HR Compliance in Construction: Navigating New AI Laws, Wage Rules and Pay Transparency Expectations
Part of a series | 2025 HR Trends Series
HR compliance for construction firms is becoming increasingly complex due to new AI laws, wage regulations and pay transparency expectations. Organizations must ensure AI implementation aligns with state regulations, accurately track wage changes, classify employees correctly and maintain transparency in pay communication.
The construction industry saw steady growth in 2024, with a 12 percent increase in gross output and a 10 percent boost to nominal value. Despite a strong market, however, significant labor shortages persist. According to The Homebuilders Institute (HBI) Construction Labor Market Report for Fall 2024, 59 percent of builders faced a shortage of framing crews, while 60 percent reported a lack of masons, and 65 percent struggled to hire finish carpenters.
To help bridge the gap, many construction HR teams are now using artificial intelligence (AI) to improve recruiting efforts and offering above-average wages to help retain staff. Evolving compliance requirements around AI use, wage-and-hour reporting and pay transparency, however, are creating additional challenges. Here's how businesses can effectively navigate this changing landscape.
Challenge #1: New AI laws
As noted by the ADP 2025 HR Trends Guide, 63 percent of large organizations have adopted generative AI (GenAI). For HR teams, AI tools offer benefits such as reduced screening times and more accurate matching of staff skills to business needs.
These solutions also pose a potential problem: bias. If AI tools use flawed algorithms or incorrect data, the result could be unfair hiring or termination decisions. To address this issue, states have begun passing laws that govern the use of AI in workplace decision-making. For example, starting in January 2026, employers in Illinois must notify staff when they utilize AI for employment decisions such as recruitment, hiring or promotion. In Colorado, meanwhile, the state has identified hiring, compensation and performance management practices as "high risk" for AI. Businesses using AI must establish and implement risk-management programs for these solutions and carry out annual impact assessments.
The solution: Slow and steady
Ensuring AI compliance is a three-part process.
First, review applicable state laws anywhere an organization recruits. If a company's main offices are in New York, but it also recruits from Illinois and Colorado, multiple regulations may apply.
Second, err on the side of caution. The primary takeaway from current AI legislation is notification: employers are expected to inform prospective employees about any AI processes, from resume reviews to personal data analysis and interview scheduling. As a result, HR teams benefit from being upfront about AI use, regardless of current legislative requirements.
Finally, construction firms are best served with a targeted approach to AI deployment. In other words, start small. For example, teams might implement a candidate screening solution to streamline the process and let HR professionals focus on interviews and onboarding. Keeping the scope of AI small and specific helps limit the risk of non-compliance.
Challenge #2: Evolving wage rules
Evolving wage rules are also a challenge.
One example is overtime pay. The Fair Labor Standards Act (FLSA) sets out overtime exemption rules for employees in administrative, professional and executive jobs. For construction companies, this could include C-suite members, HR and accounting staff and engineers or architects who draft detailed plans but don't work directly on-site.
Until 2024, the federal exemption threshold was $684 per week — employees who made more than this amount, were paid a salary rather than an hourly wage and performed primarily executive, administrative or professional duties were exempt from overtime pay. As of July 1, 2024, this threshold rose to $844, and was set to increase again as of January 1, 2025, to $1,128 per week. A recent federal court decision, however, has since nullified both increases.
The minimum wage is also evolving. While the federal minimum wage remains at $7.25 per hour, there is significant variability across states. The Economic Policy Institute noted that the minimum wage in New York and California increased to $16.50 in 2025 from $16.00 in 2024. Other states remain at or below the federal minimum. According to a recent publication from the National Conference of State Legislatures, the minimum wage in Idaho, Kansas and Kentucky remains at the federal minimum of $7.25 per hour. In Georgia, meanwhile, any employees not covered by the FLSA can be paid $5.15 per hour.
"Tax and pay are becoming important issues for employers who have employees working in multiple states," said Tim Morris, Legal Compliance Director, ADP National Account Services. "It's essential to stay on top of laws for payroll, withholdings and reporting."
The solution: Correct classifications
Construction firms must stay informed to stay compliant with evolving wage laws. Consider the recent reversal of overtime exemption rules. Businesses that implemented the new threshold now face a choice: continue current processes or revert to old rules. While removing overtime for higher-salaried employees is legal, it may cause issues with staff satisfaction and retention. No matter the choice, firms need to be transparent about what's happening, why and what comes next.
Classification is also critical. As rules change, so do employee classifications — failure to update HR and payroll processes could lead to IRS reporting and tax issues. Here, firms are best served by cloud-based HR tools that provide complete visibility across city, state and national operations.
Challenge #3: Changing pay transparency expectations
Pay gaps remain a challenge across industries. As noted by the U.S. Bureau of Labor Statistics, women's earnings were 83.6% of men's in 2023. Interestingly, the construction sector has a smaller-than-average pay gap, according to the National Association of Women in Construction (NAWIC). This gap increases for women in managerial positions, those in architectural and engineering management and those in the field of general construction.
While these pay gaps are slowly closing, their persistence prompts the need for greater transparency. Historically, transparency has been a challenge for organizations — discussions about pay between employees can lead to questions about fairness and the reasoning behind wage decisions. Under the National Labor Relations Act (NLRA), however, any covered employees have the right to communicate about their wages with coworkers, labor organizations, the media and the general public.
The result? Employees now expect the ability to be transparent with coworkers about what they're being paid — and expect management to follow suit.
The Solution: Open Communication
Data is the primary driver of pay transparency. To ensure equitable pay for employees, businesses need on-demand access to salary and wage data. Analysis of this information can help identify internal trends and provide the basis for external comparison — how do offered wages stack up against the competition? Are they in line with federal and state standards, and are there gaps to address?
Open communication is the second component. As regulations and legislation evolve, so do employer requirements and employee expectations. By making staff part of the conversation, organizations can improve staff retention and create a culture of reciprocal trust.
Staying Ahead of the Compliance Curve
To help address sustained labor shortages, many construction firms are offering higher wages and using AI to streamline the recruitment process.
Changing compliance expectations around AI solutions, overtime calculations and pay transparency, however, can complicate these efforts. To stay ahead of the compliance curve, organizations need to take a slow and steady approach to AI, ensure correct worker classifications and cultivate open communication with staff. Keeping up with changing employment laws and regulations, and considering payroll and HR solutions customized for the construction industry, human resources personnel can navigate the myriad of compliance challenges now and be ready for what comes next.
Learn more about these trends: Download the 2025 HR trends guide.
