Why should you use a payroll service for your startup?

Streamlining payroll to maximize effective business management

Launching and executing a startup business requires clear delegation of duties, high attention to detail, and a plan for overseeing major responsibilities of the company or small business, especially when it comes to managing employees. Hiring employees, sorting out their taxes and paycheck withholdings, and issuing checks or direct deposits on payday are crucial tasks that are a part of payroll processing. In order to establish a strong team to launch your business, it is essential that your startup has a process to run payroll and complete tax filings for employees accurately and efficiently.

Increasingly, software and tools for payroll management and automation are supporting startups with all aspects of a payroll system, including support with pay stubs, tax calculations, tax forms, and benefits administration. This article will outline payroll options that startup business leaders can consider as well as the benefits that payroll software can offer startup businesses.

What is payroll software?

Payroll software is a digital solution that offers full-service payroll support to companies that invest in and utilize the payroll platform. Payroll platforms are often considered software as a service (SaaS) option for businesses. SaaS is a delivery and licensing model in which software is accessed on the web via a subscription rather than installed on local computers. Payroll software can calculate mandated taxes for you, administer benefits such as paid time off (PTO), and pay employees, thereby freeing small business leaders to do what they do best—run and grow their business.

Innovative payroll software solutions are automated so payroll tasks can be completed on a regular, recurrent basis. Moreover, many payroll solutions offer integrations for human resources (HR) tasks as well as monitoring health insurance and other employee benefits. Payroll software can support effective employee management through time tracking, administering necessary paperwork for new hires or new employees, and maintaining compliance with local taxes and other financial regulations.

Payroll software is designed for businesses that have an in-house accountant or business owner who would like to manage the payroll process, but have many of the calculations or tasks completed automatically. From basic payroll functions to complex tasks associated with small business payroll, payroll software can be customized based on the specific business needs your company has.

How do you set up payroll for a startup?

To initiate and set-up payroll for your business, an important first step is to obtain an employer identification number (EIN). An EIN can be established through the Internal Revenue Service (IRS) and is the identifying number of your organization. An EIN is required for documentation, garnishments, tax purposes (federal, state, and local taxes), and other tasks related to payroll needs.

Once you have this identification, your business will need to establish the pay period you would like to utilize for payroll, complete the acquisition of pertinent employee information, and manage the classification of all the employees or contractors who work for your startup. As you determine this structure, you will want to consider how payroll will be managed. As a startup, payroll can be done by yourself, in-house by a payroll expert, outsourced to another firm, or you can implement the use of payroll software with a selected vendor. The next section of this article will describe and outline the pros and cons of each payroll option a startup can consider during the launch of business operations.

What are the different payroll options for a startup?

• Process payroll yourself manually each week

  • Pros: Completing payroll by yourself is a great option for financially savvy and confident business leaders. Moreover, this option is a good choice for startups that have few employees and are looking to prioritize budget allocations for business services. For business leaders who are familiar with wage laws and have strong accounting skills, manual payroll may be the best cost-effective option.
  • Cons: Undertaking payroll is a huge responsibility that encompasses a lot of detailed and compliance-oriented duties. For business leaders with less experience in payroll management, HR management, bank account coordination, and payroll taxes, manual payroll may not be the most astute option. Instead, it may be more beneficial to utilize experts or software that can alleviate the complexity of the process for your business.

• Hire a bookkeeper or Certified Professional Accountant (CPA)

  • Pros: For small businesses with a larger amount of employees, it may be helpful to hire an in-house professional who has training, certifications, and experience in payroll management. This professional can work full-time or part-time to manage all aspects of your payroll and will have the skills necessary to ensure compliance standards are met.
  • Cons: If your business continues to grow, the hiring of one individual or team member to maintain the responsibility for all payroll duties may require adjustments in the future. This could lead to issues with resources and training for the overall management of the payroll system.

• Outsource to an HR firm

  • Pros: For companies that are larger and don't want to maintain in-house bookkeeping duties, contracting with an outside payroll provider may be a reliable and convenient option. The most important benefit to this option is that you can focus on the needs of your business and trust that the complexities of payroll will be effectively managed by a payroll expert. Additionally, your startup would not need to worry about training and developing an internal payroll system.
  • Cons: It can be challenging to hand over all account information, tax filings, and employee information to someone who works outside the organization and doesn't necessarily have a day-to-day understanding of workflows and how the business operates. Managers or business leaders can work to close the gap on this knowledge base; however, for some startups, it is more important for the payroll information and overall system to remain in-house.

• Use payroll software

  • Pros: Payroll software is a nice medium for business owners who would like to manage payroll processing but have automated systems to support complex tasks related to payroll. Payroll software can gather information effectively during employee onboarding and store this information on secure servers with encryption. Payroll software is designed to be intuitive with an array of add-on features and functions to meet your business needs. Best yet, many platforms come with the option for customer support should you need any additional guidance in running payroll.
  • Cons: Payroll software can have a wide range of pricing based on the business structure and contractual agreements. When considering payroll software as an option for your business, it is critical to research and ensure that the pricing requirements will meet the budgetary restrictions or needs of your startup. Some payroll software companies will charge a monthly fee and add on charges based on the size of your company.

What are the benefits of payroll software for a startup?

The benefits of a payroll software system exist for all types of businesses. However, the benefits of payroll software for startups is particularly unique, given the needs of an entity at the start of business operations. The most important benefits to startups when using a payroll software platform are outlined below.

• Saves time. The best payroll software is user-friendly and ensures that small business owners have every piece of information that is needed for effective payroll management. Online payroll makes the information easy to access (while also secure) so that business leaders have a real-time perspective on wages, labor taxes, and other metrics that support the overall organizational budget. With the ease of access, business leaders can save time and focus on other important parts of launching the business.
• No need to outsource. Instead of paying high rates for expert advice and consultation, payroll software brings the best of expertise and in-house management together. You can focus on the payroll features you want the most for your business and utilize software integrations (such as HR software and HR support) to support other aspects of running your business and managing employees.
• Employees can access their payroll info. With the ability for employee self-service on payroll platforms, employees can use a mobile app to access their specific employee information, including health benefits, paystubs, and information regarding workers' compensation. The accessibility of this information on a self-service portal builds a culture of transparency at your organization which is essential as you get your business off the ground.
• More accurate. Automation enables calculations to be more accurate with reminders for payroll tasks (like quarterly taxes), as necessary. This way, the organization continues to meet deadlines while providing accurate wages and tax information.
• Ensures compliance. One of the most important steps in launching your startup is ensuring that your structure, operations, and workflows meet various local, state, and federal compliance standards. When it comes to payroll, a mistake with compliance can be costly and could result in the organization receiving a significant fine. When using software, your bases are covered when it comes to maintaining documentation for all benefits administration, paying out wages and taxes accordingly, and securely holding historical documents should an audit ever take place.

What are the key elements of a good payroll software for startups?

When looking for a payroll software that aligns well with the needs of your startup organization, it is essential to know what to look for in the various software companies that offer payroll services. Of the many elements to look out for, the elements below are the most critical.

• Easy to use interface. Whether utilized by high level managers or associate employees, it is important that the software works for everyone. Easy to use interfaces allow for mobile accessibility, straightforward navigation, and the availability of customer support when needed.
• Ability to automate payroll. Automation is the most essential aspect of payroll software. Look for a software that can complete calculations for all employees automatically, including wages, taxes, and information related to time tracking and time off. Also, consider using a payroll software that allows for unlimited payroll runs, especially if a mistake occurs in an initial run.
• Streamlined reporting. Another major benefit to payroll software is the ability to generate reports. Report generation helps you have a wider look at the HR part of your business. Inquire about the types of reporting features that come with each payroll software.
• Integrates with your accounting software. As discussed, software integration can help leverage technology for more effective business operations. Consider a payroll software that can integrate with accounting software so that the finances of your business are considered in conjunction with labor costs. When it comes to business taxes, this will make financial reporting and analysis more streamlined and easier to track.

Are you ready to take your payroll systems to the next level at your startup? Are you ready to leverage technology and payroll software to meet the demands of your growing business?

Heartland is ready to help. Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at heartland.us.