5 HR & Payroll Mistakes that startups make!

We all know that there is a surge in a lot of startups in India right now and with that extreme numbers of new employees . To this concern, we’ve put together this list of the five biggest startup payroll and HR mistakes to avoid.

1. Mixing Personal and Business Finances

In the early days of a startup, having a business bank account can seem like a bit of a pointless activity. Brand new companies are rarely making any money and it might seem to the founder that there’s no point in pretending like he’s paying his employees with company (not his own) money.

This is short-term thinking than can have dire consequences down the road. Eventually, that startup will have to disentangle all its expenses and pay back taxes.

If the startup is ever sued or audited, a blurry distinction of personal and business expenses can render a founder’s personal assets vulnerable to court seizure.

2. Misclassifying Employees as Independent Contractors

Treating an employee as an independent contractor, when they should in fact be legally considered an employee, is one of the most costly mistakes a startup can make. Employers do it because they don’t have to pay taxes, insurance or overtime to independent contractors. They also don’t have to offer contractors benefits.

Misclassification is especially common in startups, where many practice “try before you buy” hiring.


3. Trying to Manage Payroll and Compliance

Payroll is so hard to do, and businesses mismanage it so often. The complexity of managing quarterly tax withholdings easily adds up to a full-time job, even for a business with just a couple of employees. That’s why most businesses use a payroll service.

But payroll services only get you so far. Startups still need compliance, like employee provident benefits etc. Compliance overhead in even the smallest of startups quickly escalates.

That’s why many savvy startups use a Professional Employer Organization (PEO) to manage payroll and compliance. A PEO manages payroll for startups, including myriad taxes, and ensures compliance with all required insurance and reporting. A PEO can even offer great deals on healthcare plans and other benefits.

4. Overpaying for Healthcare and Benefits

Startup competition is fierce these days. If you want to attract top tier talent, especially developers, you’ve got to offer excellent benefits, particularly with healthcare.

But even “good enough for now” healthcare plans are expensive, particularly for smaller companies, who pay more for less coverage. It’s the law of leverage at work: the larger the company’s employee base, the sweeter the deal.

What’s a startup to do? A PEO can again be helpful here. PEOs use a legal arrangement known as co-employment to bargain for and administer healthcare and benefits packages for all the companies under its umbrella, thus securing better terms than a startup could on its own.PEOs even handle the burdensome paperwork of regulatory filings and plan administration.

5. Frustrating Employees with Endless Paperwork and Confusing Software

Nobody likes paperwork, especially not fast-moving startups. Yet many businesses continue to use outmoded HR processes and legacy software. Stop the madness!

We’re in the 21st century and there’s no need to ask your employees to fill out forms and fax them to the government/healthcare company/other forces that be. There are several companies out there that are making software to help automate this and which help guide your employees step-by-step. When picking your HR system, pick up something that works like your employees: online.

If you’re an Easy Source customer, you already know all of this. EasySource is a Payroll Management Company that can help employers and employees better manage their paperwork and access top-notch payroll services with perfect execution.

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