Payroll Errors Cost Construction Firm $293K in Back Wages

A residential construction company in Idaho learned how payroll errors can quickly turn into significant financial exposure.

After a federal wage-and-hour investigation, Speedy’s Framing LLC agreed to pay $293,698 in back wages to 56 employees, along with a $24,795 civil penalty, to resolve alleged violations of the Fair Labor Standards Act (FLSA).

The case shows how overtime calculation errors and incomplete time tracking can produce substantial liabilities when they persist across multiple employees and pay periods.

Federal Investigation Finds Overtime Calculation Failures

An investigation by the Department of Labor’s Wage and Hour Division (WHD) determined that Speedy’s Framing failed to pay overtime to dozens of employees.

Under the FLSA, nonexempt employees must receive 1.5 times their regular rate of pay for hours worked beyond 40 in a workweek.

Investigators found that the company paid straight time for hours over 40, rather than the required overtime premium.

The agency also determined that the employer failed to compensate a foreman for time spent driving company vehicles between the company facility and job sites. Because this travel time counted as hours worked, it increased the company’s overtime liability.

Travel time is a common issue in industries with mobile workforces, including construction, where employees frequently move between job sites during the workday.

“The U.S. Department of Labor is determined to hold employers accountable, particularly when they deliberately attempt to evade the law by denying workers overtime pay,” said Katherine Walum, WHD District Director in Portland, Ore. “Federal law protects workers’ rights to be paid their full, earned wages. We encourage employers to contact us for compliance assistance so they can prevent violations.”

Individual employee payments in the case ranged from $90 to $32,047.

Finance Insight: How Payroll Errors Become Financial Risk

For finance leaders, the case highlights how wage-and-hour errors can evolve into balance sheet liabilities, margin erosion and audit concerns.

Wage Liabilities Can Accumulate Unnoticed

Payroll errors that appear minor at the individual level often compound across large workforces and extended time periods. When overtime premiums are miscalculated or compensable hours are missed, companies may unknowingly accumulate wage liabilities until an external audit or enforcement action uncovers the issue.

Because agency investigations often review multiple years of payroll records, financial exposure can grow quickly.

Labor Misclassification Distorts Job Costing

If overtime premiums aren’t applied correctly, project labor costs may be understated in internal financial reports.

For construction companies that rely on job costing, this creates two risks:

• Project margins appear stronger than they actually are, and
• Future bids and budgets rely on distorted labor cost history.

Such distortion can affect pricing strategy and profitability analysis.

Payroll Controls Are Part of Financial Internal Controls

Overtime calculation rules, time-tracking accuracy, and pay-code configuration are often viewed as HR or payroll functions.

But from a financial governance perspective, they represent critical internal controls over labor expenses – one of the largest cost categories for many companies.

Breakdowns in these cost controls that result in payroll errors can expose companies to regulatory penalties, litigation risk and restatement of labor costs.

Travel Time Can Create Hidden Wage Exposure

In industries with field crews, travel between job sites during the workday may qualify as compensable time under the FLSA.

If timekeeping systems fail to capture those hours consistently, companies may underestimate labor expenses and accumulate unpaid overtime obligations.

Finance Takeaways: Controls Worth Reviewing

Finance teams should periodically review payroll and labor-cost processes to identify potential exposure areas.

• Use digital timekeeping tools to improve labor-cost capture. For example, a construction company in California replaced paper timecards with a digital workforce platform that tracks hours through mobile apps and location-based tools, improving time accuracy and reducing payroll errors.
• Validate overtime calculations in payroll systems. Payroll systems should automatically apply the 1.5 overtime premium to nonexempt employees. Configuration errors or incorrect pay codes are a frequent source of miscalculations.
• Compare timekeeping data with payroll outputs. Reconciliation between time-tracking systems and payroll results can identify pay discrepancies before they compound into large liabilities.
• Evaluate job-costing accuracy. Construction firms should confirm that overtime premiums and compensable travel time are correctly allocated to project labor costs.
• Coordinate periodic payroll compliance reviews. Cross-functional reviews involving finance, payroll and HR can help identify payroll control weaknesses before external investigations uncover them.