Taxation and labor hours are key factors that shape the work environment in the United States. Understanding how taxation and labor hours impact our operations is essential for maintaining a productive and compliant workforce. This article explores how these factors influence the construction industry and offers insights into recent regulatory changes that could affect our employees and business operations.

The interplay between taxation and labor hours is a significant factor in the construction industry. Taxes affect how much our workers take home and how we manage payroll. Labor laws ensure that our employees are fairly compensated, particularly when working overtime. With recent changes in labor regulations and ongoing discussions about tax reforms, it’s crucial for us at PONTIS CONSTRUCTION INC. to understand these dynamics to support our team and comply with regulations.

Taxation on Labor Income

Workers in the U.S. pay two main types of taxes on their income:

• 1-Individual income tax
• 2-Payroll tax. 

The individual income tax is progressive, meaning higher earnings are taxed at higher rates. For example, federal tax brackets range from 10% to 37%, depending on income levels​(Tax Foundation).

Payroll taxes, which fund Social Security and Medicare, are split between employees and employers, adding up to approximately 15.3% of wages​(Tax Foundation).

The Tax Burden on Labor

In 2022, the OECD reported that the overall tax burden on an average single worker in the U.S. was 30.5%. This includes federal income taxes, employee payroll taxes, and employer payroll taxes. Compared to other OECD countries, the U.S. tax burden on labor is slightly lower, making it relatively favorable for workers​(Tax Foundation).

Overtime Pay and its Tax implication

Overtime pay is an important aspect of labor compensation. Under the Fair Labor Standards Act (FLSA), non-exempt workers are entitled to 1.5 times their regular pay rate for hours worked over 40 in a week​(DOL). Recent changes to the FLSA have increased the salary threshold for overtime eligibility. Starting July 2024, more workers will qualify for overtime pay, with the threshold set to increase again by January 2025​(DOL Blog).