Hiring a Payroll Service

Why Use a 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.

• 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:
  
  • 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 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.

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