Common Payroll Issues in Startup Companies and How to Fix Them

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Hiring employees is a huge milestone for every startup, but when the payroll period begins, a new HR-related challenge often emerges. Even experienced HR professionals can find some aspects of payroll tricky. So if you’ve started getting complaints about your system, or the paychecks themselves, you are not alone.

The payroll issues in your startup can be a result of faulty practices or downright errors. Letting these root causes go unsolved can increase the risk of labor issues in your company. That would then result in high turnover rates, and possibly, a lawsuit.

Simply put, persistent payroll issues put your company’s reputation at stake. Your success may already be jeopardized before you even reach it. To avoid most payroll problems, outsourcing this particular HR function is recommended, especially for startups and small businesses.¬†Professional payroll accountants can save you loads of hassle, and ensure your compliance with every regulation.

Still, you can’t depend on everything on the experts and be content with your little knowledge about payroll. Every business owner must learn the correct practices in payroll so that mistakes and challenges can be reduced, if not eliminated.

That said, here are the common payroll challenges startups face:

1. Lack of Awareness About Tax Benefits

One frequently asked payroll question in the UK pays regard to the tax benefits employers are eligible for. To answer that, all employers can reclaim 92% of all statutory payments. For instance, if an employee files a paternity leave, which lasts for two weeks, you should treat that as a statutory benefit and pay the employee at a statutory rate. That is regardless of what you provide as an additional benefit either or during the two weeks of their leave. Fathers may also now claim the unused paid maternity leave of mothers, which is also paid at a statutory rate. As such, you can reclaim 92% of those statutory payments as your tax benefit.

2. Outdated Payroll Solutions

Even old and stable companies can face this challenge. Outdated payroll solutions seem rather common in the U.S., where, according to a survey, 29% of employers use a payroll solution that’s over 10 years old. That can include old-fashioned time cards and any other practice that isn’t automated.

Outdated payroll systems can affect the accuracy of your employees’ salaries. Those systems may not track the actual time your employees rendered, resulting in unpaid overtime, for example. In other cases, late payments may occur because the system is so unreliable.

This is why it’s advisable for startups and low-cost businesses to outsource their HR department. With a third-party provider handling payroll for you, you can rest assured that your paychecks are produced from modern technology. At the end of the day, you can save more money and keep more accurate records, not spotting pay variances and looking at undependable files.

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3. Paying Remote and Freelance Workers

Remote companies are becoming the trend, so many startups and small businesses build a team of remote workers from the get-go. But paying them poses a challenge because they’re bound by the laws and regulations of their country.

The minimum wage requirement of another country may be higher than that in your location, or vice-versa. Different laws on taxes, leaves, and other benefits may also apply. So do your research before building a remote team to ensure that you won’t be breaking any law.

4. Classifying Employees and Contractors

This is can be related to the challenge above, with regard to freelancers, specifically. Since freelancers are independent contractors, they must be classified as such, or payroll problems can occur. If you misclassify freelancers as full-time employees, typically for tax purposes, you may get in trouble, and inconvenience your freelancer.

5. Deductions

Withholding taxes and benefits are normally deducted from a paycheck, but sometimes, HR personnel deducts more than they should. It’s not intentional, of course, but due to poor record-keeping, it can look like you’re underpaying your employees. This¬†problem roots back to an outdated payroll system, which tracks records poorly. So either outsource your HR department or invest in a modern payroll system to avoid unfair or incorrect deductions.

Payroll challenges and mistakes may be inevitable for startups, but they should not exceed a certain degree, or occur so frequently that you mess up more than you get things right. If you haven’t polished your payroll system yet, make payroll discussions open in your company. Encourage your affected employees to speak up, and take the necessary steps to correct your mistakes. Many problems in an organization, including serious ones, can be solved through communication, so make your workplace a safe environment for opening up about paycheck problems.

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