How to Avoid Common Startup Payroll Mistakes

Embarking on the journey of running a startup is exciting, but it is also complicated — especially when it comes down to things like payroll and the related paperwork. Avoid the following payroll mistakes when you’re getting your startup off the ground.

Incorrectly Classifying Employees

You don’t have to worry about paying taxes or benefits for independent contractors, so why not label all of your workers as such? Because doing so can saddle you with major fines, and you’ll end up paying back taxes. Correctly label your employees from the start, whether they are full-time, part-time, or independent contractors.

The guidelines for what constitutes an employee and an independent contractor are different from state to state, but it always relates to how much control you have over the person. The less control you have over the person, the more likely it is that they are an independent contractor rather than an employee.

Not Having a Separate Bank Account

Image via Flickr by kenteegardin

Startups don’t usually make much money in the first few months, so it might seem silly to open an account just for your business. However, not opening a separate bank account comes with some major drawbacks.
Without a clear distinction between your personal and business expenses, your personal assets could come under the gun if your business is ever sued or audited. Furthermore, when you pay your employees with a personal check, this can look unprofessional, and you might lose talented team members because they perceive you as not being on top of business procedures. Use secure business checks to enhance your image and protect your finances.

Not Shopping Around for Benefits

You want the best talent possible on your team, but recruiting the best will be impossible if you don’t offer a robust benefits package. Still, finding an affordable benefits package is tricky for small businesses. Don’t settle for the first offer you come across. Compare deals from different companies, and carefully examine the coverage they offer. The more you know about what is available, the more negotiating power you have.

Also, before you decide on which benefits to offer, consider who you’re hiring. Different groups of people are more attracted to certain benefits. For example, people with young children might gravitate toward great health coverage, whereas people in their 40s might lean toward employers that offer a retirement package.

Not Working with a PEO

A PEO is a Professional Employer Organization. PEOs specialize in payroll, compliance, and benefits for businesses. They can help you find affordable benefits and make sure you don’t make any costly tax mistakes. You’ll save time and headaches when you work with someone who knows what they’re doing. Although working with a PEO will cost money, it may save you money in the long run because you’re less likely to frustrate employees or pay government fees for inadvertent payroll mistakes, non-compliant taxation, or benefit processing errors.

Startups are working against the odds, so you shouldn’t let something like payroll mistakes stack the odds even higher. Avoid the above missteps and give your budding business the chance it deserves.