Why Startups Should Have a Payroll Strategy
Starting a new business is an exciting experience. However, it requires time, effort, and a great understanding of the market and the company's solution. It involves planning, making financial decisions, doing market research, and acquiring knowledge about the industry. While this can be a tad overwhelming, businesses succeed with the proper application of resources.
In 2020, there was a 24% increase in registered businesses in the US alone, taking advantage of the post-COVID-19 surge. While the case applies in lower numbers in different parts of the world, Africa was different. The number of registered businesses reduced in over 58% of the countries post-COVID-19. Nevertheless, it's always a good time to start a business as long as there is a need in the market.
When starting a new business, there are numerous factors to consider; where to set up and operate, how much capital is needed, and the business model, among others. A payroll strategy is one of the essential factors to consider, especially in a startup, but it is often overlooked. A payroll strategy will determine how employees are paid and tax and compliance requirements in the regions of operations.
But first, what is payroll?
Payroll is an organization's employee record of their names and the total salary or wages earned daily, weekly, monthly, or annually. This is the total wage bill of a company.
A payroll strategy, on the other hand, is the direction and decisions management makes for achieving payroll goals.
What should your payroll strategy look like?
Any successful payroll strategy should be anchored on three pillars: people, technology, and expertise.
Payroll ensures employees are paid on time while complying with government regulations and laws. Every country has unique laws that affect compliance. Startups must understand who they want to hire when they want to hire, and where to hire when preparing a payroll strategy.
Using technology to automate payroll processes saves time and eliminates human errors made by those doing payroll manually. Startups looking to scale and expand operations into different countries need a digital workflow to avoid additional workload in the future and to allow their employees access to important information when they need it.
Expanding into new countries may bring a few challenges and risks for startups, especially in compliance. Before hiring, consideration must be given to whether the current payroll team or a new in-country expert should handle payroll. In most cases, having a payroll partner with experience with local laws and requirements is more resource-efficient.
The importance of a payroll strategy
While the primary goal of a payroll strategy is to ensure that employees are paid compliantly, and on time, it also uncovers the innovative potential of a business through the use of technology. A good payroll strategy saves time and creates a structure around business operations, transforming an organization's operations. An there is more;
- Cash Flow Management
With 61 per cent of small businesses experiencing daily cash flow issues, an effective payroll strategy is essential. An automated strategy, for example, eases the process of tracking business transactions such as expenses and records what's coming in and going out.
- Payroll Compliance
Implementing a strategy takes into account compliance in; updating employee info, proper allocation of employee benefits, audits, local and international payroll legislation. It helps keep track of all these issues, ensuring deadlines are met, and employees are compliant.
- Workload management
A well-structured payroll strategy ensures that HR's payroll tasks are defined and well-organized so they can be completed easily and efficiently, without errors or feeling overwhelmed.
- Easy classification of employees
One of the most common blunders made by businesses is incorrectly classifying employees. This can have several ramifications, including financial penalties. A good payroll strategy aids in understanding the distinctions between full-time, part-time, and contract employees, thereby avoiding such issues.
How to come up with an effective payroll strategy
- Create a payroll calendar
Creating a payroll calendar is one of the best ways to stay on top of payroll obligations. It helps track when payments are due and ensures the team does not miss any deadlines.
- Automate where possible.
A manual process where approvals, payments, and releases must be processed and signed by hand is difficult to manage without creating a bottleneck, especially in a startup. Automation of critical payroll processes saves not only time but also valuable company resources. Using payroll software like Workpay could ease tax calculations and eliminate human errors in manual payroll processing.
- Allow HR Staff to Attend Payroll Training
Allowing the HR staff to attend payroll training will ensure that they understand the process and can assist in resolving any issues that may arise. It improves collaboration by teaching the team how to collaborate and develop innovative departmental solutions.
- Stay Updated on Tax Procedures
It's essential to stay up-to-date with state tax procedures and compliance laws in the countries of operations. Attending training courses or webinars on tax procedures is one way to ensure that you have the most up-to-date information on tax laws and regulations as a startup.
- Pay your employees on time, every time
Paying employees on time every time is easily achievable with an excellent payroll strategy in place. The employees will be satisfied with their job and remain productive throughout. This is especially important for startups as they are growing and require all the support they can garner.
- Review your payroll strategy regularly
Companies should review their payroll strategy regularly. This ensures it still fits its purpose and follows all applicable laws and regulations. If the business changes, reviewing the payroll strategy is sound, especially if the business is expanding or hiring more employees.
- Seek professional advice
Seek professional advice if you are unsure about any aspect of the payroll strategy you are creating for your startup. Local payroll experts with experience in local laws and compliance are a great resource to engage.
It is essential to understand that most existing payroll systems work only in specific countries, and there may be no payroll platform that can be deployed in any country without customization. However, organizations like Workpay help simplify and streamline the HR and Payroll processes for organizations worldwide by customizing and integrating the various local payroll operations across Africa.
Would you like to learn how we can assist you in developing a payroll strategy that will set you apart from your competitors? Talk to us here.