Hiring a Construction Payroll Service

Why Use a Construction Payroll Service?

A payroll service provider offers several advantages over in-house payroll:

• Saves Time-The time it takes your employee to perform payroll, pay payroll taxes, calculate benefits, etc., is often better spent doing work associated directly with your business. Add W2's, 1099's, payroll reports, quarterly employer taxes, issue resolution, etc., to the payroll process, and the cost of in-house payroll can really add up.

If you use a payroll service, your investment in payroll may be as simple as providing employees' hours to the payroll company-they do the rest. If you use a Time and Attendance application, many integrate directly into a payroll vendor's software, and payroll is generally considered an inexpensive service.

• Avoids Errors-If you do your own payroll, you are responsible for tax errors, including interest and penalties if applicable. Most payroll companies state right on their agreements that they are responsible for any interest and penalties that incur as a result of their error
• Ensures Accuracy-A payroll vendor is often more accurate than your in-house staff, as they have software and regularly-trained professionals to perform the work. Additionally, they keep up with the latest federal and state regulations. When you have employees in several states and localities, up-to-date expertise benefits you and your employees.
• Added Features-Payroll companies provide many features that you may not be able to easily or economically access, including:

• Added Features-Payroll companies provide many features that you may not be able to easily or economically access, including:
  Electronic direct deposit
  Distribution to multiple direct deposit accounts per employee
  Automatically-signed checks so you don't have to be there on payday
  Job-cost accounting
  Departmental or labor distribution reports
  Internet access for employees to view paychecks and W2's
  Certified payroll for state, local or federal clients
  Direct input from Time and Attendance systems
  Access to preferred health and benefit plans
  Literally dozens of standard and custom reports for you or your accountant

 

How to Select a Construction Payroll Service

So it's no wonder that most construction companies use a payroll service. But if you're looking to start, or looking to trade in your existing payroll provider, how do you select a new one?  Year ago when I first considered getting into this business, I called thirty friends who used payroll companies to get their feedback. Frankly, I didn't understand why people would leave their existing company if all payroll providers were the same. And man... was I surprised! At least one out of every five of the people I called said they were disappointed with their current provider. The reasons they were unhappy are virtually the same as those that distinguish one company from another. Let's take a look at the issues that make the difference between a good and bad provider:
 

1. Service-Bingo! This is the number one reason companies leave their current provider.  Payroll is mostly an automated service, so all companies are the same, right? Not so. You will have the need to work directly with your payroll provider from time-to-time. This happens when you add new employees, make employee-data changes, handle tax and deduction issues, terminate employees or when errors are made by you or the payroll company...the list goes on. Some payroll companies conveniently fail to be available when you need them or to provide accurate and cooperative resolution during these events. Do your homework. The company's reputation and references, when properly researched, will help identify the better providers. Will they answer their phone and can you reach someone who knows your payroll? These are important questions to ask.
2. Size-There are a handful of very large companies that perform payroll; some are even publicly-traded. As a rule they are very successful and cater to larger companies. They are also a "safe bet" with regard to security, as they are often bonded and insured against theft and errors.  Many companies switch, however, to smaller payroll service providers. In fact, a whole industry of smaller vendors spawned from small businesses looking for different outsourcing providers.  Most frequently they cite personal service, flexibility, good communications and attention-to-detail as reasons for finding a new vendor.
3. Features-Do you want to do your payroll transmission and reports over the Internet?  Do you want to integrate Time and Attendance software? Do you need custom reports broken down by job function, job name or client? These and more represent the features that distinguish different payroll companies. Think hard about what features you really need and which sound good, but may not be necessary. We'll detail some of these later in this article.
4. Flexibility-Do you occasionally need to transmit payroll on an "odd" day, such as a Tuesday or a Friday? Can you call a payroll company to get a tax calculation for a manual check in an emergency?  Will they take your hourly reports from that Microsoft Excel worksheet (you know, the one you've used for ten years) instead of their specific form? Know yourself and your company's requirements. If you require flexibility because your needs or availability changes, then look for a company that will accommodate you.
5. Reputation-Are they a member of any trade groups like the Better Business Bureau or the Chamber of Commerce? How long have they been in business? Check references.  Get seven to ten and select at least five. Ask the same questions to each person you speak to. The trick to these calls is not to see if they say "Acme Payroll is wonderful,"   generally they'll all say that. But ask them specifics like, "Will they answer their phone or get back to you quickly when you need them? Do they quibble over who's at fault for errors? Are they consistently accurate? Once you hear the same answer more than once, it's likely to be true.
6. Safety and Security-Believe it or not, payroll is an unregulated industry. That's a surprise to most people, and few potential clients look for the right protections.  Fortunately, payroll company theft, etc., is extremely rare, but if the company is bonded, you are likely to be protected against certain losses if they run off with your payroll, or don't pay your taxes. Ask for a copy of the bond. Some companies are also insured against their own employee theft and/or error. Again, if they say they are insured, get a copy of the "Declarations Page" from their insurance policy.
7. Knowledge of the Industry-Do they service other construction companies with similar needs? Ask for construction client names, even if you don't call them. Usually if they handle the trades, it's evident in their ability to handle certified payroll, union dues and job cost accounting, etc.
8. Locality-Being close makes a difference. Yes, there are Internet payroll companies that specialize in long-distance relationships. But that's an oxymoron. A payroll company located or headquartered nearby is a part of your business community and more likely to feel responsible for servicing your account. Would you hire a construction company with no presence in your area?
9. Price-Price can vary between providers as much as 33 percent or more. One important issue is to know what they are quoting. Many payroll companies bundle their services and others charge a la carte. Some charge for little things that you may not ask for, but show up later such as extra reports, tax or payroll problem resolution, W2/1099 printing, storing your files year-over-year, etc. A good practice is to ask the question "What else could I possibly ever have to pay for in addition to my payroll processing fee?" This question will most often flush out the answer. But price should not be the biggest differentiator. If a company is a better service provider, you will save time, money and heartache over their cheaper counterparts. And remember, your construction company is not judged solely by your price quote; payroll companies are not necessarily different. As you know, it costs more to run a better company, and that may reflect in their price quote. You may be happier in the long run, even though you are paying a little more.

What Does It Take to Switch Over to a New Payroll Provider?

A construction payroll company must enter into their computers all employee data, tax account data, bank account data and your complete payroll and payroll tax data for an entire calendar year-to-date in order to run your first payroll. The earlier in the year they start, the less work there is for the payroll company to enter. Once this is done, they just run your next payroll as if they were servicing your company all-along. Most or all of this information is in your payroll binder if you're using another payroll company. Note, however, that most payroll companies charge only a small fee in order to "set up" a new client, and the real work is on their shoulders, not yours. Many clients still wait until the end of a quarter or year to start, and we're the first to tell potential clients not to do this. The end of a quarter or year is the busiest time for a payroll company. We recommend that companies switch at other more quiet periods when there is less going on-the best environment for an easy, accurate setup.

The Connection between Benefits and Payroll

Many payroll companies offer benefits such as health insurance, retirement plans, worker's compensation, pre-tax deductions (Cafeteria plans,125 plans, etc.). They do so because they benefit by the convenience the clients perceive in getting it all from one provider.  There is also the perception that a client may be less likely to leave their payroll company if they also sold them insurance.

However, a good payroll provider will calculate all benefits deductions for you, regardless of who sells you the insurance. Choose the vendor with the best insurance offerings, the best premium rates and, of course, the one who will give you the best customer care. Make sure you can get all deductions calculated by your payroll company.  Most will cut the check to your benefits provider(s) or report to you the appropriate payment amounts.

To PEO or Not to PEO?

Professional employer organizations (PEOs) are an alternative to payroll companies and outsourcing or managing most human resources functions. Instead of putting you and your people on YOUR payroll, you put yourself and your staff on the payroll of your PEOs. The PEO writes the paychecks and makes the payroll tax deposit and filings. The PEO administers the insurance and other benefit programs. It handles worker's compensation, unemployment claims, wage garnishment and a whole host of other payroll and employee-related issues. You, as the employer, have to write them a monthly check to cover the costs of payroll, taxes, insurance and other benefits and, of course, their profit.

There are pro's and con's to PEOs. It's very convenient. You pass on the employer risk to someone else who manages HR functions. However, it's expensive. A PEO will charge a fee based on a percentage of your gross wages. Also, they consolidate their insurance and other benefits and typically make money off the discount. This may mean you have no choice of carriers, and in some cases, you may pay more for the service if you already have good rates from your insurance provider. Also, they typically do not qualify as small businesses, and therefore, they may move you into a category where you are subject to large-company requirements such as the Family Medical Leave Act-and this can add to your cost. You must also consider what your employees' reaction will be to working for a new company even though you assure them that nothing has changed.

Payroll Service Features:

• Electronic Direct Deposit-Payroll companies can provide direct deposit of an employee's net wages into their bank account (or multiple accounts).
•  Job Costing (Labor Distribution) Reports-These are reports that segment your accrued payroll expenses (during any period within the year) by the job type, such as "general labor" or "foremen," etc. A good provider should be able to pay a single employee for multiple rates if they performed more than one function during a pay period.
• Departmental Reporting-These reports segment all payroll-related expenses by sub-company or job or client. Look for unlimited departmental reporting.
• Certified Payroll-Prevailing wage laws require contractors and subcontractors to submit reports each week to the agency that awards or manages the contract. These reports are called Certified Payroll Reports and Statements of Compliance. Your payroll vendor can assist with supplying the information in the format needed for these reports.
• Multiple Rates-A payroll service can handle multiple pay rates per employee (i.e, for an employee who is paid different amounts for performing different jobs) and per paycheck to covert reassignments of staff to various positions.
• Internet Payroll-This feature allows you to report your payroll hours to your payroll vendor from any Internet-enabled terminal. It also provides you with the ability to run your own payroll reports-instantly.
• Employee Self Service (ESS)-This application allows your employees to access copies of their paychecks and W2's over the Internet. In some cases they can change deductions and perform other functions without having to speak with someone in the front office.
• Unlimited Leave Deductions-A payroll service will handle unlimited deductions for sick leave, multiple vacation types, personal leave, etc. The payroll company should be able to match your accrual rates and make whatever changes you wish to make during any pay period.
• Unlimited Benefits Deductions-Unlimited deductions for various benefits that you provide for your employees. This may include health insurance, retirement plans, worker's compensation, pre-tax deductions (Cafeteria plans, 125 plans, etc.).
• Time and Attendance Integration-This service allows you to take the electronic output file from a Time And Attendance application and export it into the payroll company's records, effectively eliminating your need to manually enter payroll.
• Laser or Automatic Signature-If you're not in the office every Friday morning you'll appreciate the ability to have all your checks pre-printed with your signature.
• Unlimited Earnings Categories-This is a feature allowing you to pay employees for several pay types such as commissions, bonuses, salary, etc., and report those specifically on their paycheck.

The Final Word

Feature selection is critical. Take the time to speak with the salespeople and understand the features they offer. Not doing certified payroll now? You don't want to lose out on that contract you may want to bid on later. Select a vendor that has experience processing construction payrolls.

You've made a good payroll vendor decision if you are happy enough with their performance to stay with them for years. In order to do so, remember that "Service is Key," and anything you can do to determine in advance that they treat their customers like their partners will serve you well.