on government work. 

Davis-Bacon Act Compliance Remains Critical 

The Davis-Bacon Act applies to federal construction contracts exceeding $2,000. This means virtually every federal project requires prevailing wage compliance. You must pay workers the wage rates specified in the wage determination for your project location and worker classification. 

Many contractors underestimate the complexity here. Wage determinations vary by county, by project type, and by specific worker classification. The rate for a carpenter in one county can differ significantly from the rate in the adjacent county. You need to verify which wage determination applies to your project and ensure every worker receives the correct rate.  

Certified Payroll Submissions 

Weekly certified payroll reports remain mandatory for Davis-Bacon projects. You must submit these reports even during weeks when no work occurs on the covered project. The WH-347 form requires detailed information including worker names, classifications, hours worked each day, wage rates, and fringe benefits provided. 

Late submissions trigger investigations. Incomplete submissions create compliance risks even when you’ve paid workers correctly. Prime contractors bear responsibility for ensuring all subcontractors submit their certified payrolls on time and completely. 

Overtime Calculation Challenges 

Fair Labor Standards Act overtime requirements apply to all construction work. You must pay overtime at the rate required by the state where the work was completed. This sounds straightforward until you consider construction’s realities. 

Workers often perform different job classifications within a single week. Your laborer might operate equipment one day and perform carpentry work the next. When calculating overtime, you need to use either a weighted average of all rates worked or pay overtime at the highest rate. Getting this wrong creates liability. 

State and Local Complications 

Federal requirements establish the floor. Many states impose additional obligations that exceed federal standards. 

State Prevailing Wage Laws  

Over 30 states maintain their own prevailing wage laws—often called “Little Davis-Bacon” Acts. These laws apply to state-funded projects and frequently include requirements that differ from federal standards. 

California requires prevailing wages on virtually all public works with no dollar threshold. New York applies prevailing wage requirements to projects exceeding $1,000. Each state maintains its own wage determinations, filing requirements, and penalty structures.  

When your project receives both federal and state funding, you must comply with both sets of requirements. This typically means applying the higher wage rate and meeting the more restrictive administrative requirements from each jurisdiction.  

Daily Overtime Requirements  

Some states require daily overtime in addition to weekly overtime. California mandates overtime pay for hours worked over eight in a single day, regardless of total weekly hours. This significantly impacts labor costs and scheduling decisions.  

You need systems that track both daily and weekly hours and automatically calculate overtime according to the applicable state requirements. Manual tracking creates too much room for error.  

Multi-State Project Challenges  

Projects spanning state lines create compliance nightmares. A highway project crossing from one state to another might subject you to different wage rates, overtime rules, and tax obligations on each side of the border.  

You must track where each worker performs work each day. The location determines which wage rates apply, which overtime rules govern, and which state taxes you must withhold. Workers who travel between states in a single week require even more careful tracking. 

Learn more about Payroll Services for construction

Common Violations and How to Avoid Them  

The Department of Labor’s enforcement data reveals consistent patterns. Understanding these common violations helps you prevent problems before they occur.  

Worker Misclassification  

Worker misclassification remains the most frequent and costly violation. This includes both employee versus independent contractor misclassification and incorrect wage classifications for prevailing wage purposes.  

Paying a skilled tradesperson as a laborer to reduce costs is tempting. It’s also illegal and expensive when discovered. The Department of Labor examines the actual work performed, not the job title you assign. When workers perform skilled work, they must receive skilled rates. 

Incomplete Recordkeeping  

Poor records undermine even accurate payroll processing. You must maintain detailed records of hours worked, wage rates applied, and fringe benefits provided for at least three years after project completion.  

Many violations occur not because contractors paid workers incorrectly, but because they couldn’t prove they paid correctly when audited. Your records must demonstrate compliance, which requires organized systems and consistent documentation practices.  

Travel Time Miscalculations  

Construction’s mobile workforce creates travel time complications. Regular commuting from home to your normal work location isn’t compensable. Travel from your shop to a distant job site typically is compensable.  

The distinction can be subtle. Many contractors apply blanket policies that don’t account for specific situations, creating liability when workers should have been paid for travel time but weren’t.  

Technology Solutions for 2026  

Manual payroll processing can’t keep pace with modern compliance requirements. Construction-specific payroll systems provide the automation and accuracy you need.  

Automated Compliance Calculations  

Modern systems automatically apply the correct wage rates based on project location and worker classification. They calculate overtime using appropriate methods for multi-classification workers and flag potential compliance issues before processing.  

These systems maintain current wage determinations and update automatically when new rates take effect. You eliminate the risk of using outdated rates or applying incorrect geographic determinations.  

Mobile Time Collection  

Field workers need easy ways to record time from job sites. Mobile applications allow time entry from any location with GPS verification confirming workers are at assigned sites. This eliminates the delays and errors that occur when workers record time on paper forms that must be transported to the office and manually entered into systems. 

Integrated Reporting  

Comprehensive systems generate certified payroll reports automatically with all required information. They maintain audit trails documenting all payroll decisions and calculations. When the Department of Labor requests documentation, you can produce organized, complete records quickly. Integration with your accounting and project management systems ensures consistency across all business functions and eliminates duplicate data entry.   

Your 2026 Action Plan  

Strong compliance doesn’t happen by accident. You need systematic approaches and sustained attention.  

1. Start with a comprehensive assessment of your current systems and processes. Identify gaps between your current practices and regulatory requirements. Prioritize improvements based on risk and impact.  

2. Invest in the right technology that automates complex calculations and maintains current compliance requirements. Generic payroll systems lack the features you need for construction compliance.  

3. Develop training programs for everyone involved in payroll compliance—from field supervisors recording time to office staff processing payroll. Regular training keeps skills current as requirements evolve.  

4. Establish monthly compliance reviews examining calculation accuracy, classification compliance, and documentation completeness. Quarterly audits should evaluate your entire system, not just individual transactions.  

Partner with BPM for Construction Payroll Compliance Confidence  

Construction payroll compliance demands specialized knowledge and systems. You need partners who understand the construction industry’s unique challenges and can provide practical guidance that works in the real world.  

BPM works with construction companies to build and maintain comprehensive compliance programs. We help you implement systems that prevent violations while supporting efficient operations. Our construction industry specialists understand prevailing wage requirements, multi-state compliance challenges, and the technology solutions that make compliance achievable.  

To assess your current compliance capabilities and develop a plan that protects your business while positioning you for growth in 2026’s competitive market, contact us.