Construction Accounting in California

In most cases yes. California requires contractors and subcontractors to register with the Department of Industrial Relations before bidding on or performing public works, and the registration is renewed annually. There is a small-project exemption for public works contracts of $25,000 or less for construction work and $15,000 or less for maintenance work. Registration is only the entry ticket. Once you are on the job you also owe the prevailing wage determination for the craft and county, electronic certified payroll records, and apprenticeship documentation. Every one of those obligations is produced out of payroll and job cost, which is why it belongs with your accounting rather than in a folder in the trailer.

California splits construction contracts into materials and fixtures, and the two are taxed differently. Under CDTFA rules a contractor is generally the consumer of the materials it furnishes and installs, so tax is paid when the material is purchased. For fixtures the contractor is generally treated as the retailer, and tax applies to the fixture price rather than to what you paid for it. On top of that, the statewide base rate of 7.25 percent is layered with district taxes tied to where the property is used, so the correct rate follows the job site and not your yard. Most contractor files never make either distinction, which produces both overpayment and audit exposure.

On most California public works, Public Contract Code section 7201 limits retention on the prime contract to five percent, and section 7107 requires release within 60 days after completion of the work. Private contracts are not capped the same way, so the retention percentage is whatever the contract says. California prompt payment law also requires a direct contractor to pass a subcontractor its share of released retention within a short statutory window, and wrongful withholding carries a penalty of two percent per month in place of interest, plus attorney fees. Retention is only collectable if it is tracked as its own balance, by contract, with the release condition recorded.

Almost always because the payroll records did not support the lower rate. Many California construction classifications are dual wage, which means the same trade has two class codes and the one that applies depends on whether the employee earns at or above an hourly wage threshold set for that trade. If your records do not clearly show the hourly wage by employee, the auditor is entitled to assign the higher-rate code to that payroll. Since workers compensation is one of the largest components of labor burden in this state, a reclassification does not only raise the premium, it also means every bid you priced on the old burden rate was wrong.

Yes, on private construction work. Labor Code sections 218.7 and 218.8 make a direct contractor liable for unpaid wages and fringe benefit contributions owed by any subcontractor at any tier on the project, even where the direct contractor has already paid the sub in full. The same statutes let the direct contractor withhold disputed sums until the subcontractor produces payroll records. That turns your subcontractor compliance file into an accounting control rather than paperwork. We collect and hold the sub payroll and insurance documentation against the commitment in your job cost, so a request is answered from the file instead of chased down after a claim lands.

More than most owners expect. The Franchise Tax Board collects an $800 minimum franchise tax that applies even in a loss year, corporations pay a franchise tax on net income, S corporations pay an entity-level rate on top of what flows to the shareholders, and LLCs pay the $800 annual tax plus a gross receipts fee tiered on California-source income. Pass-through income is then taxed at personal rates that top the country. Layer on the CDTFA for sales and use tax and city gross receipts taxes in places like Los Angeles and San Francisco, and the entity structure you picked five years ago may be costing you real money now.

Yes. We prepare certified payroll from the same payroll run that feeds your job cost, and file it electronically through the eCPR system. That single point matters more than it sounds. When payroll, compliance filing and job costing are done in three places by three people, the labor cost on the job report and the labor cost on the filed record drift apart, and the drift is exactly what a Labor Commissioner audit finds. We also keep the apprenticeship paperwork, DAS 140 contract award information and DAS 142 dispatch requests, filed against the job so the record is complete when someone asks a year later.

The statute is the same statewide, but almost nothing else is. Bay Area work carries heavy union density, trust fund fringe remittances and local hire commitments. Los Angeles and Orange County lean commercial, hospitality and tenant improvement, with city gross receipts taxes and studio work on the side. The Inland Empire is dominated by warehouse and distribution build-out at logistics margins. San Diego adds federal Davis-Bacon exposure on defense work and specialty lab fit-out. The Central Valley builds agricultural, cold storage and water infrastructure at a completely different price point. Crossing those lines means different local registrations, different district sales tax rates and different labor burden on the same trade.

No. We work with contractors across the state, from the Bay Area and the Sacramento Valley through Los Angeles, Orange County, the Inland Empire and San Diego, and out into Fresno, Bakersfield, Stockton and the rest of the Central Valley. The compliance load is statewide, and a fifteen-person contractor in Modesto carries the same DIR and CSLB obligations as a hundred-person contractor in San Jose with far less office to absorb it. Everything we do is remote, so you get a construction accountant who knows this state without paying for an office you would never visit.

Start with the free Audit. Send your current QuickBooks file and your most recent job profitability or WIP report, and we will tell you what is broken, what it is costing you and what it would take to fix. If you run prevailing wage work, send a recent certified payroll record as well and we will check it against your job cost. There is no charge and no obligation for the Audit. After that it is a flat monthly fee set on transaction volume, active jobs and reporting needs, so asking a question never starts a clock.