Keep Your Startup Financially Fit with these Payroll Tips
If you asked 10 entrepreneurs how much money a startup needs to get off the ground, you’ll get many different opinions. Some business owners threw caution to the wind and opened on a shoestring, which is scary because underfunding is one of the top reasons many startups die in their first year. Others raised capital to ensure operating costs were covered until the company was making enough in sales to support itself and show a profit. Once you open for business, you have to be diligent in keeping your startup financially healthy, especially in the area of payroll.
Independent Contractors vs. Employees
This is one that has gotten many a startup owner an unpleasant penalty. Classifying your workers as independent contractors until your start up is ready to take on employees isn’t uncommon. However, if the employees are working on site, the chances are excellent those workers will be classified as employees from the get-go. For example, in California, the fine for this can range between $5,000 to $15,000 per employee found to be misclassified. One way around this is to utilize a staffing agency. You can give the agency the skills you need for the positions you want to fill in your company, and you will not be liable for state or federal taxes for the employee. You will also have the ability to replace the employee without the worry of an unemployment claim filed against your firm.
Once You Have Employees Consider a PEO
On average, 1 in 3 businesses will be audited by the IRS due to payroll mistakes. It can be expensive to hire someone in-house to process your payroll when you also consider salary, sick days, vacation, insurance, and taxes. A solution many startups turn to is a Professional Employer Organization (PEO). These firms will manage your payroll, taxes, and reporting for you. Often your relationship with a PEO can result in good deals for company health care plans and other benefits under an umbrella account. In the case you are audited by the IRS, your PEO will supply all documentation needed for your payroll account, and some plans will include representation.
Reward with Fringe Benefits
You are likely working with people who are just as motivated to see your company become successful through their hard work and efforts. They work long hours and believe in the company. You can’t always reward these employees in a startup situation because a salary raise means a hike in payroll taxes that may stress the company financially. A way to reward is through fringe benefits such as a company tablet or laptop or even benefits such as dental or a retirement or pension plan.
Use these tips to help avoid issues that can derail your startup and cost you money in unnecessary fines. A little time spent finding the best way to handle your payroll either internally or through outsourcing can translate into more time to grow your startup.
