Chapter Corner

When Does it Make Sense to Outsource Payroll?

Posted in: Safety Corner, August 2014

payroll.gifPayroll processing can be cumbersome for any industry…but nothing compares to the complexities of construction payroll.

Construction payroll is a far cry from the typical business. More often than not, in construction, employees work in multiple locations and can be paid varying wage rates based on their job function and location. So in terms of payroll, contractors are dealing with unique variables such as shifting pay rates, multi-state and local taxes, workers’ compensation, and certified payroll, just to name a few.

Though many contractors have considered outsourcing their payroll responsibilities to an outside company, the fact remains that general payroll service providers may not be equipped to handle the unique requirements of construction. While paying a firm to process payroll, cut checks, and handle tax filings eliminates some of the work, contractors may still need someone to manually enter payroll from timecards to record payroll data by job, to create necessary reports, and so on.

So when does it make sense for contractors to outsource payroll? The answer can be found in looking at the services themselves. A payroll service provider that is focused on construction (and they do exist) can not only take care of basic processing but can truly help take care of a contractor’s overall payroll and reporting needs.

Construction Reporting

While many traditional payroll providers can’t directly handle the required construction reports that are generated through payroll, one focused on serving the construction industry can easily (and automatically) provide these items:

Certified Payroll Reports

A requirement for federally-funded prevailing wage jobs (and used by many states), these reports are complex and cumbersome to prepare without the help of an automated system. A construction-specific payroll service should be able to instantly prepare these reports according the specifications of the U.S. Department of Labor (form WH-347) as well as specialized forms for individual states and municipalities.

Job Cost Reporting

Since standard payroll services cannot break payroll data down by job, many contractors spend a lot of time manually entering labor hours into spreadsheets or other systems to see how their jobs are doing. Contractors should look for a service that will at least track labor hours, dollars, and burden (FICA, FUTA, SUTA, Workers’ Compensation, Fringe Benefits) by job. A comprehensive service will offer more sophisticated reports, such as tracking labor and burden by cost code, estimate vs. actual, percent complete, production, projected costs to complete, and more.

Workers’ Compensation, New Hire Reporting, EEO Minority Compliance, and others

It’s not always easy for labor-intensive contractors to comply with federal employment laws. As one example, trying to manually track field employees who routinely change jobs and workers’ compensation classifications, for example, can be a time-consuming job. Choosing the right payroll service means that critical employee data is automatically tracked and accurately reported.

Tracking Multiple Jobs, States, Localities, and Pay Rates

When it comes to payroll, companies may be required by law to pay certain employee taxes (state and federal, as well as county and local taxes depending on where a job is located and where an employee resides). In construction, payroll taxes become even more complicated because employees can work in multiple states and localities – often within a single pay period. In fact, it’s not uncommon for an employees’ pay rate (and withholdings) to fluctuate as they move from job to job.

A payroll service that understands construction not only has the ability to compute complex payroll, but it also stays current on various local, state, and federal withholdings that are mandated by the government.

As you can see, there are many benefits for contractors to consider as they decide whether or not to outsource their payroll. Relieving the workload of their in-house staff, shifting tax-burden concerns, or maybe taking care of complex construction payroll reporting requirements are just a few. When the decision is made, the next step that matters most: finding a payroll service provider that understands construction and can offer construction payroll features that both maximize efficiency and provide the greatest added value.

Mike Ode is president of IEC National Bronze Industry Partner, Payroll4Construction.com, a payroll service provider for the construction industry. He can be reached at (800) 949-9620 or mode@payroll4construction.com. For more information on the company, visit www.payroll4construction.com.