Starting a business from scratch involves all sorts of administrative challenges, and if you are hiring a team of employees to help your fledgling company flourish, managing payroll responsibilities effectively is important.
Even so, plenty of startups make mistakes in this context, so here is a look at the main payroll snafus so that you can steer clear of them yourself.
If you are the sole owner of your business and you are trying to micromanage as many aspects of its operations as possible, payroll duties can get put on the backburner. If you procrastinate too much, you could end up failing to pay employees on time, or even miss important tax deadlines and incur penalties as a result.
Thankfully there are software tools designed to automate many of the more complex and tedious payroll management processes, helping you do things like monitor employee productivity and timekeeping, and letting you pay wages and meet invoice obligations on schedule. While there are some established brands in this market, it is worth checking out alternatives to When I Work to see what other options are available, and how much stress you could save yourself from as a business owner.
Improper Employee & Contractor Classification
Taxation is a central aspect of payroll management, yet startups often have a small team of full time staff members while also making use of contractors and freelancers to cover other aspects of their operations as necessary.
This state of affairs can create payroll errors, specifically in the case that contractors are misclassified as full time employees for tax purposes, or vice versa. Adhering to IRS rules relating to this matter will let you ensure that the correct classification is applied to each individual that works with or for your startup.
One payroll error which can be the root cause of others, creating a domino effect, is not having up to date or accurate employee details on your books.
This can generate all sorts of issues; for example, if you do not have the right payment information, then wages may get lost in the ether. Likewise if records are improperly kept, then employees may not receive the remuneration they were expecting at the end of the month, and the steps needed to fix these flaws will monopolize more of your resources.
Dealing with deductions is a payroll management process which has a fairly steep learning curve, so startups that do not have the necessary understanding of this could either end up taking too much off wages or failing to include the legally required deductions, putting them in hot water with the tax man.
In all of this it is worth remembering that while some payroll errors seem relatively minor, they add up over time and could erode employee confidence in the organization, which is obviously a concern for startups that want to maintain high retention rates. So acting sooner rather than later to fix hiccups in payroll management is sensible.