There is little question that handling payroll, a necessary part of any business, can be challenging.

Tax laws change. Company policies change. Employees change, as do their family situations and their payroll distributions.

A single mistake with any of those issues can lead to serious and significant implications for the company.

The IRS estimates that one out of every three employers has been penalized for a payroll mistake. Some receive stiff penalties-even for unintentional errors. These mistakes account for billions of dollars in fines each year. They also can damage your company's reputation and credibility-especially amongst your employees.

Keeping up with the changes in payroll regulations in order to ensure unwavering accuracy can be a full-time job. That's why fewer and fewer companies handle their own payroll. Employers are finding that outsourcing payroll can be a better economic solution in the short term, and it can save time, money and their company's image in the long run. Remember, time is money, and you may discover that your time is best spent on other tasks.

Now comes the tricky part. Identifying the right payroll partner can be a daunting task.. Do you choose the enormous, publicly-traded entity or the mom-and-pop shop around the corner? Are you better off with an online company or with old fashioned bricks and mortar?  Just as your business continues to evolve, so does the payroll industry. As each day passes, new options are introduced in the payroll arena. It seems that every company offers similar-but different-service packages, security and costs.

Because payroll is such a sensitive area, it's vital that you choose a reputable and highly professional payroll services firm. So, how do you find the one that's right for you?

The key is not knowing about all the payroll companies, but rather, understanding your company and your individual needs. For example:

  1.     How do you need to process your payroll? If you're on the road quite a bit, you may require a web-based service. Then again, you may prefer to give your information directly to your payroll services provider.
  2.     What does it cost for you to handle payroll internally? Make sure this amount includes the cost of staff and the cost to maintain training.
  3.     What are your unique needs? Basic payroll services generally include calculation of payroll and tax obligations for each employee, check printing and delivery, management reports, and quarterly and annual tax form preparations. But there are many more services available.


Key Factors to Consider when Employing a Payroll Service

  •     Know your company's needs
  •     Firm's credentials and experience
  •     Firm's experience in your company's sector
  •     Cost and services included
  •     Security
  •     Flexibility
  •     Your company's future needs
  •     Responsibility for filing errors


Once you have an understanding of your payroll needs, you can begin interviewing payroll service firms to see which best fits your unique business. Here are some factors to consider during the research and interview process:

1. Qualifications: How long has the provider been in business? This is critical as it is an indicator of a company's stability. You don't need to look too far these days to find a business that has been victimized by a payroll service firm that walked away with significant sums of money, leaving that business to answer to its employees and the IRS.

2. Experience: To what degree does the provider specialize in payroll? Does the firm dedicate its time to payroll, or does it simply offer payroll as an optional feature beyond its primary focus? You should also ensure that the provider's employees hold recognized qualifications from the Institute for Payroll and Pensions.

3. Specialization: Look for a provider that has previous experience in the construction sector, so you can be confident that your payroll team is ready for the specific challenges of your industry. The company should also have experience in a broad range of industries, allowing the provider to continually improve its service offerings.

Some of the specific offerings that a construction business may require are:

  •     Job costing: Look for a system that is three-tiered, so employers can track labor to a specific division, department and job code. This system can assist in billing and invoicing, as well as internal reporting.
  •     Certified payroll reports: Check to see if the payroll provider can produce certified payroll reports based on the payroll and human resources information entered into the system. These reports eliminate extensive manual calculations and hours of entering the same data into two or more systems.
  •     Flexible time and attendance tracking: Does the provider use software for web-based time and attendance, enabling real-time job tracking from any Tnternet-enabled computer? Look for portable time clocks that can be installed at worksites, in a truck or on an equipment trailer. With these time clocks, labor, departmental and job costs can be tracked in real time, even if a project is in a remote location.

4. Service: You will communicate regularly with your payroll provider. Look for one that offers a high level of personalized customer service. You want to deal with someone who has a real understanding of your business and its challenges, not some random sales representative. Make sure the provider offers support each day-not only on the days payroll is processed. Too many questions arise on those other days that will need immediate attention.

5. Features: Ensure that the provider uses software that is fully capable of delivering the services you desire. What are its basic features and what are some of the additional features you may want to consider? If you want your employees to access information online, does the company have an Employee Self-Service program? Are the management reports appropriate and useful for your business?

6. Responsibility: Despite efforts to the contrary, mistakes may eventually be made. Determine who is responsible for penalties due to late or non-filed tax liabilities.

7. Flexibility: The critical point in this relationship is the transmission of information to your provider. A good provider will offer some choice and flexibility in the process, whether reports can be printed, posted to the web or sent in a data file. In addition, how flexible is the provider if something prevents you from transmitting information at a specific time?

8. Security: As much as you need a payroll provider that won't run off with your money, you need to find one that properly secures your money. How is your sensitive data encrypted, and who has access to that information? What type of employee screening process is in place? What type of insurance protection does the provider have? And does the provider "impound" tax payments-moving tax liabilities along with payroll amounts from your account to their prior to due dates.

9. Price: Make sure you understand which services are included in the price you're given and which are additional services. Price comparison is important, but the cheapest option isn't necessarily going to be the most effective. In the end, a cheaper option may end up costing more.

When you speak with prospective providers, don't hesitate to ask for references, which will offer key insights into relationships with that provider. Find out about responsiveness, accuracy and any problems that have arisen.

As a business owner, you expect payroll to be a seamless part of your business. If you choose a provider for the right reasons, you'll be happy and your payroll provider will be happy. If not, your relationship is doomed for an ugly-and potentially costly-ending. Take the time to find a provider that delivers exactly what you need.

Construction Business Owner, April 2007