Contractors Center Point

Upcoming Construction Education Events - Don’t Miss Out!

On November 14, we encourage you to join us in the morning for the American Subcontractors Association of Central Pennsylvania’s Fall Construction Seminar and then in the afternoon for McKonly & Asbury’s free webinar focused on Section 460. More information on each event is below.

ASACP’s Fall Construction Seminar: November 14 7:30AM-11AM

The American Subcontractors Association of Central Pennsylvania (ASACP) is hosting a Fall Construction Seminar on the morning of Thursday, November 14. McKonly & Asbury is a member of the ASACP and Lisa White, Senior Manager and Mike Eby, Supervisor with McKonly & Asbury will be presenting a session on Federal & State Tax Matters Impacting Contractors and Subcontractors during the morning’s sessions. There will also be a Healthcare Reform Update from Murray Securus, a Legal Update from Beckley & Madden, and more!

Details are as follows:

Date - Thursday, November 14, 2013
Location - Giant Community Center inside the Giant Food Store at 2300 Linglestown Road, Harrisburg, PA 17110
Time - 7:30 a.m. - 11:00 a.m.
Registration Fee - $20 for ASA Members; $30 for Non-ASA Members (credited toward new membership)

For more information on the morning’s agenda, please click here to view the full event flyer.

To register for this event, please click here. If you have any questions regarding the event, please contact Loni Warholic, Executive Director with the ASACP at (717) 232-2222 or lwarholic@asacentralpa.com.

Section 460: Percentage of Completion for Large Contractors Webinar: November 14 2PM-3PM

Listen in on the afternoon of November 14 as Lisa White, Senior Manager and Chris Care, Staff Accountant with McKonly & Asbury take a look at Section 460: Percentage of Completion for Large Contractors. This webinar will address a number of aspects of IRC Section 460 as it applies to large contractors.  During the presentation, Lisa and Chris will navigate the areas of determining when the large contractor rules apply and how to calculate the percent complete for tax purposes.  They will also discuss a number of areas in which there might be opportunity for tax planning and savings.

This free, hour-long webinar will take place on Thursday, November 14 at 2:00 p.m. EST. This program is a live webinar which offers you the opportunity to ask questions and interact with the presenters. There is no quiz and no exam. This webinar qualifies as live CPE and is not considered self-study. No prerequisites are necessary for this webinar and the program level is intermediate.

Reserve your webinar seat now by clicking here. After registering, you will receive a confirmation email containing information about joining the webinar.

ASACP Presents Fall Construction Seminar

The American Subcontractors Association of Central Pennsylvania (ASACP) is hosting a Fall Construction Seminar on Thursday, November 14. McKonly & Asbury is a member of the ASACP and Lisa White, Senior Manager and Mike Eby, Supervisor with McKonly & Asbury, will be presenting a session on Federal & State Tax Matters Impacting Contractors and Subcontractors during the morning’s sessions. There will also be a Healthcare Reform Update from Murray Securus, a Legal Update from Beckley & Madden, and more!

Details are as follows:

Date - Thursday, November 14, 2013

Location - Giant Community Center inside the Giant Food Store at 2300 Linglestown Road, Harrisburg, PA 17110

Time - 7:30 a.m. - 11:00 a.m.

Registration Fee - $20 for ASA Members; $30 for Non-ASA Members (credited toward new membership)

For more information on the morning’s agenda, please click here to view the full event flyer.

To register for this event, please click here. If you have any questions regarding the event, please contact Loni Warholic, Executive Director with the ASACP at (717) 232-2222 or lwarholic@asacentralpa.com.

Mitigating the Impact of Increasing Taxes

The end of 2013 is quickly approaching.  Are you doing all you can to mitigate the impact of increasing taxes?

As we enter the tax planning season, especially for the increase in taxes – both through new tax rates (Hello, 39.6%)  and new taxes entirely (the Medicare surtax) – contractors have some options available that might help in mitigating  the impact of these items.

Our starting point is to consider - and determine - if you are categorized as a large or small contractor. The magic number for this is $10 million.  If a contractor has average annual gross receipts for the prior three tax years of $10 million or less, you’re considered a small contractor.  And with that determination comes a “get out of jail free” card.  Well, sort of. 

If you fall within the definition of a small contractor, you are exempt from IRC Code Section 460 – which is the regulation that large contractors must follow.  What this means, is that you may use any method you desire to account for your contracts – as long as you meet any other requirements for those methods.  At last count, there were around 10 different methods from which to choose.  So, now may be the time to look over the methods to ensure that you are using the best possible one to account for your contracts.  You still have time to change!

Now, if you don’t fall within the designation of a small contractor, then you are considered a large contractor subject to all the rules, regulations, bells, and whistles that come along with Section 460.  These include requiring the cost-to-cost percentage of completion method (PCM) to account for your non-exempt contracts, and everybody’s favorite fun-time calculation, the look-back.  You’ll notice, “non-exempt” was emphasized.  This is an area that is often missed when looking at contracts.  There are primarily two exceptions to the required method.  These are considered “exempt contracts”, and are detailed below.

The first type of contract exempt from Section 460 is the “home” contract.  A home contract is one that includes work performed on a “dwelling unit”.  As long as there are not more than four residential units in a building, and the units are not used on a temporary or transient basis, the units will qualify as “homes”.  The important part of this is that any work performed on the home contract will qualify for the accounting method generally used for home contracts – the completed contract method (CCM). 

For example, say you are a large contractor that handles drywall installation.  You usually only have commercial contracts (for which you appropriately account for under PCM).  In November, you win a bid to handle the drywall installation on a townhouse complex.  Since townhouses qualify as “homes”, this contract can be accounted for using CCM – which means any recognition of gross profit on this contract can be deferred until the contract is greater than 95% complete and the property is being used by the customer.

The other exempt contract is for “residential” contracts.  Residential dwellings are defined in the same manner as home dwellings, except this designation captures those buildings that contain greater than four units in the building.  This would include apartments, barracks, dormitories, and senior living facilities, among others.  Now, for this one, the exemption is only a partial one.  If you have a contract that qualifies as “residential”, you get to split the contract into two portions.  One portion (30%) of the contract can be accounted for using CCM.  The other portion (70%) must be accounted for using PCM.  Sounds like a pain, right?  However, that 30% may not be an insignificant amount.

Now, if you don’t have exempt contracts, all is not lost.  There are still planning
opportunities – even in unexpected areas. As a large contractor, you are still eligible for the 10% election, which defers recognition of a contract until it is greater than 10% complete.  You also have allocated indirect costs.  When you allocate your indirect costs, be sure that you are correctly adjusting your total estimated contract costs, as well.  If no adjustment is made to that number, or if you are not accounting for estimated future costs to be incurred, you’ll be accelerating your gross profit recognition for tax purposes.  Lastly, even though we don’t like it, look-back is required unless you have only home contracts or are a small contractor also exempt from AMT.  But even here, keep in mind, if you have fade jobs, those will generally indicate a refund.

To learn more about Section 460, please join McKonly & Asbury for a free one hour webinar on this topic on Thursday, November 14 at 2:00PM. For more information and to register for the webinar, please click here. If you have further questions regarding Section 460, please contact the construction professionals of McKonly & Asbury.

2013 & 2014 Contractor Pay Increases

As we entered 2013, caution seemed to be theme for contractor pay increases. Projections started out lower than the 2012 actual pay increase numbers, which caused us to scratch our heads a little and be very careful with our recommendations.

The 2013 Executive Compensation Survey for Contractors projected a 2013 increase of 3.0% for executives, down from the actual 2012 pay increase of 3.2%. Three months later, the 2013 Construction/Construction Management Staff Salary Survey showed a slightly higher 2013 projection of 3.1%. And, three months after that, participants in the  2013 Merit Shop Wage and Benefit Survey were projecting an even higher increase of 3.3% for their open shop craft.

What makes this trend truly significant is that executive increases have historically been higher than staff and craft increases. Couple that with the staff and craft projections of 3.1% and 3.3% and it’s fairly evident that executives would end 2013 notably higher. (By the way, this same three-month pattern occurred in 2012.)

Since the 2008 downturn, it’s been increasingly more challenging to forecast pay increases. It takes a combination of identifying the hot sectors, a historical look at past practices, and a little crystal ball stuff. It also helps to go beyond the mundane by slicing and dicing pay practices for more significant clues.

For example, the 2013 Construction/Construction Management Staff Salary Survey reported an actual 2012 increase of 3.2% for professional staff and middle managers. When we looked beyond the base numbers and focused on the details, we noted 2012 actual pay increases of 3.3% for the Highway sector and 3.2% for the Heavy sector. Digging further, executives received larger 2012 increases than their employees with an increase of 3.7% for Highway and 3.4% for Heavy (something we would expect). If Highway and Heavy continue to be a hot sector, we can usually translate that difference into a reasonable forecast going forward.

So how will pay increases play out in 2013? At the moment it appears that staff-level employees will end up at 3.3%, craft at 3.4%, and executives about 3.6% by year-end. Heavy/Civil and Heavy Industrial construction are the two sectors that seem to be flourishing in 2013, so pay closer attention to increases in these markets – now and in 2014.

And speaking of 2014, we see the 2013 year-end trend continuing with professional staff and middle managers averaging 3.3%, craft about 3.4%, and executives at 3.6%. Look for geographic pockets and those identified sectors to run above the national averages. Remember, if craft or staff rates rise, expect executive pay increases to stay ahead of other employee levels.

This post was written by Jeff Robinson of Construction Financial Management Association (CFMA). To reach Mr. Robinson please visit the CFMA website at www.cfma.org.

 

Construction Employment Continues to Improve As Sector Added Jobs In 35 States

Construction employment increased in 26 between July and August and in 35 states for the year, according to an analysis by the Associated General Contractors of America of Labor Department data. Association officials cautioned, however, that construction employment remains below peak levels in most states and warned of the potential impact of a halt in federal construction investments.

“While we would all like to see even more robust growth, it is encouraging that most states have a larger construction workforce today than they did a year ago,” said Stephen E. Sandherr, the association’s chief executive officer. “It will take a lot more growth, however, before construction employment levels return to their pre-recession levels in most places.”

South Dakota had the largest one-month percentage gain (6.7 percent, 1,300 jobs), followed by Vermont (3.7 percent, 500 jobs), Wisconsin (3.6 percent, 3,300 jobs) and Connecticut (3.0 percent, 1,600 jobs). California (7,700 jobs, 1.3 percent) added the largest number of jobs for the month, followed by New York (4,900 jobs, 1.6 percent), Florida (4,700, 1.3 percent) and Wisconsin.  Employment was stable in Alabama and Maine.

Twenty-two states and the District of Columbia lost construction jobs between July and August.  Oklahoma had the steepest percentage drop in construction employment for the month (-4.2 percent, -3,000 jobs), followed by Hawaii (-3.6 percent, -1,200 jobs), Nebraska (-2.7 percent, -1,200 jobs) and Utah (-2.6 percent, -1,900 jobs).  Texas lost the largest number of jobs between July and August (-4,900 jobs, -0.8 percent), followed by Illinois (-4,100 jobs, -2.2 percent), Arizona (-3,100 jobs, -2.5 percent) and Oklahoma.

California added the most construction jobs for the year (29,100 jobs, 5.0 percent), followed by Texas (24,200 jobs, 4.1 percent), Florida (19,500 jobs, 5.7 percent) and Louisiana (10,600 jobs, 8.4 percent).  Wyoming had the steepest percentage increase (12.8 percent, 2,700 jobs), followed by Mississippi (12.0 percent, 5,700 jobs), Colorado (8.8 percent, 10,100 jobs) and Hawaii (8.8 percent, 2,600 jobs).

Fourteen states and the District of Columbia lost construction jobs between August 2012 and August 2013, while construction employment levels remained unchanged for the year in Vermont.  Indiana lost the most jobs over the past year and experienced the steepest rate of decline (-10,100 jobs, -8.1 percent).  Other states experiencing large job losses for the year include Ohio (-6,100 jobs, -3.4 percent), North Carolina (-3,500 jobs, -2.1 percent) and Alabama (-2,000 jobs, -2.5 percent).  Rhode Island (-4.4 percent, -700 jobs), Montana (-4.4 percent, -1,000 jobs) and the District of Columbia (-3.7 percent, -500 jobs) also experienced steep percentage declines.

Association officials said that much of the industry’s recent growth was coming from a few private sector areas, particularly demand for new housing and energy facilities.  Those gains have been strong enough to offset declining public sector investments and weak private sector demand in areas like retail construction.  As a result, many construction employers would be particularly hard hit by a sudden halt in federal construction activity.

“The impacts of a sudden halt in discretionary federal construction investments could be quite severe, especially on employment levels in states with a number of federal construction projects underway” Sandherr added.

Strong Conditions Revealed in Architecture Billings Index

The Architecture Billings Index (ABI) showed more acceleration in the growth of design activity nationally.  As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending.  The American Institute of Architects (AIA) reported the August ABI score was 53.8, up from a mark of 52.7 in July.  This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings).  The new projects inquiry index was 63.0, down from the reading of 66.4 the previous month.

“As business conditions at architecture firms have improved eleven out of the past twelve months, it is fair to say that the design professions are in a recovery mode,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA.  “This upturn signals an impending turnaround in nonresidential construction activity, but a key component to maintaining this momentum is the ability of businesses to obtain financing for real estate projects, and for a resolution to the federal government budget and debt ceiling impasse.”

Key August ABI highlights:

• Regional averages: West (54.8), Northeast (54.4), Midwest (52.8), South (51.9)

• Sector index breakdown: mixed practice (60.1), commercial / industrial (54.8), multi-family residential (52.1), institutional (50.8)

•  Project inquiries index: 63.0

The regional and sector categories are calculated as a 3-month moving average, whereas the index and inquiries are monthly numbers.

To learn more about the ABI go to www.aia.org 

American Subcontractors Association of Central Pennsylvania Announces Hire of New Executive Director

American Subcontractors Asspociation of Central Pennsylvania (ASACP) announced on Friday September 27th the hiring of Loni Warholic as its new Executive Director. Ms. Warholic will work directly with the Board of Directors on many initiatives and will be responsible for the daily operations of the chapter, including financial management, marketing communications, membership recruitment and retention and event planning and organization. 
  
Ms. Warholic brings over a decade of experience in marketing, communications, sales and client service at Pavone, Sodexo and Pepsi and has earned a Bachelor's Degree in Business from Penn
State Worthington Scranton and an M.B.A. from Penn State Harrisburg. 

ASACP will be holding a "Meet Loni" event on October 8^th at 5:00 p.m. at Appalachian Brewing Company, 50 North Cameron Street, Harrisburg. To register for this event please contact ASACP at contactus@asacentralpa.com or by telephone at 232-2222. You can also contact the construction professionals of McKonly and Asbury, LLP to register for this event. 

Employers Must Provide ACA Notices by Oct. 1

Employers must provide current employees with information about health insurance exchanges established under the Affordable Care Act no later than Oct. 1, 2013, whether or not they provide health insurance to their employees. Employers also must provide the notice to each new hire
within 14 days of the employee’s start date. The notice must:

• Inform the employee of the existence of the Health Insurance Marketplace or Exchange,
  including a description of the services provided by the Marketplace, and the manner in which the employee may contact the Marketplace to request assistance.
• If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs that the employee may be eligible for a premium tax credit under 36B of the Internal Revenue Code if the employee purchased a qualified health plan through the Marketplace.
• If the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Employers may develop their own forms or use the forms provided by the U.S. Department of Labor for:

• Employers with existing plans.
• Employers without plans.

The notice must be in writing and in a manner calculated to be understood by the average employee. The notice must be provided by first class mail or provided electronically to those who typically have email access as part of their work environment. For additional guidance, see DOL Technical Release 2013-02.

Construction Unemployment Rate Stays Flat in August

The construction industry’s jobless rate leveled off in August at 9.1%, the same as July’s rate, but improved from the August 2012 mark of 11.3%, the Bureau of Labor Statistics has reported.

The BLS August employment numbers, released on Sept. 6, showed that construction’s jobs total last month also was flat, compared with July’s figure.

The August bright spots among construction sectors were residential specialty trade contractors, which gained 4,900 jobs, and heavy-civil engineering construction, which added 1,200.

All other segments posted job losses, led by non-residential building, which shed 3,300 last month.

Architectural and engineering services, which BLS lists separately from construction, lost 400 jobs in August, the second-straight monthly decline for that sector.

Ken Simonson, Associated General Contractors of America chief economist, said, "After a strong rebound in 2012, construction hiring and spending have been stuck in neutral through most of 2013." But he also said last month's construction jobless rate was the lowest August mark since 2008, which suggests experienced workers have left the business.

"As a result," Simonson added, "firms are already having trouble finding workers."

BLS reported that the overall U.S. unemployment rate edged downward to 7.3%, from July’s 7.4%, as the economy added 169,000 jobs.

Anirban Basu, Associated Builders and Contractors chief economist, said the August numbers were "somewhat disappointing," but added that they could prompt the Federal Reserve to slow down possible future tightening of the money supply.

Basu added, "That likely would help stabilize interest rates, an important ingredient if the nonresidential construction industry is to perform as well as expected next year."

OFCCP Orders Federal Contractors to Step Up Recruitment of Veteran and Disabled Applicants

The following post has been reposted from an Employement Practice Alert issued by Barley Snyder on August 28, 2013. The post was written by : Jennifer L. Craighead, Esquire and Joshua L. Schwartz, Esquire of Barley Snyder. Both can be reached through the Barley Snyder website at www.barley.com.

The Office of Federal Contract Compliance Programs (“OFCCP”) has taken the final step to implement controversial regulations regarding federal contractors’ hiring of veteran applicants and disabled applicants.  These regulations significantly alter the metrics used by the OFCCP to determine federal contractor compliance with the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA) and Section 503 of the Rehabilitation Act of 1973 (Sec. 503).

As reported previously, on July 31, 2013, the OFCCP submitted new proposed regulations implementing VEVRAA and Sec. 503 to the Office of Management and Budget (“OMB”) for approval.  The OMB had 60 days to review the proposed regulations, but took less than a month.  The regulations will take effect 180 days following publication, likely in early 2014.

In its announcement on August 27th, the OFCCP highlighted the following changes to existing law:

•Hiring Benchmarks, Utilization Goals, and Outreach.   The final rules require federal contractors to establish annual “hiring benchmarks” for protected veterans, based on the national percentage of veterans in the civilian labor force or other data collected nationally or locally.  The applicable data will be posted in the “Benchmark Database.”  Similarly, the final rules provide an across-the-board seven percent (7%) utilization goal for individuals with disabilities.  Hand-in-hand with these goals are specific outreach, posting, and recruitment requirements, as well as new electronic posting
requirements about employee rights and employer obligations. It is important to note that the hiring benchmarks apply across the entire workforce rather than to each individual job group. Furthermore, the benchmarks are not quotas, but rather a yardstick to measure the effectiveness of federal contractors’ outreach and recruitment efforts for veterans and the disabled.

•Increased data collection and record-keeping requirements.  Federal contractors and subcontractors will be required to document, maintain, and update documents and calculations annually regarding veterans and individuals with disabilities, such as referral data, applicant and hiring data, physical and mental job qualification requirements, and job fill ratios.  This data must be maintained for three years and will be used during audits to spot trends.

•Changes to the current self-identification process.  When an applicant is considered for employment, as well as at the post-offer stage, federal contractors are required to invite individuals to voluntarily self-identify as a veteran or an individual with a disability.  The regulations include
sample invitations that federal contractors may use.  The regulations implementing Sec. 503 also require employers to invite existing employees to self-identify as disabled every five years using prescribed language. Although ordinarily employers cannot invite applicants to self-identify as disabled before a job offer is made without running afoul of the Americans with Disabilities Act (ADA), the new regulations require federal contractors to do so. The Equal Employment Opportunity Commission (EEOC) appears to have concurred with the OFCCP on this issue, stating that federal contractors may invite applicants to voluntarily self-identify, so long as the questionnaire clarifies that the information is used solely in connection with the federal contractor’s affirmative action obligations and indicates the information will be kept confidential in accordance with the ADA. 

• Records access. Federal contractors must permit the OFCCP to review documents, either on-site or off-site, upon the agency’s request.  Federal contractors must provide these documents in whichever format the OFCCP requests, provided the federal contractor already maintains the documents in that format.

• Job listings. Federal contractors must provide job listing information in a manner and format permitted by the appropriate state or local job service for veterans, so that the service can access and use the information to make the job listings available to job seekers.

• Required language in subcontracts.  The rules require specific language to be incorporated into the equal opportunity clause of subcontracts, so that subcontractors are aware of their responsibilities under VEVRAA and Sec. 503.

• ADAAA consistency/accommodation requests.  The new regulations seek consistency with the Americans with Disabilities Act Amendment Act of 2008 by expanding the scope of “disability” to the same extent as that statute.

As noted above, the final rules go into effect 180 days from publication. Barley Snyder will hold a free webinar in late September/early October to discuss each of the significant rule changes in more detail.  The attorneys and paralegals in Barley Snyder’s Employment Law Group have years of
experience assisting clients with creating Affirmative Action Plans, comprehensive self-audits, and compliance with OFCCP requests.