Two people at a desk, one has a pencil in their hand. A laptop is sitting on the table with a couple of drinks as well.

4 Common Startup HR and Payroll Mistakes

What’s the greatest challenge facing your startup? It’s common to see something like payroll and human resources towards the top of the list.

We get it, it’s a pain! Whether you’re still in the early days or a seasoned business owner, HR and payroll can be tough to manage while staying in compliance.

Here are a few common mistakes startups make and how you can avoid them.

These mistakes can be costly when they take your startup out of compliance with current laws. Some legal and financial consequences are serious enough to take down the entire business, especially a young business. Don’t be the one who thinks, “That will never happen to me.” Arm yourself with knowledge, find a strategic partner and keep these from happening to your business.

Misclassifying Employees

Many startups make the costly mistake of classifying employees as independent contractors because they don’t feel ready to take on “employees” at that time. This is possibly one of the worst mistakes you can make. If you take on an independent contractor and later change their classification to employee, the IRS will consider them as an employee all along and you could be fined for misclassification.Picture of a city with title - 10 advantages for startups partnering with a PEO

Beyond federal penalties, some states can fine you for misclassification too.

The same goes for exempt and non-exempt workers. It is important you carefully evaluate the different requirements for classification types and consistently file your employees correctly.

See these articles for help classifying your employees:

Protect Your Business from Independent Contractor Misclassification

How Exempt vs Non-Exempt Classification Works

Payroll Compliance

Even if you only have your first few employees, managing payroll is a full time job. Things get even more complicated when you factor in overtime, commissions, and compliance laws in different states.

How do you handle payroll compliance? Is it all on you? Have you hired someone to do the job? More companies are choosing to outsource these tasks because the costs of a simple payroll mistake are often heavier than the cost of outsourcing.

Discover the Benefits of PEO Payroll Administration [FREE GUIDE]

HR and Tax Compliance

Managing compliance at your startup doesn’t stop at payroll. State and Federal legislation place an incredible number of laws, regulations, and policies on your business. Keeping in compliance should be one of your top priorities.

Workers’ comp insurance, FLSA, OSHA, tax compliance, the list goes on. How would it feel to let go of these responsibilities and free up your time and resources to focus on growing your startup? PEOs can do that for you.



Overpaying for Benefits

To win the top talent in your industry you need to offer competitive benefits. Many small businesses find this impossible but with a PEO you have access to Fortune 500 caliber benefits packages at a price you and your employees can afford.

Benefits a PEO might offer:

  • Group Dental Insurance
  • Group Vision Insurance
  • Group Life Insurance
  • Group Short-Term Disability Insurance
  • Group Long-Term Disability Insurance
  • Company Wellness Programs

We want to help your company avoid making any of these HR and payroll mistakes. For more information on the PEO advantage, contact us for a free custom consultation and download our new ebook: 10 Advantages for Startups Partnering with a PEO.

1 reply
  1. Ike Murphy
    Ike Murphy says:

    There are many time and attendance issues that face employers and their HR managers, including meal and rest breaks, overtime pay, and sick leave. The strategy of employing independent contractors as opposed to actual employees is still another issue that can create problems for businesses.


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