With over 15 years in the construction industry, I’ve worked in various global capacities, from on-site to leadership positions. These experiences have given me a deep understanding of the construction workforce and its compensation structures.
This area can be a minefield, even for the most seasoned construction worker. In this article, I’ll break down the different ways construction workers get paid, as well as the various employment arrangements, construction timesheets, payment schedules, taxes, and typical deductions.
Overview
- What Types of Construction Employment Are There?
- How Often Do Construction Workers Get Paid?
- What Taxes and Deductions are Taken from Construction Workers?
- Final Thoughts
What Types of Construction Employment Are There?
Construction work encompasses a wide range of employment types, each with differing ways that construction workers get paid. Anyone working within the industry needs to have at least a basic understanding of the differences, as well as the pros and cons.
It is important to realize that there is no ‘correct’ type of contract when working in construction, and it is very much a decision for both the employer and the employed based on the individual circumstances and type of work.
#1 Direct Employment
The most common, and most traditional route of employment for construction work is to be directly employed by the contracting company.
Being directly employed offers a degree of employment security, and typically, statutory employment benefits, which depending on locality, could include a form of Social Security, health insurance, unemployment insurance, pension contributions, and paid vacation.
Directly employed workers should also have basic safety provisions provided to them, such as hard hats, safety glasses, and high-visibility clothing.
Directly employed workers will typically be paid a salary or an hourly rate. Some employers may offer a higher hourly rate for overtime or work on public holidays.
This form of employment is typically seen as offering greater employment security, as well as a closer relationship with the employer, where a longer-term working relationship can be developed, with promotion and career development opportunities being clearer.
#2 Self-Employed Construction Workers
Self-employment is also common in the construction industry. Typically self-employed workers are responsible for managing their own timesheets, will have their own tools and equipment, and sometimes will also be expected to supply the materials required for the job (time and materials contracts).
Self-employed workers will not get the same benefits as directly employed workers, such as paid vacation, health insurance, pension contributions, and sick leave. They are also less likely to receive company assets such as a work vehicle.
One of the main considerations of considering self-employment is that the worker is responsible for managing and submitting their self-employed tax returns, which can be a complicated process for those not familiar with the various tax regulations and allowances, however, this can be outsourced to an accountant.
Another major consideration is that self-employed workers don’t have the same level of job security as direct employees, and technically can have their employment terminated without any notice or redundancy pay (it happens more often than you would expect).
Self-employed contractors are typically either paid hourly or by ‘piecework’ – where they are paid a fixed rate per repeatable task, for example, $5 per meter of trim installed.
#3 Subcontractors
Subcontractors are similar in many ways to self-employed contractors, in the sense that they are not directly employed by the principal contractor as a company employee.
Subcontractors are usually an incorporated company and can consist of one or multiple workers working under the same entity.
Subcontractors essentially operate as intermediaries for the principal contractor and can either carry out certain trade packages, such as framing carpentry, or electrical installations, or in some cases, an entire build project.
Subcontractors are typically hired under a negotiated contract with a principal contractor on a set of fixed rates, however, subcontractors can also work on agreed hourly rates if appropriate.
Whereas subcontracting can be more lucrative than being a direct employee, as the added responsibility typically commands a higher profit margin, there are risks. The main issue facing the construction industry regarding subcontractors is if a principal contractor defaults or goes into insolvency, there are few protections for subcontractors, who are in reality, unsecured creditors to their employer.
This means that when principal contractors go bust, subcontractors often get left out of pocket for any work done that has not yet been invoiced or paid.
#4 Apprenticeships
Apprentices work while training under skilled tradespeople. If they are completing an accredited apprenticeship, they will also usually have to attend classroom-style training at college on block release, as well as pass several assessments, both practical and theoretical, in order to qualify as a tradesman, complete the apprenticeship, and be awarded the relevant qualifications.
Apprenticeship programs typically last three to four years and are paid for their time. This offers an opportunity to both study and earn a salary at the same time, without incurring student debts. Some apprenticeships are also offered through trade unions, providing additional promotion of employee welfare. Apprentices should receive the same employment benefits from their employer as other direct employees.
#5 Union vs. Non-Union Workers
Employee (or Trade Unions) and non-union workers in the construction industry differ significantly and are often subject to debate on the pros and cons regarding benefits, protections, and work conditions. Union workers are essentially part of a collective bargaining agreement, which ensures consistent pay scales, health benefits, retirement plans, and safe working conditions.
These agreements also provide a structured grievance process for resolving workplace disputes and often guarantee training programs through union-sponsored professional development. As a result, union workers generally enjoy higher wages and greater job stability than their non-union counterparts. They also benefit from advocacy by their unions in negotiating contracts, securing better work conditions, and protecting against unfair practices.
In contrast, non-union workers often negotiate their pay and benefits individually, which can lead to greater variability in compensation and fewer guaranteed benefits. While some non-union employers may offer competitive wages and benefits to attract talent, many do not provide the same level of welfare provisions, training opportunities, or employment protections.
However, non-union workers may have more flexibility in their work arrangements and less reliance on seniority for assignments and promotions. Employers of non-union workers also tend to have more freedom in hiring, firing, and setting work policies, which can result in a less regulated, though potentially less predictable, work environment.
Ultimately, the choice between union and non-union work often comes down to the worker’s priorities, such as stability versus flexibility, and the type of employer they work for.
How Often Do Construction Workers Get Paid?
Payment frequency in construction varies depending on employment type and company policies. Traditionally, the construction industry was known for paying weekly, however, larger contractors are now moving towards monthly pay to mirror other sectors of the economy:
- Directly Employed workers are usually on a salary or an hourly wage. Most construction employers still pay trades and on-site workers weekly, however, larger firms are moving towards monthly pay. For workers on an hourly rate paid weekly, it is common to be paid a ‘week in hand’. This means that they are paid one week in arrears, meaning they don’t get their first week’s pay until the end of week two. This allows employers enough time to process payroll effectively whilst maintaining a weekly schedule.
- Self-employed workers will typically follow the same pay schedule as directly employed workers, as this keeps matters simple for employers when processing payroll. Self-employed workers, however, will not receive a payslip in the same way directly employed workers do, and will usually have to submit an invoice or timesheet for their work.
- Subcontractors will negotiate their payment terms during their tender bid, however, industry-standard contracts such as The American Institute of Architects (AIA) Contracts, or The Joint Contracts Tribunal (JCT) have set out accepted practices.
Is it typically the case that subcontractors will be expected to submit monthly valuations of the work they have completed. This will then be inspected and verified by the principal contractor’s agent, usually within 14 days. During this period, the principal contractor can make deductions if they don’t feel the work done on-site reflects the valuation that the subcontractor has submitted.
Once the work has been agreed and accepted, the subcontractor can then submit an invoice, which will be paid within the terms negotiated. This is usually 30 days, however, it is not uncommon for principal contractors to insist on longer terms. This means that subcontractors will have to be content that they can cashflow their businesses for long periods between payment dates. - Apprentices are usually employed directly by contractors or subcontractors and will be paid on the same schedule as other directly employed workers. Apprentices receive significantly lower pay rates than qualified workers, as their employer will be covering other costs such as their training fees.
What Taxes and Deductions are Taken from Construction Workers?
Deductions for Employees
Deductions will vary depending on location, however, some general deductions apply to most countries:
- Income Taxes: In most countries, income is taxed and deductions are made by the employer directly from the employee’s payslip. Income tax rates will vary depending on location. You can look up your local rate of income using Trading Economics.
- Social Security, Medicare, or National Insurance: It is also common for there to be deductions made to cover national health care and state pensions. Typically, a contribution is made by both the employer, as well as the employee. Again, this will vary depending on locality, so it is important to look at what rates apply in your area. You can check the International Social Security Association (ISSA) website to see insurance rates by county.
- Union Dues: If you’re a Union worker, there may be deductions to cover the costs of support and benefits provided.
- Benefits Contributions: Deductions for health insurance, private pensions, and other employer-provided benefits can also be deducted from an employee’s payslip.
Taxes for Self-Employed Workers
Self-employed construction workers are responsible for filing and paying their own income tax (if working as an individual, or corporation tax if working as a business. These tax rates will vary from location to location, so it is important to consult with a qualified tax adviser to understand the correct tax deductions that should be applied.
Final Thoughts
The compensation of construction workers reflects the diversity of roles and employment arrangements within the industry. Understanding pay structures, deductions, and tax obligations ensures workers and employers alike can navigate the financial aspects of construction with confidence.
For those entering or managing this somewhat confusing side of the industry, educating yourself and making a decision on your own personal circumstances and objectives will be the key.
