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Construction Companies: Payroll Setup Guide (2026)
Setting up construction company payroll means the standard registrations, an EIN, state withholding and unemployment accounts, new hire reporting, plus the construction company specifics: pay codes for prevailing wage compliance and certified payroll and a documented classification for laborers and carpenters. BEG runs construction company payroll for $45 per employee per month inside the payroll software you already use, all-inclusive, live in 3 to 5 business days.
Step 1: accounts and registrations
Every construction company starts with an EIN, a withholding account in each state where someone works (unless that state has no wage tax), an unemployment insurance account in each of those states, and access to each state's new hire directory. New employers deposit federal employment taxes monthly during the first calendar year because there is no lookback period yet.
Step 2: classify laborers and carpenters before the first check
The IRS Construction Industry Audit Technique Guide states that the use of subcontractors is common in construction and that many taxpayers treat employees as subcontractors to avoid paying employment taxes; examiners are told to consult an employment tax specialist on these issues, and backup withholding can apply to subcontractors.
Step 3: build the construction company pay codes
Prevailing wage compliance, certified payroll, union vs non-union and seasonal crew cycles each become a pay code with its own taxability and overtime treatment. Building them before the first run is cheaper than correcting a quarter of 941s afterward.
For per diem allowances paid for travel away from home on or after October 1, 2025, the IRS high-low substantiation rates are $319 per day for high-cost localities and $225 for all other localities in the continental United States, of which $86 and $74 are treated as paid for meals. The incidental-expenses-only rate is $5 per day.
Step 4: set the records up to be kept
A contractor or subcontractor on Davis-Bacon covered work must submit certified payrolls weekly for each week in which covered work is performed, using Optional Form WH-347 or any other format, with each submission accompanied by a signed Statement of Compliance. Regular payrolls and basic records must be preserved for at least 3 years after all work on the prime contract is completed.
The Davis-Bacon Act applies to federal contracts in excess of $2,000 for construction, alteration or repair of public buildings or public works. Contractors on covered work must pay workers weekly, submit weekly certified payroll records to the contracting agency, and post the wage determination and the Davis-Bacon poster (WH-1321) at the work site.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- The IRS Construction Industry Audit Technique Guide states that the use of subcontractors is common in construction and that many taxpayers treat employees as subcontractors to avoid paying employment taxes; examiners are told to consult an employment tax specialist on these issues, and backup withholding can apply to subcontractors. [IRS Publication 5522]
- For per diem allowances paid for travel away from home on or after October 1, 2025, the IRS high-low substantiation rates are $319 per day for high-cost localities and $225 for all other localities in the continental United States, of which $86 and $74 are treated as paid for meals. The incidental-expenses-only rate is $5 per day. [IRS Notice 2025-54]
- A contractor or subcontractor on Davis-Bacon covered work must submit certified payrolls weekly for each week in which covered work is performed, using Optional Form WH-347 or any other format, with each submission accompanied by a signed Statement of Compliance. Regular payrolls and basic records must be preserved for at least 3 years after all work on the prime contract is completed. [29 CFR 5.5(a)(3)]
- The Davis-Bacon Act applies to federal contracts in excess of $2,000 for construction, alteration or repair of public buildings or public works. Contractors on covered work must pay workers weekly, submit weekly certified payroll records to the contracting agency, and post the wage determination and the Davis-Bacon poster (WH-1321) at the work site. [DOL Fact Sheet #66]
Read the full guide to how to set up payroll for a new business, and the rest of the construction company payroll library.
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Frequently Asked Questions
What registrations does a new construction company need before running payroll?
An EIN, a state withholding account and a state unemployment account in every state with an employee, and new hire reporting access. State registrations are the slow step and can take weeks, so they start before the first hire date.
How are laborers and carpenters classified at setup?
The IRS Construction Industry Audit Technique Guide states that the use of subcontractors is common in construction and that many taxpayers treat employees as subcontractors to avoid paying employment taxes; examiners are told to consult an employment tax specialist on these issues, and backup withholding can apply to subcontractors.
What records must a construction company keep from day one?
A contractor or subcontractor on Davis-Bacon covered work must submit certified payrolls weekly for each week in which covered work is performed, using Optional Form WH-347 or any other format, with each submission accompanied by a signed Statement of Compliance. Regular payrolls and basic records must be preserved for at least 3 years after all work on the prime contract is completed.
What does managed payroll cost for a construction company?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Prevailing wage compliance, certified payroll and union vs non-union are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Construction Companies. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: IRS: Independent Contractor or Employee
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