Construction companies operate in a complex environment when it comes to payroll, benefits and compliance. While other types of businesses can compensate most groups of employees under one regular pay rate, contractors must deal with many variables — including multiple pay rates, prevailing wages and worker classification. Then there are issues such as administering fringe benefits and managing workers’ compensation insurance. If your staff is struggling to keep up with it all, you may want to consider engaging a professional employment organization (PEO).
Potential advantages
Essentially, a PEO is a human resources (HR) outsourcing provider. If your construction business engages one, you form a “co-employment” relationship. Your business generally retains control over hiring and firing decisions, as well as day-to-day employee performance management. Meanwhile, the PEO acts as the employer for purposes of most HR and benefits administration functions.
Partnering with the right PEO under a mutually beneficial agreement offers a variety of potential advantages, including:
Improved fringe benefits. Because PEOs pool their clients’ employees, they typically have access to high-quality health insurance and retirement plans, as well as other benefits. These offerings are typically too expensive or difficult for smaller companies to administer.
Smoother payroll and tax administration. A PEO can relieve your construction business of many of the burdens associated with payroll processing — including tracking hours, withholding and remitting taxes, and distributing checks.
Lower workers’ comp costs. When you partner with a PEO, your employees are usually covered by its master workers’ comp policy. Premiums are based on the PEO’s experience modifier rate, which can translate into substantial savings for your company. The PEO can also save you time and money by handling claims.
More sophisticated HR services. Many PEOs provide end-to-end HR services, helping you search for talent and recruit employees. They can even handle onboarding and training.
Tighter compliance. PEOs typically have the expertise to help your construction business comply with various federal and state laws related to health insurance, retirement plans, protected information and employee safety. They can also handle unemployment claims. Some PEOs even provide safety audits and training programs.
Loss of control
As with any outsourcing arrangement, using a PEO means relinquishing control over certain essential operational functions while remaining liable for related compliance issues. That’s a noteworthy risk.
One area where you may be able to shift liability to a PEO is tax compliance. Ordinarily, a company’s “responsible persons” are personally liable for any willful failure to collect and remit payroll taxes — even if that responsibility has been delegated to others. This includes owners, officers and certain employees.
There’s an exception, however, for PEOs that have been certified by the IRS. Certified PEOs are solely responsible for their clients’ payroll tax obligations, allowing those clients to avoid liability for payroll tax compliance issues.
Important: Because job costing must be done at the company level, many contractors must do their own payroll. This could limit the practicality of a PEO arrangement. However, there are construction-focused providers that may include job costing in their payroll services.
Substantial investment
Make no mistake, engaging a PEO entails a substantial investment. Some PEOs charge a fee based on a percentage of total payroll, while others apply a per-employee fee. It’s critical to compare different providers and find a pricing structure that fits your construction company’s budget and operational needs. Please contact us for help exploring the strategy further and analyzing all the costs involved.
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