Founders How-To: 5 Key Steps for Launching Employee Payroll

Founded in 2016, PayFit has developed its own programming language to standardize and digitize payroll and HR processes for startups and SMEs. The French startup has since raised three funding rounds with a total of €90m and now serves over 4,000 SMEs across Europe.

Check out their Head of Product, Stephan Weber’s 5 Key Steps for Launching Employee Payroll.

Step 1: Keep Your Startup Strictly ON The Books

Wir leben in Deutschland, mein Liebling, and the rules are no joke! Lots of international founders skip the necessary steps to set up shop in Germany and suffer later on. Make sure your business is made ‘official’ by registering your business at the local Commercial Office (Gewerbeamt), getting a Tax ID (Steuernummer), VAT ID (Umsatzsteuer-Identifikationsnr.), Company ID (Betriebsnummer) from the employment agency (Agentur für Arbeit) and at the Accident Insurance Institution (Berufs-genossenschaft).

Step 2: Think About Employee Costs, Job Skills, Length of Employment Before You Hire

Before hiring, you should think about what type of employee you want to hire. Consider the employee costs, job skills, length of employment. This will have an impact on salary, taxes and employee payroll.

⚠️ Make sure you understand the underlying costs before you make your offer. Yes, you might know that employee net salary is 60% of the employee gross salary; but did you know that there is even more on top of that amount which the employer is responsible for? You’ll need to budget 20-30% above of your employee’s gross salary to really be able to foot the bill for their employment.

Step 3: Get the Right Documents And Data During Onboarding

For every employee, you will need his or her personal data, health insurance, tax ID, social ID and capital/ pension scheme information. In certain cases, you will also need proof of parenthood, proof of disability, a student ID and/ or a vacation certificate of the former employer. Don’t forget to round up all those important docs on Day 1.

Step 4: Stick to the Schedule to Run Employee Payroll

Once your document database is up to date, run your first payroll with the help of a payroll tool or accountant. ‘Mark your calendar’ and make sure you send the statement of contributions (Beitragsnachweise) on the 5th last banking day, the payment of contributions on the 3rd last banking day, and the payment of Lohnsteuer (wage tax) the 10th of the next month.

Step: 5 Find The Right Payroll Method for You

Will you outsource payroll or DIY? Choose between a tax advisor, payroll expert software or an integrated payroll software to find the option best suited for you.

There are pros and cons to each, but a simple rule of thumb to choose between options is do you want more control or less control of your payroll? If you want to keep a close watch, consider taking payroll into your own hands with a software option.