In-House Versus Outsource Payroll: Choosing the Best Fit for Your Construction Company

Payroll management is a crucial task for any construction company. Unfortunately, it can also be challenging to deal with the intricacies of coordinating payroll for multiple projects, no matter the size of your company.  

Construction companies are faced with two choices for payroll management: keeping it in-house or outsourcing it to a payroll specialist. Which option is best? In this article, we’ll explore the pros and cons of each option to help you make an informed decision that meets your company’s needs. 

Should You Keep Payroll Internal?   

Let’s start by defining in-house payroll. In this system, the company employs the employee or team who runs payroll. They handle all aspects of payroll, from collecting timecards to calculating totals and taxes and coordinating checks or direct deposits. 

The Pros 

The main advantage of keeping payroll in-house is that it gives leaders more control and oversight of the process. The payroll team can own the process and keep employee information protected. When internal changes occur, they can immediately be incorporated into the payroll process. 

In-house payroll also allows for customization and processes to do what works best for your company. The internal payroll team is in control and can adjust the system to best serve employees and the company. If the payroll team notices that employees want to be paid bi-weekly instead of monthly, they can adapt. If they notice employees often forget to clock out when on a job site, they can create a new system to avoid missed punches. In-house payroll teams aren’t limited to a specific system or process, so they can experiment until they find the perfect solution. 

The Cons 

However, there are also disadvantages to in-house payroll. At the top of the list is the cost and time requirement. Payroll is time-consuming and can often seem like a never-ending process. Just as the team finishes one pay period, it’s about time to start the process again. The cost of hiring and paying an employee to do payroll can also add up. 

Payroll can also be complicated, especially around taxes and staying compliant with changing regulations. In-house payroll teams are often spread thin working on other projects, so they might not have the time and resources to give payroll the attention it deserves. 

Should You Outsource Payroll? 

What is outsourced payroll? With this system, construction companies delegate their payroll operations to a third party to calculate wages and taxes and make payments. Outsourced payroll is often done automatically, with the company only having to approve the final payroll processing. Instead of managing any aspect of payroll internally, the entire process is sent to an outside partner. 

The Pros 

Outsourced payroll has many advantages, namely the cost. Nearly half of businesses say cost savings is the top reason they switched to outsourced payroll. Instead of having to pay a salary and benefits to a payroll team or individual, companies can spend a portion of that money on outsourcing payroll and use the remainder to support other functions and grow the business. 

Another significant advantage is that outsourcing connects companies with payroll experts who are completely dedicated to staying current on tax issues, payroll changes, and compliance. These third-party providers often have access to top technology and knowledge to ensure accurate and timely payroll completion. 

The Cons 

However, there are also disadvantages to consider about payroll outsourcing. One is a lack of control over the payroll process. Instead of being able to customize the system to a company’s exact needs, outsourcing means having less oversight and ownership of the process. 

Outsourcing can also require purchasing a payroll package, which could lead to companies paying for features or tasks they don’t need. Some payroll software doesn’t integrate with accounting software or other systems, meaning you may need to make more widespread changes to your technology to ensure seamless outsourcing. 

Which System is Right for Your Company? 

With advantages and disadvantages on both sides, there’s no one-size-fits-all answer to the outsourcing versus in-house decision. As you weigh your options, take these key considerations into account: 

•  Company size. The size of a company determines how many employees need to be included in the payroll. Most outsourcing services charge based on the number of checks. A large company with hundreds or thousands of employees divides that cost, potentially lowering the per-check cost. In that case, hiring someone internally can be more economical than paying an outsourced fee for each employee every pay period. 

• Resources. Internal payroll requires significant resources, including payroll software and an employee or team dedicated to running payroll regularly. In many cases, this responsibility falls to an accounting or HR team that has many other responsibilities. Consider your company's resources and whether you have the bandwidth to hire someone specifically for payroll. When resources are limited, outsourcing payroll can often be simpler and more cost-effective. 

• Payroll complexity. When factoring in overtime, vacation, bonuses and increases, and rates for different types of projects, construction payroll can quickly become quite complicated. Running payroll correctly is crucial to avoid reissuing checks for missed payments or re-calculating incorrect wages, which take additional time and resources. Payroll taxes must also comply with changing regulations. Consider the complexity of your payroll needs — some companies have a fairly routine payroll process, while others are more complicated. In general, more complexity tends to be better for outsourcing or handing over to an experienced internal team. 

• Long-term goals. Hiring an internal payroll specialist is generally a better decision for larger companies. But even if your company isn’t there yet, consider long-term growth goals when making your decision. Where is the company growing? What functions do you want to build in the coming years? Hiring an internal person earlier and developing them could better fit your long-term goals. 

How Technology Can Help Payroll Management 

Technology is what makes payroll possible. Whether you outsource or do it internally, payroll will likely run through software to track time, store employee data, calculate wages, and sync with accounting software to ensure payments are accurate and within the company’s budget. 

Payroll software can ensure the process moves more smoothly, reduce errors, and increase compliance. Perhaps the biggest benefit is the potential for automation—systems can automatically calculate payments and communicate with payment systems for faster, more accurate payroll processes. 

If you’re ready to simplify your construction payroll and have more time to spend building your business, turn to hh2, a leader in cloud-based construction management software. Click here to learn more and schedule a free demo.