As a startup with only one full-time employee (me), do I still need to run payroll?

The method by which owners of startup businesses pay themselves generally depends on how the company is structured. Sole proprietorships and limited liability corporations (LLCs) may pay owners by drawing directly from business equity. Owners of S corporations, on the other hand, must pay themselves a reasonable salary, which means they may have to process payroll.

Are startups required to pay payroll taxes?

Startup business owners who have employees must pay the employer portion of Medicare tax and Social Security tax and deduct an equal portion of the taxes from their employees’ pay. If the startup is a sole proprietorship or single-member LLC, the owner pays self-employment tax. This tax is equal to the combined total that an employer and an employee contribute to Medicare and Social Security taxes.

How much does it cost for me to run payroll for my startup company?

Payroll pricing structures vary by provider. In most cases, the cost depends on how frequently payroll is processed, how many people are being paid, how often payees are added or removed, and which features or services are needed.

What if I have a combination of employees and independent contractors I need to pay?

Employers must deduct all required employment taxes, including income taxes and Medicare and Social Security taxes, from their employees’ pay. They must also pay their own share of applicable employment taxes. They do not do the same for independent contractors because these workers pay self-employment taxes. However, employers must report how much they paid independent contractors during the year by filing Form 1099-NEC, Nonemployee Compensation.

Payroll Software and Services for Startups

For any startup, setting up payroll may be a complex and demanding task, but also one that plays a significant role in the success of a business in its initial stages. This burden can be significantly eased by using payroll software or outsourcing to a payroll service provider. This would allow startup entrepreneurs to focus on their passion while being secure in the knowledge that their payroll obligations are being managed efficiently.

Table of Contents

How to set up payroll for startups
Why should employers use startup payroll services?
How to choose the best payroll services for startups
How often do startups need to process payroll?
What resources or tools exist for managing payroll in a startup?
Frequently asked questions

How can startups set up payroll?

Here are some ways a startup can set up payroll:

• Build an internal payroll team:

Considering the intricate nature of managing employee remuneration, one approach that startups might contemplate is establishing an internal payroll team. This strategy has pros and cons to consider. Pros include bolstered data security and enhanced confidentiality, as it could be easier to ensure that sensitive employee information remains within the company. This can be important for maintaining trust and compliance. The downside is the significant initial investment required to establish an in-house team. This involves hiring costs and other expenses related to payroll software and training.

• Outsource payroll:

Outsourcing payroll allows businesses to delegate the intricate and time-intensive aspects of payroll management, freeing up internal resources for other tasks. However, for some companies, the perceived benefits of outsourcing payroll need to be carefully weighed against the unique needs of their business and the desire to maintain direct oversight.

• Invest in payroll software:

Implementing payroll software makes the payroll process a seamless one, potentially saving both time and financial resources. These systems are designed to automate many of the repetitive tasks associated with handling payroll. A common limitation is their focus on single-location businesses, often lacking the ability to integrate with human resources tools, which might restrict their efficiency for growing or multi-site operations. However, ADP’s payroll solutions offer seamless integration and caters to even those employees who are across the border.

Why should employers use startup payroll services?

Navigating the complexities of payroll management is a daunting task for many startups. This is why numerous emerging businesses opt for specialized, external support. Engaging with professionals in this arena can offer several significant benefits:

Access to remote payroll processing:
The advent of online payroll services and mobile applications has revolutionized the payroll process, making it possible to execute payroll operations from any location, at any time. This flexibility ensures that employee payments are timely and hassle-free, regardless of where the employer happens to be.
Compliance with tax filing:
Optimal payroll solutions for startups can help with tax calculations and deductions, as well as take over the responsibility of accurate tax filing. This alleviates the burden on employers, reducing the risk of penalties related to non-compliance or late filings, and allows for better forward planning in managing regulatory challenges.
Integration of advanced technology:
Leveraging cutting-edge technology, several payroll systems now incorporate intelligent features that proactively identify and alert users to potential errors. This level of proactive malfunction identification is crucial for startups, where financial accuracy is instrumental in maintaining operational integrity and avoiding expensive blunders.
Around-the-clock expert support:
Recognizing the importance of readily available assistance, some payroll service providers offer continuous support from certified payroll professionals. This ensures that employers receive timely help for any payroll-related queries or issues, facilitating smoother payroll management.
Enhancement of Employee Experience with Digital Offerings:
The modern workforce appreciates the availability of flexible payment options and digital self-service portals. These tools empower employees by giving them control over their personal information and payroll details. Additionally, providing such benefits can enhance employee satisfaction and loyalty by meeting their expectations for convenience and innovation in the workplace.

How to choose the best payroll services for startups

Ensuring timely and accurate payment to employees is mandatory. Errors in this process can demoralize the workforce and might also result in fines for the company. This underscores the importance of securing a top-notch payroll system. When scouting for potential providers, companies should consider:

A provider who presents the proper solutions and guidance to efficiently manage an expanding team.
A provider capable of navigating the complexities of evolving regulations and trends to ensure compliance.
Round-the-clock customer service, advanced digital tools, and additional benefits such as options for flexible payment and a user-friendly mobile application.

How often do startups need to process payroll?

The frequency at which payroll occurs can vary based on numerous elements, such as the labour regulations in a certain province or country and the policies of the organization. When selecting a payroll frequency, it's important to consider the legal mandates specific to the region the business is in and what frequency aligns best with business operations. Factors like the preferences of your employees, the efficiency of the payroll processing system, and the company's cash flow should also be considered.

The common pay cycles are:

Weekly
Bi-weekly (every two weeks)
Semi-monthly (twice a month)
Monthly

What resources or tools exist for managing payroll in a startup?

There are several tools and resources available that assist startups in simplifying their payroll processes while ensuring compliance. These tools are incredibly beneficial for companies that employ a diverse workforce, including contractors, full-time employees, and various other contractual arrangements.

The essential software list for startups includes:

Payroll software designed to automate the calculation of payroll, tax withholdings, and more.
A Human Resources Information System (HRIS) that helps in streamlining HR activities, encompassing payroll, employee documentation, and benefits management.
Systems for tracking time and attendance to monitor work hours, overtime, and leaves.
Accounting software with built-in payroll capabilities.
Web-based payroll calculators.
Compliance resources and manuals
Online platforms and discussion boards where startup owners and payroll experts can exchange advice and support.

ADP’s integrated software consolidates these resources into a single platform, amalgamating valuable features for managing payroll in startups. This makes payroll administration a breeze.

Frequently asked questions

What are the benefits of using payroll for startups?

Some of the benefits of using a payroll solution include:

Calculation of taxes and net pay
Timely and accurate payment to employees
Tax filing

How much does it cost to run payroll for a startup?

The cost of running payroll for a startup varies depending on the provider, with factors like frequency of payroll, number of people being paid, the turnover rate of employees, and the required services or features playing a role in determining the price.

Can I offer direct deposit as payment to employees?

Direct deposit is a convenient way for businesses to electronically pay wages directly into employees' bank accounts. To implement this, businesses must first secure written consent from their employees and take steps to protect their banking information securely. It's beneficial to use a payroll system that adheres to legal standards. Despite the convenience of direct deposit, it is still important to issue pay stubs or statements to document employee payments.

Learn More

Are you a startup business owner in need of payroll solutions? You can benefit from ADP’s payroll solutions that are flexible, easy to use, and affordable.

Talk to us about your payroll issues, and we’ll walk you through our solutions — including how businesses like yours use them. Call 866-622-8153 or Start Quote.

This guide is intended to be used as a starting point in analyzing payroll for startups and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

Payroll for startups