Payroll tips to keep your startup financially fit
As an entrepreneur you are expected to wear a cap with many feathers. Be it operations, HR, marketing, or finance, you are the go-to person for everything. One important aspect to get the ball rolling is managing the working capital, which essentially means seeing payments received and made on time.
Here is where most startups make a mistake. Many times they end up devoting too much time on this function. And they still end up overpaying or underpaying. In both cases, the company resources are not being used judiciously.
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It is relatively easy to manage payroll when there aren’t any abnormalities, but the real challenge and fun is how you would manage the same during a period of crisis. Here are few things you should consider:
Outsourcing payroll management
It may seem like you will lose control over hiring and people management if you outsource this function. However, it is the opposite. Outsourcing the function is really a very good option. It takes away all kinds of hassles, like compliance, legal procedure, filling returns, etc. There are many agencies these days that do all of these with a modest monthly fee.
Make the annual business plan
It is a good practice for entrepreneurs to make annual business plans projecting profits and losses. For this, it would be necessary to estimate incomes and expenditure. This will help the company map its HR requirements to the budget the startup is running on. This helps resolve the issue of underpayments or overpayments.
Payroll vs contract
Several companies have two kinds of employees. Some are on the payroll and they enjoy benefits such as PPF, LTA, etc. The other category includes employees on contract, who are simply compensated for their work. Account differently for the two categories and also check whether the amounts paid are industry standard or not.
Perks and benefits
Payroll employees have several benefits to their CTC and in-hand cash, as well as a balanced fringe benefit program. Some of these fringe benefits and perks can be tax exempt as well.
Tie up with a bank and get salary accounts initiated for the employees. Also open an account for the company to manage its payroll payments via this account. This will help manage your business cash flow better. A separate account for payrolls will assure adequacy of funds for salaries at all needed times.
It’s usually better to hire an agency for payroll management or alternatively use automated software to manage payroll. In either situation, following the above tips will help you minimise risks and trouble, and avoid crunch time.