Articles, Finance, HR

Why Startups fail miserably in Payroll Processing

Author: Chirantan Patel, Product Manager, SoftwareSuggest

Startups are unlikely to hire professional experts in different areas of their business, yet so many young businesses succeed while many of them fail badly. Being new in the market, it is easy for startups to make mistakes but it can pose a threat to the overall company. Although various different reasons account for the failure of a startup, payroll processing mistakes can lead to some serious consequences.

For young businesses, it is a big challenge to properly execute the payroll management process. Incorrect data can result in incorrect payments to the employees thereby making the business inefficient. And, rectifying this is not only a time-consuming process but costly too! Further, incorrect payroll processing can even breach the government legislations thus, creating a risk for the entire startup business.

If you are looking after the payroll management of a young business or in case you are a budding entrepreneur, here are few common yet important payroll errors that should be taken care of.

Manual Miscalculations

One of the major reasons for payroll errors in any startup is the human errors in manual payroll management system. It is quite obvious to commit mistakes when dealing with a huge amount of data in dozens of Excel spreadsheets. With automated payroll management software, such human miscalculations can be minimized while speeding up the process. However, there can be room for miscalculations even after using payroll software if the employees do not know how to use the technology.

Inaccurate Employee Details

Having incorrect and outdated employees’ details is a blunder for payroll processing. Spending money and time on cross-checking and rectifying the employees’ details adversely affects the complete payroll process. Incorrect bank account details can lead to wrong salary payment to the wrong employee thus creating a total imbalance in the organization.

Incompatible Payroll Software & Setup

It is not always necessary that any automated payroll program is compatible with the business needs of a startup. Consider a program for maintaining employees’ records and profiles; it would be different from an automated system used for making payments and employee benefits. Using an incompatible program can also account for the failure of payroll processing in startups.

Failure to Pay within the Payroll Schedule

There are certain periods within which the payment is done to the employees and falling behind that schedule results in unhappy employees. Also, rushing in the payroll schedule might lead to either overpaying or underpaying the employees. Incorrect salary payment might put a startup in financial complications during the audit checks.

Failing to Maintain Accurate & Updated Payroll Records

Failure to upkeep the payroll records will consequently trouble during the audit checks or filing of payroll taxes. Many payroll departments in the startups don’t pay much attention to this, but failing to produce specific information or documents in front of the government can incur high penalties and other additional costs to the organization.

Delay or Incorrect Payment of Payroll Taxes

Most of the startups fail in payroll processing due to the late or incorrect filing of payroll taxes. This might lead to penalty charges and other additional costs on the business. At this time, the significance of accurate payroll records is realized. Filing taxes during the last minute might bring mistakes and data discrepancies.

Payroll Deductions

Another complex part of payroll is processing the employee payroll deductions. Startups likely commit errors while applying the government payroll laws to an employee’s salary deductions. However, it is one of the most common areas of errors in payroll processing; this can disturb the overall HR processing of a young business.

Classification of Employees

Startups usually don’t hire experts during the initial phases of their businesses. Instead, they work with part-time, permanent, temporary or freelance contract employees. Due to this variety in employee’s’ classification, companies mostly land up in payroll issues. As such, it is important for the organization to classify the employees for tax purposes as misclassification can result in not paying their taxes. Failing to pay the correct payroll taxes will lead the government requiring the organization to pay taxes on the salary paid to the employees along with penalties and fines.

Although payroll is the non-revenue generating department of any business a single mistake can pose a threat to the overall organization.

About the author:

Chirantan Patel is the Product Manager at Softwaresuggest & Callhippo, an Inc. 275 company that researches and analyzes software to educate, advise, and connect buyers and sellers of business technology.

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