Payroll Classification and Bid Pricing for a Roofing Crew
A roofing contractor is preparing a bid for a 60-square commercial re-roof. The contractor plans to use a crew of four: two roofers paid $22/hour, one foreman paid $30/hour, and one laborer paid $18/hour. The contractor historically bids labor at 1.35 times the base wage and adds 10 percent overhead and 10 percent profit. The job is expected to take 8 working days at 8 hours per day. The contractor has been paying the foreman as an exempt salaried employee and paying the two roofers as 1099 subcontractors. The state requires workers' compensation coverage and has a prevailing wage requirement on public work, though this job is private. The contractor's workers' comp rate is $18 per $100 of payroll, and payroll taxes are 9 percent of wages.
1. Identify the payroll classification problems and explain the financial and legal exposure.
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Paying roofers as 1099 subcontractors is likely misclassification: roofers working under the contractor's direction, on the contractor's schedule, using the contractor's tools and materials, are employees under most tests. Misclassification exposes the contractor to back payroll taxes, penalties, workers' comp premiums, and wage claims. Paying the foreman as exempt salaried is also risky: a working foreman who performs manual roofing labor and does not meet the salary and duties test for exemption is likely non-exempt and owed overtime. The contractor should reclassify the crew as employees, pay overtime where required, and correct payroll going forward.
2. Calculate the loaded labor cost for the job using the crew, hours, workers' comp, and payroll taxes, then show how the contractor should build the bid price.
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Base wages per day: 2 roofers x $22 x 8 = $352; foreman $30 x 8 = $240; laborer $18 x 8 = $144; total $736/day. For 8 days: $5,888 base wages. Payroll taxes at 9% = $529.92. Workers' comp at $18 per $100 of payroll = 0.18 x $5,888 = $1,059.84. Loaded labor = $5,888 + $529.92 + $1,059.84 = $7,477.76. The contractor should not rely on the historical 1.35 multiplier alone because it may not cover the actual burden; the bid should use actual loaded labor plus materials, equipment, permits, overhead, and profit. If overhead and profit are each 10%, apply them to the loaded cost plus materials and other direct costs, not to wages alone.
3. The contractor learns the job is actually on a public building subject to prevailing wage. How should the bid change?
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The contractor must pay the applicable prevailing wage and fringe benefits, which are typically higher than the planned wages, and must comply with certified payroll and recordkeeping requirements. Recompute loaded labor using the prevailing wage rates for each classification, add the increased workers' comp and payroll tax burden, and revise the bid before submission. The contractor should also verify apprenticeship and ratio requirements and confirm that the crew classifications match the work performed. Bidding at the lower private-wage rates on a public job would create a wage violation and a loss on the contract.