Payroll and Worker Classification for Construction Contractors
Payroll is where a construction business is most exposed and least examined. The money moves every week, the rules differ by state, and the penalties for getting classification wrong are assessed per worker, not per mistake.
These episodes cover the decisions that carry real exposure: whether a crew member is a 1099 or a W-2, what the reporting thresholds are now, how the overtime deduction actually works, and what makes a payroll file look worth auditing.
Episodes in this series
- Payroll Mistakes That Wreck a Business · Episode 132
- Worker Classification and 1099s · Episode 134
- No Tax on Overtime · Episode 180
- Modular Construction and the Cash Curve · Episode 184
- Quarterly Estimated Taxes · Episode 84
- What Work Clothing You Can Deduct · Episode 67
- Failed Acquisition Costs · Episode 68
Classification is the one that bites hardest
Calling a worker an independent contractor does not make them one. The tests look at control — who sets the hours, who supplies the tools, whose direction the work is done under — and in construction the honest answer is often employee. When the determination goes against you, the assessment covers back payroll taxes, the unpaid deposits, and penalties on each unfiled form.
The reporting numbers moved
The 1099 reporting threshold sat at $600 for years and has now moved to $2,000 for payments made in 2026. That changes who you have to issue forms to, and it changes the W-9 collection process you should be running before the work starts rather than in January.
Overtime is not tax-free, whatever your crew heard
The deduction is real, but it is capped, it phases out on income, it applies only to the premium half of federal overtime, and several states do not follow it. If your crew is expecting a refund that is not coming, they will hear about it from you or from their return.
Unsure whether your crew is classified correctly?
We review the classification, the payroll file and the documentation together, before an agency does it for you.
Browse the full Construction Accounting Podcast archive
General information about how these rules work, not advice for your situation. Tax law changes and the right answer depends on your entity, your income and your circumstances. Talk to a CPA before acting on it.