Biggest Payroll Mistakes Every Startup Should Avoid

August 6, 2020 Startups

When you are first starting out as a new business owner, it is quite common to feel overwhelmed by the amount of details that go into running a business. This is especially true in the early phases where you will find yourself having to juggle many different roles at the same time until you can afford to hire specialized personnel

While some tasks will be relatively easy and even enjoyable, managing payroll is probably not going to be one. The fact that other people’s livelihoods will be hugely impacted by how well you manage this function makes it an even trickier endeavor.

Biggest Payroll Mistakes Every Startup Should Avoid

However, with a little help, payroll can become a lesser pain. Read below to learn about the biggest common payroll mistakes every startup should avoid:

Delaying Payments

Calculating the taxes owed is one of the most challenging aspects of payroll. It’s a lengthy and overbearing process, especially if you don’t have the necessary knowledge to get it done. Missing important tax deadlines could subject your company to financial penalties. Furthermore, delaying payments will affect your reputation in the market as an employer. Not only will your existing staff be frustrated over the late paychecks, but you will suffer to attract talented high-caliber employees as they will be reluctant to join an ill-reputed company.

The best thing you can do is to put together a detailed schedule with all the important deadlines to follow throughout the year and help yourself stay punctual. 

Calculating Payroll Manually

With a startup business, it’s probably smart to be constantly looking to cut down on costs and expenses. However, sometimes being overly frugal can backfire and do more harm than good. Manually calculating payroll may seem like a good way to save your limited funds, but when you look at the bigger picture you will realize that it’s not completely true. Factoring in intangible expenses like the time you waste calculating and then rectifying inevitable mistakes will make you rethink your initial approach.

Calculating Payroll Manually is a mistake startup should avoid

To start your business on the right foot, consider investing in payroll software so that you can focus on other pressing matters. If you do proper research, you will find different options on the market that can be customized to fit your specific needs. Look for software that provides seamless integration with other HR systems you may be using for the utmost efficiency. You should also make sure that the software you are purchasing is scalable and will accommodate your growing business. 

Defaulting on Confidentiality

Even if your startup operates with only a handful of employees, payroll should always be done with the utmost confidentiality in mind to avoid mistakes. Payroll information should be secured and exclusive to the payroll administrator and you as the business owner. Make sure that the payroll software you are using is confidential and that only those authorized are allowed to access it. In addition, you should provide your payroll personnel with adequate training to understand how to treat confidential data and what to do in case of an information leak. 

Keeping Incomplete Records

When you are working with small capital, it’s easy to miss the fine line between your personal accounting and that of your company’s. Many small business owners omit recording some transactions because they think they are very minute to have any real effect on the company’s books. 

Keeping Incomplete Records is a way for startup payroll mistakes

However, that’s not how you should be managing your payroll. Regardless of how big or small a transaction is, you should always make sure to record it correctly. Sooner or later, you are bound to receive a visit from state auditors, so unless you want to be found non-compliant, be adamant about keeping complete and accurate records. 

If you are having trouble keeping track of all the data you have to track, maybe it’s a good idea to hire a company that offers employer of record services to do that for you.

Wrongly Classifying Employees

Classifying your startup employees as full-timers, part-timers, and consultants is more than just a matter of semantics. Each category has its own method of payment and calculation for the relevant taxes. Many startups, during their early phases, unknowingly classify employees wrongly. Although this mistake is rectifiable, you will be saving yourself a lot of time and hassle by getting it right from the beginning. Find governmental sources to educate yourself and understand the difference between each type of employment and what they all entail. You can also hire an experienced advisor to help you with the initial employee setup and put you on the right track.  

Like most businesses, you and your startup are bound to face some mistakes with payroll, especially at the beginning. However, learning about what to expect and the possible problems you can face will help you prepare better. The above should give you a clear idea of what may go wrong with payroll. However, you should adjust your mindset to treat every hiccup along the way as an opportunity to learn and grow.