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10 Common Payroll Myths Busted

While compliance may not be the most fascinating part of entrepreneurship, it has a massive impact on your business in the long run. We share why payroll processing doesn’t have to be a challenge and debunk 10 common myths in this area.

Payroll can be a daunting area, especially for startups and small business owners. There are several state/federal regulations, different rules for consultants and full-timers, as well as quarterly or annual taxation cycles to track. SMBs either end up outsourcing to a neighborhood vendor or decide to do the whole thing entirely in-house. However, neither approach is the way forward if you are looking to hire fast, grow your business, and stay compliant. Here’s a look at ten payroll myths you must have heard, finally debunked.


Payroll Myth #1: You Need Physical Timesheets to Compensate Employees

Paper timesheets are extremely outmoded and only a handful of legacy businesses still use them on a daily basis. Timesheets are error-prone, open to fraud, and hard to map. Digital time and attendance systems help streamline attendance processing, saving you valuable time. In addition to making record keeping easy, digital time and attendance systems also allow for easy integrations with payroll software and mitigate risk exposure.

Payroll Myth #2: There’s an Exact PTO Quota to Remember

In reality, paid time off or PTO is a flexible benefit. A number of tech companies like Netflix and Groupon are doing away with formalized PTO accruals, while others like Mondo even offer unlimited PTO! It’s advisable to have some sort of documentation in place, without making the process so cumbersome that employees are impacted.

Payroll Myth #3: Vendors Won’t Work with Small Businesses

While this was true a few decades ago, modern vendors and payroll software providers are ready with highly scalable solutions. These can take on any number of team members, from five people-strong company to a 1000+ employee base. You could look at Workful, a payroll & HR tool launched last year by TaxSlayer, focused specifically on the SMB segment.

Payroll Myth #4: When Using Independent Contractors, Payroll Doesn’t have to be Formalized

In today’s gig economy, small businesses are relying on the contractual workforce more and more, especially specifically for high-value or skill intensive projects. Independent contractors still need to be paid regularly and provided with a Form 1099, at every year-end, in addition to filing with the IRS. There are dedicated tools that can help, like Wisely Pay – a paycard for temp/freelance workers.

Payroll Myth #5: It’s Easier to Do Payroll In-house if you’re a Small Company

Regardless of your number of employees, the loops, hurdles, and bureaucratic procedures remain exactly the same. Assuming you have a 20-member workforce comprising interns, operational employees, strategists, and senior management, each segment will require individualized attention. In fact, as you scale up, the increase in time and effort will be marginal, as these component categories remain largely the same.

Payroll Myth #6: Hiring the Right Employees Will Simplify Concerns around Taxation

SMB-owners often believe that by selecting the right employee or hiring only from a known talent pool, they can cushion any fallout caused by non-compliant payroll. The truth, however, is very different – even loyal employees are likely to report payroll violations or even leave the company if the pay is regularly delayed.

Payroll Myth #7: Companies with Less than Ten Employees Follow a Different Set of Rules

The federal government mandates any business, regardless of industry or size, to follow a fixed set of payroll regulations. While the intricacies may vary from state to state, the larger picture is consistent – even with one regular employee companies are required to follow a specific set of guidelines.

Payroll Myth #8: Taxation Can Be Handled by an Internal Workforce

Even when companies outsource payroll processing, the taxation process is often done in-house in a bid to save costs. As an annual process, it’s easy to not think about taxes till the very last minute; however, this puts you at risk for non-compliance and heavy penalties. The payroll process can be linked to taxation, realigning incoming and outgoing expenses for a fast and seamless tax administration system.

“It’s nearly impossible to be aware of every legal and tax change that must be addressed in order to process payroll accurately. A dependable human capital management platform (HCM) should help you achieve that. An HCM platform automatically includes updates from federal, state, local, and regulatory agencies to alleviate any possibility for oversight,” comments Keegan Peterson, Founder & CEO at Wurk.

Payroll Myth #9: Seasonal Hires Can Be Paid Under the Table

New business owners often make the mistake of not documenting seasonal hiring and associated payroll processes. These could be non-formalized recruitments, using talent pool available within the family or your immediate set of friends. Without documentation, you actually lose out on a number of benefits that's rightfully yours as a business owner. You also risk not fulfilling the minimum wage limit, a significant pain point that could come back to haunt you in the future.

Payroll Myth #10: Outsourcing Payroll Will Inevitably Lead to Vendor Lock-in

In the very first year, any business owner will realize that it’s taking them anywhere between 6 to 12 working hours every month to complete payroll. But outsourcing means investing in a 3rd-party provider, and you’ll have to work with them for a specific period, no matter the quality of service.

Today, it’s possible to select simple, SaaS-based interfaces that allow you to outsource payroll with zero lock-in periods. Most of these solutions offer demos, free trials, or even a personalized pilot if you get your research right.

Final Thoughts

There you have it; as a small business owner you’ve probably heard these payroll myths time and time again – confusing and influencing your approach to an essential business process. Don’t ignore compliance regulations before it’s too late; with hundreds of payroll solutions out there, it takes very little time to do your homework and strengthen your business’ foundation, with an eye on future progress.

Discover all DBS Partner solutions for complete human resource outsourcing, including payroll in the Brazilian market at


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