How To Handle Payroll As A Young Startup

Handling payments for contractors and freelancers is simple when you first launch your business. You make use of services like Paypal or directly wire the money you owe to your contractors at the end of each month. For most part, you may not even be handling W2 or 1099 forms for the IRS (similar forms exist for businesses outside the US).

But things change when you start hiring your first employees. The financial and legal aspects are dramatically different for employees when compared to third party contractors. Handling salaries and managing tax of your employees can take away a significant chunk of your time and resources.

Hiring a payroll service

You may be tempted to learn and do payroll related tasks yourselves. But this can easily backfire. Mistakes are bound to happen and this can easily land you or your company in a soup. In the early days of your business, it is recommended to outsource your payroll work to a trusted third party service provider. This is of course going to cost you money. But the alternative is to hire an employee to do this for you on a part-time or full-time basis. This could cost more. Not only that, entrepreneurs who are not well-versed in accounting may find it hard to pick an applicant who is competent at their job. With a third party payroll service, businesses can always go by customer reviews on platforms like Yelp.

Moving payroll in-house

As your business grows and hires more people, you are likely to hit a point when outsourcing your payroll can be more expensive than getting it done in-house. This is a good time to hire accountants who can manage payroll for your employees. Your accountant shall not only be handling payroll, but would also handle your books, manage taxes and coordinate with vendors and clients regarding payments and tax formalities. Not only does this require expertise, it is also ideal that the accountant has a history with your business and line of work. It is hence a good idea to hire someone in-house who also has years of experience under their belt in this area. This also means that you do not have to to train your recruits for the job.

Investing in a payroll software

A surprisingly large number of businesses still use generic spreadsheet tools like MS Excel to handle payroll. Not only are these tools inadequate to handle specific payroll-related requirements, they are also inefficient. It is highly recommended to use a payroll software to handle all your business requirements. If you are a bootstrapped company, you could use one of the several free payroll software options like Payroll4Free or Xero (although you need to be a paid subscriber for their accounting software). There are several other tools that do a great job like Zenefits, Sage One, Gusto and QuickBooks and while they are all paid solutions, they all come with additional features like support for employee insurance, taxes, W2, 1099 forms and bonuses. Find one tool that fits your budget as well as is suited for your industry and country.

Have an employee redressal system

No matter how wonderful your work culture is, employees care the most about their salaries. Any discrepancy here is quickly noticed and employees require immediate redressal. Have an instant redressal system that acts on salary discrepancies. A lot of people live paycheck to paycheck and any faults can impact their cashflow. Trust your employees when they come up with discrepancies and this is also an important factor when it comes to earning their loyalty and trust.