Payroll For Startups: 18 Common Payroll Questions Answered

We’ve compiled a few of the most frequently asked questions about startup payroll and shared the answers. Let’s dive in!

How do I set up payroll for my startup?

Setting up payroll is one of the first steps when hiring and onboarding employees. There are several options to pursue, each with its own pros and cons. Consider the following four options as the most popular methods of setting up payroll.

Option one: Build an internal payroll team

• Pro: Increased data security and confidentiality
• Con: Expensive to set up

Option two: Outsource payroll to a third-party provider

• Pro: Offload the time-consuming and complex task of managing payroll
• Con: Disjointed processes, and you’ll need multiple providers when hiring across multiple locations

Option three: Use a payroll software

• Pro: Save time and money through a streamlined payroll process
• Con: Typically designed for single locations and doesn’t integrate with HR software

Option four: Use a global payroll provider like Deel

• Pro: Centralized platform for global hiring, payroll, and HR
• Con: Vendor selection can be challenging but made easy when reading online reviews

Learn more about simplifying payroll for startups by exploring the advantages of Deel.

What are the legal requirements for payroll in my jurisdiction?

Startups must follow specific legal obligations to remain compliant when completing payroll. Tasks include registering with relevant tax authorities, withholding and remitting payroll taxes, maintaining employee records, and providing payslips. Relevant employment laws and regulations must be considered throughout these processes. Review Deel’s Global Hiring Guide for country-specific answers.

With Deel’s global payroll platform, local compliance is built into the payroll process. Features include:

• Support from in-house payroll experts around the world
• Local tax filing with authorities
• Payslip creation and delivery

Stay current and learn more with our payroll compliance checklist and tax law guide for 2023.

How often should I process payroll for my startup?

The frequency of payroll depends on various factors, including local labor laws and your company policy. When choosing a pay period, consider the legal requirements of the local jurisdiction and which frequency works best for your business. Consider employee preferences, payroll processing efficiency, cash flow, etc. 

Standard payroll runs include:

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

Deel’s global payroll platform makes payroll processing easy and efficient by prompting you with the correct payment schedule according to local requirements and norms. 

While the standard pay schedules include bi-weekly, semi-monthly, and monthly payments, Deel also provides the convenience of on-demand payroll, allowing you to process payments outside of those pay cycles. This provides your team members with the option to receive their earnings when they need them instead of having to wait for payday. 

Through these off-cycle payments, you can add a last-minute bonus or expense and pay employees their full salary up to a month early, enabling them to cover an unexpected cost with less stress.

Learn more about payroll for startups: 11 tips for founders. 

What employee information do I need for payroll purposes?

To remain compliant, vital details are necessary to process payroll for global and local employees. In most instances, the following details are required:

• Basic employee information such as full name, address, Social Security number, or national identification number
• Tax withholding information
• Bank account details for direct deposit
• Other relevant employment details

Deel ensures you have all the necessary information by prompting you to collect and securely store information and documentation for new hires. The new employee can complete most of this information through Deel’s self-service dashboard.

How do I calculate and withhold payroll taxes?

Determine federal tax rates, as well as local and state taxes, based on your employee’s income and location. Calculate the necessary deductions, such as Medicare and income tax withholdings, to subtract from the employee’s gross income. 

Ensure you have the necessary tax forms to remain compliant and avoid penalties. Accuracy and timeliness are essential, and Deel’s platform helps streamline these calculations by assisting with necessary compliance documents and tax filing with local authorities. 

Learn more about payroll tax, including definitions, examples, and costs.

How do I handle payroll for contractors or freelancers?

Hiring contractors and freelancers can benefit a small business or startup financially, but managing payroll requires a different approach. 

• Ensure clear contractor agreements to distinguish them from employees
• Track the hours or project scope for accurate payment 
• Establish a reliable system for invoicing and processing payment
• Deduct any applicable taxes
• Maintain proper records for tax reporting purposes

Deel is a specialized contractor payroll software to help you stay organized and compliant, ensuring smooth and efficient payroll management for employees and contractors through a single platform. 

Discover nine of the best ways to pay independent contractors online.

How do I ensure payroll confidentiality and data security?

Confidentiality and data security are key considerations when managing global payroll and protecting employee data and business finances. 

The following steps optimize security: 

• Limit access to payroll data to authorized personnel 
• Educate employees about the importance of data security and confidentiality
• Safely store payroll data in secure systems and databases
• Stay updated with relevant data protection and privacy regulations
• Keep payroll software and operating systems updated
• Establish policies and procedures for data retention and disposal

When conducting vendor due diligence, you can trust that Deel takes data security seriously. We use high-level security protocols, such as SSL encryption, two-factor authentication, ISO 27001 certification, and SOC 2 and GDPR compliance. We also have a dedicated security team that monitors our systems 24/7 to ensure no vulnerabilities or risks.

Learn more about Deel’s dedicated security and data protection.

What is the process for issuing pay stubs or employee statements?

The specific process for issuing pay stubs or employee statements may differ depending on the software and various factors, but the following steps are typically included:

• Gather payroll data for the pay period
• Calculate earnings and deductions
• Prepare the pay stub based on the gathered information
• Include legally-required information
• Determine the preferred delivery method and ensure confidentiality during the distribution
• Maintain payroll records for future references, audits, or potential disputes

While the process is normally manual and time-consuming, Deel allows you to automate payslip distribution and digital invoices for every contractor payment, saving time and money.

Learn more about how to pay employees faster and better without fees.

How do I handle overtime pay and employee benefits in payroll?

Managing overtime pay and employee benefits are included in the payroll process. Once you understand overtime pay regulations and employee benefits requirements in your jurisdiction, then you can apply the following steps accordingly:

• Track overtime hours
• Calculate overtime pay (typically based on a higher hourly rate)
• Include overtime pay on pay stubs
• Administer employee benefits and deduct employee contributions
• Ensure compliance is maintained throughout each step

With Deel, making payment adjustments to the global payroll is easy as you factor in overtime pay and recurring benefits, ensuring that employees are paid accurately, and the global payroll report reflects the correct data. 

Learn more about Deel’s contribution to introducing faster, more flexible payroll.

What should I consider when determining employee compensation?

While there are market standards for fair and equitable compensation, it’s important to consider the different types of compensation, employee benefits, and compensation strategies to attract (and retain) top talent.

When preparing a compensation plan, consider the following details:

• Company budget
• Remaining competitive within the industry
• Compensation that aligns with business needs and goals
• Compliance with local laws

Deel assists the process by providing access to valuable salary insights for contractors and employees.

Want more information? Check out the remote team’s guide to employee compensation strategies.

How do I handle payroll for remote or international employees?

Hiring and paying international employees or remote workers introduces specific challenges to consider. First, determine whether you hire talent as independent contractors or EOR employees. 

Next, consider tax compliance laws, payroll regulations, international payment restrictions, and exchange rates. It’s possible to partner with a local company to administer payroll or use a global payroll provider, like Deel, to streamline cross-border payments and reduce non-compliance risk. 

Deel enables startups to run payroll around the world from a single platform, reducing the burden of time-consuming admin. 

Learn more: How to Pay International Employees: Payroll in Foreign Countries

What payroll reports and documents do I need to maintain?

Proper payroll reports and documents are important for record-keeping, ensuring compliance, and future references. Some of the key documentation to maintain includes the following:

• Employee payroll records
• Payroll register that summarizes payroll information
• Payroll tax reports
• Time and attendance records
• Year-end payroll reports
• Payment records
• Benefits records
• Employment tax records
• Any modification to the documentation

As you can imagine, managing all of this documentation demands accuracy, precision, and attention to detail. Deel stores all of this information in an accessible system, with the option to view and download Deel HR payroll reports when needed.

What is the process for terminating employees and handling final paychecks?

Terminating employees can be a difficult experience, made even more uncomfortable with the discussion of finances. Following a specific process helps to handle final paychecks without stress or drama.

• Review employment contract or policies, notify the employee, and provide a termination letter for records
• Calculate the final paycheck, including any accrued wages, unpaid salary, unused paid time off (PTO), while accounting for deductions or withholdings
• Consider severance pay if applicable
• Pay the final wages promptly and in accordance with local labor laws
• Provide a pay stub or statement and document the final settlement
• Consider COBRA benefits if applicable

Whether you’re initiating termination or dealing with resignation for an EOR employee, Deel provides an easy way to handle final payments through the onboarding section of the platform. With Deel, the offboarding process remains compliant, streamlined, and drama free.

Find out more about how to legally terminate an employee with grace.

How do I handle payroll deductions and garnishments?

In most instances, it is the employer’s responsibility to withhold payroll taxes from an employee’s paycheck, distributing the funds to the relevant authorities monthly or biweekly. 

To remain compliant during this process, there are a few key considerations:

• Understand applicable laws and regulations governing payroll deductions and garnishments in your jurisdiction
• Ensure you have written authorization from the employee for any voluntary reductions, such as retirement contributions
• Identify mandatory deductions required by law (and calculate these deductions based on the employee’s income and applicable tax rates)
• Review garnishment orders, such as court-ordered judgments, and understand the requirements
• Calculate garnishment requirements based on the instructions received
• Maintain communication lines with the employee
• Maintain records of payroll deductions and garnishments for future reference

It’s important to ensure that these steps are followed carefully and accurately. Deel reduces human error and saves time by offering a payroll deduction and garnishment feature that runs on autopilot. 

Can I offer direct deposit for employee payments?

Direct deposit is a common and convenient method of distributing employee wages to employees, allowing businesses to transfer payments into a designated bank account electronically. 

When offering employees this payment method, you need to obtain written authorization from employees and ensure the security and confidentiality of their banking details. It helps to integrate with a payroll system, especially one that considers laws and regulations. 

Even with direct deposit, it's still important to provide pay stubs or statements to keep a record of employee payments. 

As a robust software, Deel offers a variety of payment options, including direct deposit, pay cards, and even cryptocurrency, ensuring compliance throughout the payroll process. 

How do I handle payroll for equity compensation or stock options?

Startups often use equity compensation and stock options to attract talented employees, and it’s important to handle and report these options accurately for tax obligations. 

To begin, it’s essential to understand your equity compensation plan or stock option program and ensure it aligns with fair market value (FMV). Next, calculate the taxable income, withhold applicable taxes, and report taxable income. 

Startup founders and entrepreneurs must ensure that employees are given statements or documentation that detail the equity compensation or stock option activity, ensuring employees understand the tax implications for their personal tax return and reporting. 

Deel helps startups grant global team equity, assisting with the additional requirements the local tax authorities need. 

For example:

• Reporting the grant to local authorities
• Receiving advance approval from local tax authorities, including the valuation of granted equity
• Submitting the equity for approval prior to the grant where necessary

Learn more about how Deel simplifies granting equity to your global team.

How do I handle payroll during mergers, acquisitions, or restructuring?

Mergers, acquisitions, and restructuring introduce a time of change for businesses and employees, but payroll needs to stay consistent. Careful planning, coordination, and communication are essential for handling payroll during these transition seasons. 

Most providers take over six months to set up; even minor changes can introduce a lengthy back-and-forth process. Not only does this cause frustration, but it also delays M&A implementation, further prolonging the transitional services agreement (TSA). 

Some practical tips to keep in mind include:Review legal and contractual obligations

• Align payroll systems quickly (including compensation and benefits)
• Address employee classification 
• Ensure compliance with legal requirements
• Transfer employee data and train payroll staff

Deel’s global payroll allows businesses to set up the entire team’s payroll in less than half the average time. The time-saving system allows changes easily in-platform, with direct 24/7 customer support from Deel’s expert team.

Companies can continue running global payroll around the world, with the option to review all salaries in a centralized platform and make payments to the entire team with a single invoice. 

M&I integration introduces a unique set of challenges. Discover these obstacles (and solutions) with these ten challenges of cross-border M&A integration.

What resources or tools are available for startup payroll management?

Various tools and resources exist to help startups streamline payroll while remaining compliant. These tools are especially useful when managing a global team of contractors, full-time employees, and other contract arraignments. 

Consider the following software on the must-have list for growing startups:

• Payroll software to automate payroll calculations, tax withholdings, and more
• Human Resources Information System (HRIS) to streamline HR functions, including payroll, employee records, and benefits administration
• Time and attendance systems to track hours, overtime, and leave
• Accounting software that includes payroll functionality
• Online payroll calculators
• Compliance resources and guides, such as the IRS website
• Online communities and forums for startup founders and payroll professionals to share knowledge and offer support

Rather than manage various aspects of the payroll using a number of tools, Deel integrations bring all of these resources under one roof. Payroll management becomes effortless when using Deel’s centralized platform, which integrates with valuable features for startup payroll.

Get Deel on your side

At Deel, we offer everything you need to manage and scale a global team. Our centralized payroll solution streamlines hiring, payroll, and compliance in just one system, giving you more time to focus on growing your business.

Join the 35,000 businesses who have chosen to save time, money, and resources with Deel, and request a demo to get started today.