The Basics of Construction Accounting Part 4
As we conclude our series on construction accounting, we will focus on common billing methods and the responsibility that contractors have to accurately report payroll. You can catch up on this four-part series by reading about the importance of construction accounting in part one, job costing in part two, and income recognition and retainage in part three. For information on wage and hour laws, consult a Florida construction attorney from Cotney Attorneys & Consultants.
Common Billing Methods
Remember, construction accounting, in particular income recognition, focuses on tracking transactions on each project. Because these projects are long-term and occur on different jobsites, contractors must employ an assortment of billing methods in order to track and receive payments. These methods are as follows:
- Fixed Price Billing: With this method, the total project cost is contingent on the accuracy of your cost estimate. You can already see the potential problems with fixed price billing. Essentially, contractors are committing themselves to a cost that may expand over the course of a project.
- Time-and-Material Billing: This billing method takes into account material costs and the hourly rate of labor. This method is advantageous because contractors can apply a standard markup and safeguard profits.
- Unit Price Billing: As the name implies, unit price billing entails billing an owner at a fixed rate for units of work completed. Essentially, price is determined by the specific tasks or materials that are to be provided. For example, a construction company can bill for every mile of road completed. This billing method is common for projects that can’t be accurately estimated.
- AIA Billing: AIA (American Institute of Architects) billing is a payment application for the percentage of work completed. The only drawback of AIA billing is that it can lead to a dispute if a party disagrees on the percentage of completion. For assistance with settling payment disputes, consult a Florida construction attorney.
In addition to the numerous potential issues and conflicts mentioned throughout this series, contractors have to contend with stringent payroll requirements. Contractors must comply with federal laws as well as local laws that vary from state to state. You must also ensure that you are correctly classifying workers, paying workers, and reporting your payroll to the Internal Revenue Service (IRS). These responsibilities alone are complex enough to hinder even the most experienced contractor. However, there’s no reason for you to face these challenges alone.
Partner With an Attorney
There are an assortment of accounting programs that can assist your company with tracking income and expenses. However, no program will be able to provide you with the expert legal advice needed to overcome the challenges and disputes that your company is sure to face while working towards better account practices. An owner can refuse payment regardless of your billing method. An unforeseen delay can present itself even when labor and material costs are accurately tracked. For a legal partner that will resolve disputes, whether through arbitration or litigation, and fight for your owed payments, consult the experienced and aggressive Florida construction attorneys from Cotney Attorneys & Consultants.
If you would like to speak with one of our Florida construction attorneys, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.