Despite modern bookkeeping software and other tools, many construction companies remain bogged down by accounting functions. This has a lot to do with the nature of the industry, in which contractors have to juggle projects, sites and subcontractors.

Of all accounting functions, payroll often wastes the most time. It creates headaches for all businesses, which must account for federal and state taxes, FICA, Medicare and state unemployment deductions as well as 401K plans, vacation pay, health insurance and garnishments. For construction firms, reports and payments of union deductions and fringe benefits add to the process.

Contractors can handle payroll internally with software or outsource to a payroll service. For small firms, it usually isn’t cost effective to outsource. With guidance from certified public accountants, these firms can choose software that allows them to handle the job quite efficiently, most of the time.

For larger firms, however, payroll services can offer several advantages. Companies that routinely handle four or more projects at once and employ 60 or more employees spend an inordinate amount of time on payroll. Some of that time might be devoted to other important tasks such as marketing.

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Outside payroll services are a way to save time, particularly to contractors that operate across state lines. Many find that compliance with multi-state taxes, workers compensation and payroll reporting, union and prevailing wage scenarios, Equal Employment Opportunity and minority compliance are better handled by services with broad expertise.

The world of payroll outsourcing includes an assortment of companies offering a smorgasbord of services. Some merely calculate payroll and tax obligations for each employee. Others also deliver checks, issue W-2 forms, provide management reports and automatic check signatures, stuff envelopes and make deposits. Some services offer tie-ins with 401K, Section 125 plans and flexible spending accounts. Some even offer integrated human resources software that tracks information related to employee benefits.

The cost of payroll services varies widely. Contractors should solicit bids from several providers. The basic cost for processing payroll is about 80 cents to $2 per check, plus a base account fee and charges for additional services such as tax filing and direct deposit. There may also be fees for adjusting employee information or setting up an account.

Before seeking bids, know what services to seek. Accountants should determine whether a payroll service will be given authority to make tax filings or issue tax reports.

When formal discussions begin, a few key questions contractors should ask include:

• Who Will Be Responsible for Payroll Mistakes? No payroll service should be hired if it does not accept liability for penalties resulting from late or inaccurate payments.

• Can the Payroll Service Meet All Needs? It’s important to know exactly how outsourcing can save money. There may be a need for a payroll function so uncommon that no payroll service can provide it. Ask anyway. The more services provided, of course, the more expensive outsourcing becomes. However, few contractors pay for all the services a company offers. Most payroll vendors are pretty flexible. It’s important, however, not to negotiate away important payroll needs.

• How Does the Payroll Vendor Establish Fees? Some firms charge based on the number of times payroll is processed monthly. Others calculate fees based on the number of employees paid regardless of how often. Monthly fees may be layered on top of these. Ask early on about additional fees.

• Is the Payroll Service National in Scope? For contractors who provide work in various states or intend to expand, it’s important that the payroll provider have nationwide operations. These companies understand tax requirements in different states and have the appropriate compliance systems in place. For contractors who work only in a single state, local payroll services usually suffice.

When using a payroll service that you still transmit employee payment information to the service. This brings up security, particularly for larger companies. Keep the computer used for payroll on a separate network.

Cyndi Mergele, SPHR, PI is a senior manager in the Workforce Solutions Group at Padgett, Stratemann & Co. LLP in San Antonio. She can be reached at 210-828-6281 or Cyndi.Mergele@padgett-cpa.com.