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One Contractor Outsources Payroll and Keeps Their ERP — Without Regret

Posted by Kit Dickinson on Dec 22, 2020 8:11:41 AM
Kit Dickinson
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More construction companies are outsourcing their payroll while also keeping their ERP solution. It can be a strategic move for contractors, but it comes with challenges of its own. Vermont Mechanical was caught in the middle of those challenges.

Vermont Mechanical, Inc. (VM) is a leader in the mechanical contracting industry, specializing in HVAC and plumbing system components. Backed by more than three decades of knowledge and experience with mechanical systems, they take pride in their motto: “It’s what’s inside that counts.”

But inside the payroll process was a challenge that didn’t seem to have an answer.

To Outsource or Not to Outsource Payroll?

Vermont Mechanical had been running payroll in-house for years with Sage300CRE, because they didn’t want the hassles that typically come with an HCM system. Using an outsourced payroll/HR system usually means dealing with two payroll systems. And that means making employee updates in multiple systems, and implementing clunky workarounds to reconcile the general ledger. Construction companies that use an HCM can spend hours upon hours managing their data to ensure both systems are accurate. It's a highly labor-intensive and error-prone task.

But running payroll with an ERP had its downsides as well. It meant Vermont Mechanical was managing every aspect of a job — including job costing, financials, inventory management, budgeting, and estimating. Running payroll in-house put the burden and liability on Vermont Mechanical to ensure that taxes, deductions, and benefits were correct — along with actually creating and distributing paychecks.

The manual load on HR was becoming enormous, but Vermont Mechanical was skeptical that payroll and ERP systems could work together. And they weren’t alone. We've spoken with contractor after contractor who unsuccessfully tried outsourcing payroll. Third-party payroll systems typically can't handle complex construction pay policies for prevailing wage, fringe and union wage and benefit rules. When it comes to the job costing, only costs that come directly from payroll can be brought back into the ERP system.

While outsourced payroll systems have visibility into the labor costs and benefits paid through payroll, they don't have access to other employer paid "burden" costs such as medical, dental, and 401K — which are all paid to different vendors. These non-payroll costs have a large impact on job costing. Without them, you can't get an accurate sense of your project's profitability.

On top of that, the federal government continues to increase its scrutiny on construction companies for wage and hour violations. With expanded government penalties, payroll teams are forced to find ways to offload compliance risk. This puts companies like Vermont Mechanical in a tight spot: they're eager to outsource payroll to a trusted provider, but these legal risks (and getting burned in the past) seem too great.

It appeared VM was stuck if they did and stuck if they didn’t use an HCM system.

Contractor Central Offers a Solution

When VM’s Senior Accountant, Kelley Chase, met IDI at a Sage TUG (Timberline User Group) Conference, she began to realize that there may be a way to outsource payroll while keeping job costing and financials in Sage300CRE.

IDI’s Contractor Central is a comprehensive web-based application that fully integrates HCM and ERP systems. Contractor Central automates complex functions such as Certified Payroll, job costing, and union rules. By automating pre-payroll decision logic and post-payroll data transfer, Contractor Central ensures that every employee is paid correctly every time, and that ERP data is always accurate.

Kelley realized that Contractor Central would give Vermont Mechanical the tax and other compliance benefits of outsourced payroll/HR, and deliver accurate data in their ERP. Soon afterwards, VM implemented Contractor Central to help manage the different prevailing wages and labor burdens to each job/project. After payroll is run, Contractor Central transfers job costing and GL entries to Sage for reporting and financials. The system extracts VM’s post-payroll information and provides the necessary details for job costing and GL entries to be sent to Sage.

Contractor Central’s suite of solutions also allows them to:

  • Accommodate the complexities of government and union contracts
  • Eliminate the need to enter new project information two to three times in different systems

“It’s so much easier now to get the information into Sage,” said Kelley. “Definitely saving me time. It has saved us two day’s worth of work each week!”

Your Solution for Outsourcing Payroll

More and more construction companies are outsourcing payroll while also keeping their ERP systems. It's a trend that we expect to gain momentum over the next several years as payroll technology continues to develop and ERPs focus more efforts on their core functionality (instead of payroll/HR).

As a Sage 300CRE Development Partner, IDI can integrate an outsourced payroll with your ERP to boost your efficiency around payroll and job costing/financials. Contractor Central’s suite of solutions lets you:

  • Integrate outsourced payroll with your Sage300 ERP with both GL and Job Cost details.
  • Accommodate the complexities of government and union contracts.
  • Handle certified payroll reporting requirements.
  • Ensure that employees working on a mix of private, public, and union jobs are paid correctly through automated wage decisions.
  • Prove compliance on government-funded projects through automated creation of Certified Payroll Reports.
  • Eliminate the need to enter new project information two to three times in different systems.

Ready to get payroll under control? Get to know Contractor Central.

Construction is a complex industry, and not every payroll company understands all of a contractor's needs. IDI has been a trusted industry advisor for over three decades, and we can anticipate potential problems before they occur. We’ve been there and we've earned a reputation among contractors as a trusted guide. We get it, and we partner with payroll companies to help them get it too.

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Topics: Construction Industry Solutions