Operating a startup can feel a little bit like a game of whack-a-mole: new challenges seem to keep popping up out of nowhere. Payroll management is probably one of the biggest challenges for most business owners. It’s also an important area to get right.
After all, payroll means filing taxes, navigating direct deposits and employee benefits, and registering to do business in your state. If you forget a key step or make a mistake with your federal taxes, you could be liable for fines and penalties. You could also miss out on potential funding deals.
The good news is that the right payroll management system can really help. In fact, using a top-of-the-line payroll management system can take your startup to the next level, streamlining your work processes and freeing you up to focus on your most important projects.
Let's dive into the most important aspects of startup payroll management. We’ll talk about the main challenges and how to face them.
Key Responsibilities in Startup Payroll Management
Every startup is different, meaning every startup owner will have different payroll management challenges. Still, a number of common issues come up in just about every startup.
Here are some of the key responsibilities in startup payroll management.
Payroll Setup and Employee Onboarding
Onboarding new employees can be tricky. It means documenting and listing personal information correctly in your database and making sure that the new employees are classified correctly for tax reasons.
Let’s be honest - nobody really loves this process. Typically, it involves lots of paperwork for new employees and lots of data entry for the accounting department.
It’s easy to see how human error can create problems here. Tired, bored, or hungry data entry people can easily make mistakes entering personal information. Information can get lost or scrambled. Down the road, this can create major snarls with payroll and tax.
The fix? Look for a payroll service that can automate data entry. Tedious, repetitive tasks like this were made for automation – and automation means no more human error.
Time and Attendance Tracking
Time and attendance tracking is a constant challenge for many businesses. It’s particularly tough when your employees are far-flung and work in different time zones. But even when you’re managing a small staff of on-site workers, time tracking is difficult.
For example, getting your teams to hand in their timesheet tends to be a constant battle. Late timesheets can mean employees aren’t paid in a pay period. Errors on time sheets can mean they get underpaid or overpaid. It can even mean that you won't file taxes on time for these employees.
Switching to electronic time clocks can help ensure that everyone gets paid on time. But that still means someone must manually enter hours into the payroll system. The best bet? Choose a payroll solution that can also handle time and attendance tracking.
Salary Calculation and Deductions
Sometimes, startup managers are surprised to learn how much work goes into salary calculations. At first, it seems like it’s going to be much more straightforward than tracking hours, attendance, and overtime.
But in fact, when you’re paying salaried employees, you still need to calculate their gross wages, relevant deductions, and net pay for each pay period. This is a time-consuming and complex process.
The good news is that today’s best payroll systems will do these calculations for you automatically.
Protip: Look for a system that allows you to customize and make changes in case you have an unusual circumstance.
Tax Withholding and Filing
You (or your accounting department) will need to calculate and withhold the correct amount in federal, state, and local taxes for each of your employees. If you also have off-shore employees, you must comply with the relevant tax regulations for their country and file in your own location.
As the employer, you are also responsible for matching contributions to Social Security and Medicare. Depending on the state, you may also be responsible for other taxes.
Making errors with tax filing and withholding can lead to penalties and fines. The best payroll providers can save you from headaches by doing the calculations for you.
Tracking and administering benefits is a complex process. Health insurance, paid time off, and other benefits all impact payroll management. Making mistakes in this area could mean that your employees are either underpaid or overpaid – and both of those circumstances could hurt your business.
You can stay ahead of these problems by choosing one of the payroll platforms that tracks benefits and confirms that all your employees get the benefits they have earned every time.
Record Keeping and Basic Reporting
Businesses are legally required to keep payroll records for each employee. That includes each employee’s personal information, as well as information like pay rate, hours worked, tax deductions, and benefit contributions.
In case of an audit, you will need to have these records stored in a convenient location. You will also need your records whenever you file with the IRS. If one of your workers is injured, you will need to consult your records in order to file for worker compensation.
Save yourself from the headache of lost records. Pick a full-service payroll management system that saves your data and makes record-keeping a breeze.
Regulatory Compliance and Legal Obligations
As an employer, you have a number of legal obligations. You probably already know that you are required to file with the IRS, for example. But you may not realize that you’re also required to file reports regularly for ACA compliance.
You must also file overtime information and comply with any relevant wage garnishment requirements.
If you or your staff are operating in another country, you likely have other regulatory obligations.
One of the most cited benefits of automation is better compliance,according to Deloitte. You can avoid compliance errors and possibly penalties with automated accounting software.
Ensure Accuracy and Timeliness in Payroll Processing
Sticking to your payroll schedule is important. Accuracy and timeliness in payroll processing will help your whole company run more smoothly. Employees are happier and more motivated when they can count on getting the compensation they deserve. Your whole team will work better if you’re in good financial health and not distracted by regulatory missteps.
Don't let the payroll whack-a-mole overwhelm you. Look for a payroll management system that can help. Consult the experts so that you can move forward with confidence.