Modular construction is gaining traction, and it shows no signs of slowing down. Once seen as a cheap way to throw together low-end housing or temporary dwellings, modular construction is now seen as a legitimate option for high-quality construction that’s fast and cost effective.
As new technologies have evolved, new opportunities have opened up. The tiny home movement has helped make modular construction profitable, and the applications for disaster relief are tremendous.
Modular construction offers several advantages that are catching the attention of contractors as well as their customers:
- Speed. A modular construction project can be completed 30-50% faster than traditional construction projects.
- Less disruption. Since most of the construction work is done off-site, clients and neighbors have much less noise, road congestion, and other inconveniences
- Safety. The production approach to modular construction means you have a set process that’s easier to control.
- Sustainability. Modular construction uses fewer raw materials, reduces waste, and lowers on-site pollution.
Think Like a Manufacturer
ecause of this trend, many construction companies are beginning to look a bit more like manufacturing companies. They’re building modular sections of homes off-site under controlled plant conditions. And that means they aren’t just a construction company anymore — they’re also a manufacturer.
Businesses that pivot to modular construction assume certain characteristics of manufacturing companies. Productivity becomes more important than ever. You need a high output while maintaining high quality. To reach high production standards and quotas, you’ll probably need to introduce some sort of incentive pay policy.
You may also have new unions to deal with, each with their own collective bargaining agreements (CBAs).
Even though you’re a construction company, you’ll need to start thinking like a manufacturer. These new business realities have major implications for payroll. Let’s take a look at some issues you’ll need to be prepared for. We’ll also show you how IDI can equip you to meet these new challenges.
Production Systems
In the manufacturing industry, companies need to track their production numbers. It’s critical to maintain a certain level of production and quality in order to maximize profits and minimize losses. It’s more complicated than simply adding up your pieces produced at the end of the day — you need to track productivity across several variables, including days of the week, shifts, teams of workers, individual workers, and much more.
Production ERP systems allow you to collect, track, and analyze all kinds of data related to your productivity. These powerful software platforms give you tremendous insight so that you can optimize your modular construction process.
In the manufacturing industry, productivity and payroll are intimately connected. It’s critical to have a way to seamlessly integrate your productivity data with payroll. Unfortunately, as impressive as production systems are, they fall short when it comes to payroll functions.
Piece Rate
To encourage productivity, most manufacturers offer incentives for hitting certain quotas. Piece rates also make a lot of sense for modular construction — if you haven’t adopted this model yet, consider it.
In a piece rate pay model, different assembled pieces have their own rates of pay — usually based on difficulty, risk, or time involved. Each worker is given a bonus on top of their regular pay, based on how many pieces they assembled during their shift.
A piece rate may be tiered so that each time a worker reaches a new level of productivity, their pay bonus increases by a certain amount.
The piece rate model can be tremendously effective for boosting productivity, but it’s also tremendously complex. Each employee will earn a different rate of pay each day, because productivity won’t always be the same. On top of that, a single employee may be assembling various pieces throughout the pay period, all at a different piece rate.
Since the production system doesn’t do payroll calculations, it’s usually up to payroll managers to manually calculate all of that data by hand — for every employee. You can imagine the time, labor, and risk for error that’s involved in a single paycheck.
Union Rates
Moving to a modular construction venture could mean new unions in your organization. You may need to pay different rates based on union rules. Your CBA may also include union-based incentives and benefits for hitting production quotas as well.
Unionized labor adds a new dimension to production pay, especially because the last thing you want is to receive a call from your union steward about a union employee whose paycheck was short.
You may have a union already, but adding a manufacturing role to your company could mean adding new unions as well. Payroll can be complex enough with one union — it’s exponentially more challenging when you have multiple unions, each with their own rules to apply.
Related: 6 Signs You Need to Automate Your Unique Payroll Policies
IDI Makes Payroll Simple
IDI has been in the construction industry for more than three decades — we’ve been in the manufacturing industry for decades, as well. Our integration solution is designed to meet the unique payroll challenges that modular construction businesses are facing.
IDI’s system is designed to integrate seamlessly with production ERPs and your payroll system. When payroll is run, our software talks to the ERP and accesses employee-specific production data. It interprets the data, then performs all of the payroll calculations related to piece rates, union rules, and overtime — including all of your unique pay rules related to construction. Results are then passed to your payroll system for processing.
Everything is completely automated. Just click a button, or set up a schedule and forget it altogether. Calculations are accurate every time, and your payroll manager gets back hundreds of hours per year to do more meaningful work.
Even though you’re a construction company, your business will take on aspects of a manufacturer when you start doing modular construction. Be prepared for all of the implications for your company, throughout the scope of your business.
IDI can help you think through your new payroll needs. Be prepared for the new challenges before they come. Talk with IDI today.
