What Comes Off a Construction Paycheck
Every construction paycheck has three layers of deductions. Mandatory ones the government requires. Voluntary ones the worker chooses. And post-tax items like garnishments and damages that come off after taxes are calculated.
Get any of them wrong and you are looking at IRS penalties, state labor board complaints, or a lawsuit from a worker who got shorted. This guide walks through every deduction that shows up on a construction paystub and the FLSA rules that limit what you can take out of piece rate pay.
My background is in roofing, gutters, and soffit and fascia — so I have run plenty of paystubs for piece rate crews. The deduction rules are the same whether you pay hourly or by the square, but piece rate adds a minimum wage wrinkle that catches a lot of contractors off guard.
Layer 1: Mandatory Federal Deductions
These come off every paycheck. No exceptions. The worker cannot opt out.
Federal Income Tax Withholding
The amount you withhold depends on the W-4 the worker filled out when they started. The 2020 redesigned W-4 asks for filing status, dependents, and any extra withholding the worker wants. The IRS publishes withholding tables in Publication 15-T that you use to look up the right amount based on gross pay and W-4 inputs.
For a piece rate worker, the gross pay number includes all piece rate earnings plus any overtime premium for the week. You withhold federal income tax on the total.
Social Security (FICA)
6.2 percent of gross wages, up to the annual Social Security wage base, which is indexed every year. You match it as the employer. Once a worker hits the wage base, you stop withholding for the rest of the calendar year. Check the SSA's published wage base for the current year.
Medicare
1.45 percent of gross wages with no wage cap. You match it as the employer. There is also an Additional Medicare Tax of 0.9 percent on wages over $200,000 in a calendar year — but you only withhold it from the worker, you do not match it.
Federal Unemployment (FUTA)
This is an employer-only tax. It does not come off the worker's paycheck. The standard rate is 6.0 percent on the first $7,000 of each worker's wages, but most employers get a 5.4 percent credit for paying state unemployment, leaving a net 0.6 percent.
Layer 2: Mandatory State and Local Deductions
These vary by state. Some construction companies operate in one state and never think about this. If you cross state lines for jobs, you have to track each worker's work state and follow that state's rules.
State Income Tax
Most states have an income tax that comes off paychecks. Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire (interest/dividends only), South Dakota, Tennessee, Texas, Washington, and Wyoming. Each state has its own withholding tables and forms (the state version of the W-4).
State Unemployment Insurance (SUI)
Employer-only in most states. A few — Alaska, New Jersey, and Pennsylvania — also withhold a small SUI contribution from workers. Your SUI rate depends on your experience rating: how often your former workers have filed unemployment claims.
State Disability Insurance (SDI)
California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require SDI contributions. The split between employer and worker varies by state.
Local Income Tax
Some cities and counties — most notably in Pennsylvania, Ohio, and parts of New York and Maryland — have local income taxes that come off paychecks. If you have a worker living in or working in one of these jurisdictions, you have to register and remit local tax.
Workers Compensation
Workers comp is funded entirely by the employer in nearly every state. It does not come off the worker's paycheck. (Washington state is an exception — workers contribute a small portion.) Your premium is calculated as a rate per $100 of payroll based on your job classification, so piece rate earnings count toward the payroll base. Use the workers comp estimator to budget for this expense — it is not a paycheck deduction but it is part of your fully burdened cost.
Layer 3: Voluntary Pre-Tax Deductions
Pre-tax deductions come out of gross pay before federal income tax, Social Security, and Medicare are calculated. The worker pays less in taxes, and you also pay less in employer FICA match.
Health Insurance Premiums
Most employer-sponsored health insurance is set up under a Section 125 cafeteria plan, which makes the worker's premium contribution pre-tax. If you do not have a Section 125 plan in place, premiums are post-tax even if you call them pre-tax on the paystub. Talk to your benefits broker about a POP (Premium Only Plan) — it is the simplest version of a Section 125 plan.
Traditional 401(k) Contributions
Pre-tax for federal income tax purposes. They still count as wages for Social Security and Medicare, so you withhold FICA on the full gross. The IRS publishes elective-deferral and catch-up limits each year — check the current year's figure before setting payroll deductions.
HSA Contributions
Health Savings Account contributions through payroll are pre-tax for federal income tax, Social Security, and Medicare. This is one of the few deductions that escapes FICA entirely, which is why HSAs are popular when you offer a high-deductible health plan.
FSA Contributions
Flexible Spending Accounts (medical or dependent care) are pre-tax like HSAs. Use-it-or-lose-it rules apply. Most construction companies that offer benefits skip FSAs in favor of HSAs.
Layer 4: Voluntary Post-Tax Deductions
Post-tax items come off after taxes are calculated. They do not reduce the worker's taxable wages.
Roth 401(k) Contributions
Same contribution limits as traditional 401(k), but contributions are made with after-tax dollars. The worker pays tax now and withdraws tax-free in retirement.
Union Dues
If your crew is union, you withhold dues per the collective bargaining agreement. Dues are post-tax. Some agreements also require contributions to a union pension fund or health and welfare fund — those are typically employer-paid into a multi-employer plan, not deducted from the worker.
Life Insurance Premiums
Group term life insurance over $50,000 in coverage triggers imputed income on the cost of the excess. Worker contributions to additional voluntary life insurance are post-tax.
Layer 5: Court-Ordered and Other Involuntary Deductions
These you do not have a choice about. The court order or notice tells you what to withhold, and federal or state law caps how much you can take.
Child Support
The most common garnishment in construction. When you receive an Income Withholding Order (IWO), you have to start withholding on the next pay period. The Consumer Credit Protection Act (CCPA) caps child support at:
- 50 percent of disposable earnings if the worker supports another spouse or child
- 60 percent if the worker does not support another spouse or child
- Add 5 percent if the worker is more than 12 weeks in arrears
Disposable earnings means gross pay minus legally required deductions (taxes, mandatory retirement). It does not subtract voluntary deductions. State law may set lower caps — apply whichever is lower.
Tax Levies
The IRS issues a Form 668-W for federal tax levies. The worker fills out the back of the form to claim exemptions. The IRS publishes tables showing the amount that is exempt from levy — everything above that goes to the IRS until the levy is released.
Creditor Garnishments
For consumer debt garnishments, the CCPA caps the deduction at the lesser of 25 percent of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage per week. Several states (Texas, Pennsylvania, North Carolina, South Carolina) heavily restrict creditor garnishments.
Bankruptcy Orders
If a worker is in Chapter 13 bankruptcy, you may receive an order to deduct payments and send them to the bankruptcy trustee. Follow the order exactly.
The FLSA Rules That Limit What You Can Deduct
This is where construction payroll gets dangerous, especially for piece rate work. The Fair Labor Standards Act (FLSA) sets hard limits on deductions, and the rules apply differently to non-exempt workers (which most construction workers are).
Rule 1: No Deduction Below Minimum Wage
You cannot make a deduction that drops the worker's effective hourly rate below the federal minimum wage ($7.25 per hour federally) or the higher of any applicable state minimum wage. This rule applies to:
- Tools and equipment provided for the employer's benefit
- Uniforms and uniform laundering
- Cash register shortages
- Damaged property
- Required training costs
For a piece rate worker, this is a real risk. If a roofer earns $290 in piece rate for a 40-hour week — that is $7.25 per hour, exactly at minimum wage — you cannot deduct a single dollar for tools or uniforms without dropping below minimum wage.
Use the minimum wage compliance checker to verify the math before deducting anything beyond taxes.
Rule 2: No Deduction From Overtime Premium
The half-time overtime premium for hours over 40 cannot be reduced by deductions. So if you owe a piece rate worker $50 in overtime premium for the week, that full $50 has to be paid out — you cannot deduct tools or uniforms from it. The minimum wage protection applies to straight time, the overtime protection applies to the half-time premium.
For the overtime calculation itself, see how to calculate overtime for piece rate workers and the FLSA requirements for piece rate employers.
Rule 3: Deductions for Employer Benefit
The DOL distinguishes between deductions that benefit the employer (subject to the minimum wage rule) and those that benefit the worker (not subject to the minimum wage rule).
Employer-benefit deductions include:
- Tools required for the job
- Uniforms with company logos
- Cash shortages
- Property damage
- Costs of operations like vehicle washing
Worker-benefit deductions include:
- Health insurance premiums
- 401(k) contributions
- Voluntary savings programs
The minimum wage protection only applies to employer-benefit deductions.
Rule 4: State Laws Often Stricter
Many states ban certain deductions outright, even with the worker's written authorization. California, New York, Massachusetts, and several others prohibit deductions for breakage, shortages, and customer walk-outs. Check your state labor department's rules.
This is one of the most common pitfalls in our roundup of piece rate payroll mistakes.
Per Diem and Tool Allowances Are Not Wage Deductions
Per diem and tool allowances are payments to the worker, not deductions. But they have their own tax treatment that you have to get right.
Accountable Plan Per Diems
If you pay per diem under an IRS accountable plan, the per diem is not taxable wages and does not run through payroll. Requirements:
- Worker must substantiate business purpose (job site, dates)
- Per diem rate cannot exceed the federal GSA rate for the location
- Worker must return any unused per diem
If you meet all three, the per diem is tax-free to the worker and not subject to any deductions.
Non-Accountable Plan Allowances
If you pay a flat allowance with no substantiation requirement, the IRS treats it as taxable wages. It runs through payroll, all standard deductions apply, and it shows up on the W-2.
Tool Allowances
Same rules. If the worker has to substantiate tool purchases and return any unused amount, it is non-taxable. If you pay a flat $50 per week tool allowance with no receipts, it is wages.
A Worked Construction Paystub Example
Here is what a real piece rate paystub might look like for a roofer on a typical week.
Worker: Mike, single, no dependents, claims standard withholding on W-4 Pay period: 1 week Hours worked: 45 (5 overtime hours) Piece rate earnings: $1,200 (24 squares at $50 per square)
Step 1: Calculate Regular Rate
$1,200 / 45 hours = $26.67 per hour regular rate
Step 2: Calculate Overtime Premium
Half-time premium: 5 hours x ($26.67 / 2) = $66.68
Step 3: Total Gross Pay
$1,200 + $66.68 = $1,266.68 gross
Step 4: Apply Pre-Tax Deductions
- Health insurance premium: $80
- 401(k) contribution (5%): $63.33
Pre-tax deductions: $143.33 Federal taxable gross: $1,266.68 - $143.33 = $1,123.35 FICA taxable gross: $1,266.68 - $80 = $1,186.68 (401k still subject to FICA)
Step 5: Apply Mandatory Taxes
- Federal income tax (single, weekly, ~$200 from withholding tables): $145
- Social Security (6.2% of $1,186.68): $73.57
- Medicare (1.45% of $1,186.68): $17.21
- State income tax (5%): $56.17
Total mandatory taxes: $291.95
Step 6: Apply Post-Tax Deductions
- Child support garnishment ($150 per the IWO, within CCPA cap): $150
Step 7: Net Pay
$1,266.68 - $143.33 - $291.95 - $150 = $681.40 net
The paystub has to itemize all of this. See piece rate pay stub requirements for what fields are legally required, especially in states like California with stricter rules.
Recordkeeping Requirements
The IRS requires you to keep payroll records for at least four years. The DOL requires three years for FLSA records and two years for the underlying time and production records that support your wage calculations. Most contractors keep everything for seven years to be safe.
Records you need to keep:
- Each worker's W-4 and state equivalent
- Time records (start time, stop time, project)
- Piece production records (units produced, rate, project)
- All paystubs and pay registers
- Tax deposit records and quarterly 941 filings
- Year-end W-2s and 1099s (for any subcontractors)
Software handles most of this automatically. If you are still on spreadsheets, the recordkeeping burden is one more reason to look at QuickBooks vs piece work software or Piece Work Pro vs spreadsheets.
When to Consult a Pro
Payroll deductions are one of the few areas where DIY can blow up in your face. A few situations where you need professional help:
- First time receiving a child support order or tax levy
- Setting up a Section 125 plan for pre-tax health premiums
- Adding a 401(k) — you need an ERISA-compliant plan document
- Multi-state operations with workers in different states
- Anything involving union collective bargaining agreements
A payroll service or CPA charges a few hundred dollars to set this up correctly. Doing it wrong costs thousands in penalties and back wages.
Disclaimer: This article is for informational purposes only and is not legal, tax, or insurance advice. Consult a qualified professional before making decisions for your business.
Closing
Construction payroll deductions are a stack of rules layered on top of each other — federal, state, local, FLSA, plus court orders. Get the foundation right (W-4, state withholding setup, accurate gross pay) and the rest follows. Get gross pay wrong and every deduction downstream is wrong too.
That is why accurate piece rate calculation matters. If your gross pay is $50 off, your federal withholding is wrong, your FICA is wrong, your garnishment is wrong. Piece Work Pro tracks production by job, calculates gross pay including FLSA-compliant overtime, and feeds clean numbers into your payroll system. You can start a free trial and see your next paycheck calculated correctly.
For more on the foundation, read the fully burdened labor rate guide and how to run piece rate payroll.