Payroll, Certified Payroll & Sales/Use Tax

Welcome

Hello, and welcome. This is Super Structures General Contractors — a national general contractor headquartered in Powhatan, Virginia — here to help you and your clients build something that lasts. We're glad you're with us, and we look forward to connecting with you.

Alright, Payroll, Certified Payroll & Sales/Use Tax. Don't let the plain title fool you. Here's the part that actually matters on the job: Build fully burdened labor, payroll compliance, and sales/use tax into your estimates and your books from day one. Learn it well and you'll stop pricing jobs that look profitable on paper and lose money in the bank.

Labor is the biggest, least predictable cost on most jobs, and taxes ride along with it. This lesson covers what a paycheck really costs, how it gets to the job, and where contractors trip on sales and use tax.

What a paycheck really costs

The hourly wage is the start of the number, not the end of it. Every hour an employee works, the company also owes:

• Employer payroll taxes — the employer share of FICA (Social Security plus Medicare, 7.65% combined), plus federal and state unemployment tax (FUTA and SUTA). FUTA is small; SUTA rates vary by state and by your claims history.
• Workers' compensation — premium charged per $100 of payroll by class code. A clerical code is cheap; roofing, steel erection, and excavation codes are expensive. Rates vary widely by state and carrier.
• General liability — many policies are rated on payroll too, so part of that premium belongs with labor.
• Benefits — health insurance, retirement match, paid time off, holidays, training, and uniforms.

Add it up and labor burden commonly runs 25–40% or more on top of wages, and far more in high-comp trades. Never job-cost the bare wage. Cost the fully burdened labor rate.

Getting labor cost onto the job

Payroll only helps you if it lands on the right job and cost code:

• Timecards by job and cost code — daily, approved by the foreman, with hours split when a worker moves between jobs or tasks. Weekly timecards written from memory are where job cost data dies.
• A burden rate — the bookkeeper posts the burdened cost to job cost (wage times 1.32, for example) while the actual taxes and premiums post to a burden clearing account. Compare applied burden to actual burden each quarter and adjust the rate.
• Productive hours — build the rate on hours actually worked, not hours paid. Two weeks of PTO and holidays out of 52 means every working hour has to carry that cost.

Federal withholding and FICA are deposited on a monthly or semiweekly schedule and reported quarterly on Form 941, with FUTA on Form 940 and W-2s at year end. States add their own withholding and unemployment filings.

Employees versus independent contractors

Paying a worker on a 1099 to avoid burden is a top audit target for the IRS, state labor departments, and workers' comp carriers. The tests vary, but if you control the hours, provide the tools, and the person works only for you, the agencies will likely call that an employee. Misclassification brings back taxes, penalties, and comp premiums all at once. Use true subcontractors with their own insurance, tools, and a written subcontract.

Certified payroll, briefly

Some projects, most commonly public work, require certified payroll reports that document each worker's hours, classification, and pay rate for every week on the job. If you take that kind of work, the requirements are specific and the penalties for errors are real, so learn them with your CPA or a compliance advisor before you bid. For private-sector work the discipline is simpler: accurate timecards, correct classifications, and payroll records you can produce on request.

Sales and use tax for contractors

This is one of the most common and costly audit issues in construction, because the rules differ by state. The general pattern:

• Most states treat the contractor as the consumer of materials. You pay sales tax when you buy lumber, pipe, and fixtures, and you do not charge the owner tax on the contract. The tax is simply part of your material cost, and your estimate must include it.
• Some states and some transactions work differently — a contractor who sells and installs certain items may be treated as a retailer who collects tax from the customer, and a few states tax construction labor or fabrication.
• Use tax applies when you buy materials without paying sales tax — an out-of-state supplier, an online vendor, or a purchase made with a resale certificate — and then use them on a job. You owe the use tax to the state where the material is used, and you accrue it yourself, usually monthly.
• Exempt owners — a tax-exempt owner's status does not automatically flow to your purchases; it depends on the state and the paperwork.

Keep invoices that show tax was paid, keep exemption certificates on file, and get your CPA's guidance for every state you work in.

Going Deeper (Intermediate)

Build the burden rate on paper once a year. Suppose a carpenter earns $28 per hour. Employer FICA adds about $2.14. Unemployment taxes might add $0.40. Workers' comp at a mid-range carpentry rate could add $2 to $4. Health insurance and retirement might add $3 to $5 per productive hour. PTO and holidays spread over working hours add roughly another dollar. That lands somewhere between $36 and $41 per hour — a burden of 30–45% — and every input varies by state, carrier, and benefit plan. The exact figure matters less than this: a bid built on $28 is wrong before the first nail.

Overtime raises the wage portion by half but not every burden item, so track it separately. And superintendent and foreman time is labor too; charge it to the jobs it supervises or to an indirect job cost pool, never to office overhead by default.

Advanced / Pro-Level

Pros treat payroll taxes as trust funds. Withheld income tax and the employee share of FICA belong to the government the moment you withhold them, and the IRS can hold owners and officers personally liable for unpaid withholding through the trust fund recovery penalty. Deposit on schedule no matter how tight cash gets.

Multi-state work adds complexity: withholding generally follows where the work is performed, unemployment tax is owed to one state per employee, and workers' comp coverage must extend to each state where crews work. On the sales tax side, pros reconcile a use tax accrual every month, track materials bought in one state and installed in another (many states credit tax already paid), and confirm whether equipment rentals and fabricated items are taxable where the job sits. A yearly review with your CPA is cheap insurance.

Practice Challenge

A laborer earns $25 per hour. With about 32% burden, what rate should you job-cost, and what does a 40-hour week on the job really cost compared with the bare wage? (Answer: $25 × 1.32 = $33 per hour, so the week costs about $1,320 rather than $1,000 — costing the bare $25 understates the job by $320 a week per worker and quietly erases your margin.)

In Practice

A contractor who costs burdened labor, posts timecards daily, and accrues use tax every month closes the books in a week and prices the next bid from real numbers. A contractor who costs bare wages, pays helpers on 1099s, and ignores out-of-state purchases finds out about all three in the same audit letter.

Common Mistakes to Avoid

• Underestimating fully burdened labor cost and bidding on the bare wage
• Weekly timecards written from memory with no job or cost code
• Treating employees as 1099 contractors to dodge burden
• Buying materials tax-free and never accruing the use tax
• Assuming sales tax rules are the same in every state you work in

Takeaway: Build fully burdened labor, payroll compliance, and sales/use tax into your estimates and your books from day one.

Educational content — not legal, accounting, tax, or contractual advice. Accounting methods, tax rules, and reporting requirements vary by state and change over time; verify with your CPA, your contract, and the agencies that apply to your work.