Want your construction business to run more efficiently?
Most companies focus on what’s happening on the jobsite. The blueprints. The builds. The deadlines.
Few spend any time thinking about…
THE BACK-OFFICE.
Between payroll headaches and worker misclassification, construction’s back-office side is often a total disaster. And guess what…
Design thinking can fix it.
How? This article covers everything you need to know. But first…
Quick preview:
- What Is Design Thinking?
- Why Construction Back-Offices Are Broken
- How To Apply Design Thinking To Payroll Operations
- Example Problem: Independent Contractor Classification
- Build A Smarter Back-Office
Let’s get into it.
What Is Construction Design Thinking?
Design thinking is a human-centered approach to problem-solving.
Traditionally it’s been used for product design and customer experience. But progressive businesses have started using it to improve internal operations like payroll, compliance and more.
Design thinking has five stages:
- Empathize: Understand pain points
- Define: Find the problem
- Ideate: Develop solutions
- Prototype: Test small before launching full-scale
- Implement: Execute what works and improve what doesn’t
Essentially design thinking takes chunks of broken processes and deconstructs them. Then companies rebuild those processes however they want.
With the people who will be using it in mind.
And when it comes to construction companies? That starts with the back-office.
Why Are Construction Back Offices So Broken?
Here’s the issue:
Payroll for construction companies is one of the most complicated in any industry. People jump between jobsites. Rates change by location/task/equipment. And independent contractors are mixed in with W-2 employees everywhere.
Getting payroll processing for construction companies right requires smart independent software and tight internal controls. Without them, mistakes are inevitable.
So how bad is it?
A recent study surveyed payroll teams in construction and found 50% experience multiple payroll mistakes each month. Things like overtime errors, paying the wrong rate and misclassification top the list.
Not only do these errors cause headaches with IRS audits and unhappy workers. For an industry already facing worker shortages…payroll drama just exacerbates the problem.
Enter design thinking.
Applying Design Thinking to Construction Payroll Operations
Unlike traditional approaches to payroll and back-office management…design thinking doesn’t play defense.
It asks how you can prevent payroll problems before they happen. And that starts with the empathize step.
Apply design thinking to your payroll process using these steps:
Step 1: Empathize with your payroll team
Talk to the people who run payroll for your business. Field superintendents. Bookkeepers. Project managers.
Figure out where the bottlenecks and pain points are.
Step 2: Define the specific problem
Is it manual data entry? Misclassifying workers? Not knowing how to calculate multi-state taxes? Be specific about the pain point you want to solve.
Step 3: Ideate potential solutions
Write down ideas on how to solve the problem. This could be new independent contractor payroll software, changing how you collect timesheets from the field or automating tax calculations completely.
Step 4: Start small with a prototype
Implement the change on a small scale to start. Try it out on one job. One crew. See how it works.
Step 5: Implement and improve
Once you’ve tested out the changes. Implement it across the board. And continue to make tweaks and improvements as you learn what doesn’t work.
Design thinking is powerful because it forces you to tackle real problems. Instead of throwing money at shiny new tools that don’t fit how your business operates.
Fixing Construction’s Independent Contractor Classification Problem
Now, let’s walk through an example of a common construction back-office problem…
Worker classification.
Misclassifying a W-2 employee as an independent contractor can be disastrous for construction companies. And yet, it still happens far too frequently.
40% of small businesses have been fined by the IRS for incorrect payroll filings. In construction especially, there’s a fine line between crews of W-2 employees and independent contractors working on the same job.
Here are a few of the things that happen when you screw up worker classification:
- You get hit with back taxes and penalties from the IRS
- You become ineligible for future government contracts
- Misclassified workers can take legal action against you
- Your company’s reputation takes a hit
…and that’s just scratching the surface.
The right independent contractor payroll software can prevent most of these headaches. Software that automatically detects classification risks, calculates taxes for you and keeps records of every contractor your business has ever worked with.
Construction companies can use design thinking to identify why misclassification happens in the first place. Then build a new system that eliminates it moving forward.
Revamping Your Construction Business’s Back-Office
Design thinking can solve construction back-office problems beyond just payroll.
It starts with identifying areas that cause the most headaches for your operation. Then using the five steps above to fix them.
Here are a few ideas:
- Time tracking. Put an end to paper timesheets with automated time tracking that syncs to your payroll system.
- Compliance. Say goodbye to manual payroll reports with software that automates prevailing wage calculations and certified payroll.
- Worker Onboarding. Build a standardized system for how new hires and contractors are classified and added to your system.
- Financial reporting. Create custom dashboards that allow you to view real-time labor costs by project.
And the list goes on.
Construction companies that use design thinking to revamp these processes save countless hours, avoid paying fines and stay ahead of regulations.
Oh and it doesn’t all have to be done at once.
Pick one pain point and work through these steps. Test it. Adjust as needed. Then solve the next problem.
How To Build A Better Blueprint
The construction industry is pretty darn good at building things.
But when it comes to behind-the-scenes operations? There’s still a lot to learn.
Luckily design thinking provides a framework for tearing down old processes that don’t work and replacing them with smarter alternatives.
Using it to improve payroll management, worker classification and compliance allows construction businesses to:
- Eliminate costly payroll mistakes
- Keep up with changing labor laws
- Improve contractor & employee retention
- Save your team time and money
It all starts with shifting your operations from reactive to proactive.
And once you do that? Pair that mindset with the right independent contractor payroll software…and your construction business’s back-office will cease to be a problem.
It’ll become your competitive advantage.