The Most Common HR and Payroll Mistakes Made by Startups

18 May 2015

The very beginning of a business is often its most challenging time. Starting from nothing, a business has to rapidly build to manage a wide array of tasks, some of which will naturally lie outside the business's area of expertise.

HR and Payroll can often pose one of the greater challenges for a startup. A young business is unlikely to hire specialists in these areas right away. It has to quickly adapt to these areas and learn to handle them as effectively as possible.
It is quite easy for startups to make mistakes in these areas that cause more problems down the line. These are just some of the more common mistakes startups make in HR and Payroll.

Treating Employees as Freelancers

When a business starts out they often rely on a number of freelance contractors for some if not all jobs. It is an efficient way to do business particularly while you are building up a client list and work is inconsistent.
Further down the line when the business has grown and you have developed a good working relationship with your contractors you might decide to take them on full time or simply enter into an indefinite contract. It is critical to understand the point at which they go from being a private contractor to an employee. Once they are an employee the business becomes responsible for a range of tasks including calculating and saving taxes and PRSI.

Mixing Personal and Business Finance

Many startups begin from nothing more than an entrepreneur’s own savings or even income from a day job. This means that personal money is often a substantial part of a Startup’s financing and it can be easy for the lines between personal and business finance to blur.
It is critical however to ensure that this does not happen. From day one a separate business account needs to be in place for the business. If personal finances are being used for business expenses they should go through the business account first.
It will only get more difficult to disentangle personal from business finances as a business grows. Apart from issues with tax or auditing, personal finances can be made vulnerable in issues such as negotiating debt write downs.


One of the strengths a startup has in being small is that it is flexible and able to adapt to change quickly. That advantage is lost however when poor planning and organization get in the way. It is critical to have effective systems in place to keep track of employee data.
Part of effective organisation involves clarity in communication. The systems in place have to be clear to everyone involved and have to be able to keep everyone informed of changes made.

Poor Hiring Decisions

Startup owners may sometimes feel their options are limited when it comes to hiring. As a small company they don’t feel they can offer a potential employee as much, the company has no proven track record and long term security is not as great as with an established company.
As a result many owners may not be as discerning in their hiring as they should or would like to be. However for a small startup it is critical to get the right staff. With so few people working in a company a clash of personalities can be highly disruptive. There is also much less space to absorb an ineffective employee or one whose skill set do not meet the job’s requirements.

Startups have a lot to offer the right employee. They are dynamic workplaces and give employees the opportunity to be part of something from the start. The right employee should be enthusiastic about working to build the company with you.