Outsourcing payroll services: The key for government contractors who choose to avoid risk
Small businesses that process payroll know it is a headache. This is especially true for government contractors, who are under stricter requirements for paying and reporting payroll for their employees. For example, wage and hour requirements force contractors to monitor location, job role, hours worked, and charge codes for every direct labor cost that is associated with a contract. This one step can be a time-consuming task for contractors.
The primary accounting auditing agency for government contracts is the Defense Contract Auditing Agency (DCAA) which implemented new rules to compel contractors to be more responsible in the way they account for all aspects of a contract. They are now required to recommend that payments be suspended on any company’s contract that is deemed to have a non-compliant accounting system.
In addition to the time-consuming nature of payroll and the risk of losing out on potential federal procurement activity, many government contractors file their taxes late or have incorrect filings. The IRS recently released a report that showed 40% of small businesses pay an average penalty of $845 per year for late or incorrect filings.