How To Pay Employees in a Startup

The Milestone Team March 11, 2024
how to pay employees in a startup

Business owners wear many hats, but you can only stack so many roles before quality suffers. One area of your business you definitely don’t want to let slide is paying your employees. However, finding ways to pay your employees before you have consistent cash flow can be a challenge. So can setting up a consistent payroll system. That’s where outsourced HR for startups comes in handy. In this blog, we show you how.

Where Do Companies Get Money To Pay Employees?

Established companies use revenue from sales and completed services to pay employees and meet other financial commitments. But when your startup is in its early stages, you’ll go through a period of time when you need employees to function, but you don’t have reliable revenue coming in yet. 

You still need to compensate your employees for their time during this period, or they’ll quickly jump ship (and you may bump up against labor laws). Here are some ways to get your brilliant business idea off the ground:

Bank Loans 

Banks make their money by loaning out money and collecting interest. If you have good credit, working with a traditional bank can be an effective way of raising capital to hire and pay employees. For first-time business owners, however, these loans can be more difficult to qualify for. In these cases, you can explore loan options that are backed by the U.S. Small Business Association.

Online Lenders

An alternative to traditional banks, online lenders (like Backd) offer flexible financing options in the form of business lines of credit. Lines of credit work differently from loans. With this type of financing, you have access to a set amount of money, but you only pay interest on what you actually borrow. This option can be useful for businesses who want to be as agile with their finances as possible.


Venture capital firms operate by investing in high-growth startups and profiting off the increase in equity. To secure capital from these investors, you’ll need a daring idea, a rock-solid business plan, and an inspiring pitch. Think Shark Tank without all the cameras around. You can also enter your startup in pitch events, like those hosted by Elevate Ventures, in which you compete for funding.

Personal Savings 

During the beginning stages of forming your business, you’ll likely need to dip into your personal savings. Tasks like filing business formation documents and commissioning a logo come with costs that you’ll have to pay upfront. However, most people don’t have enough cash in their personal bank account to sustain a business and pay their employees for weeks and months at a time. For long-term success, consider the above financing options to cover larger expenses.  

Compensation and benefits for startup companies can make or break your ability to attract and retain top talent. At Milestone, we understand how challenging it can be to provide value to your team members while still getting your business off the ground. That’s why our experts are trained in optimizing your resources to reach the best-case scenario for all stakeholders. Get in touch to learn more.

When Starting a Business How Do I Pay Employees?

From the launch of your business, it’s important to have a consistent method of paying your employees that’s compliant with local, state, and federal requirements. Here are the steps to go through:

  1. Thoroughly understand labor laws.
  2. Set a payroll schedule.
  3. Gather employee paperwork, including tax forms.
  4. Determine pre-tax pay.
  5. Withhold taxes.
  6. Calculate net pay.
  7. Distribute paychecks on time.
  8. File taxes.
  9. Pay into employee benefits, like health coverage.
  10. Maintain accurate and consistent payroll records.

With payroll, there’s a lot to get right. If you’re not an accounting expert, don’t worry. Milestone has experts ready to help you establish and maintain a seamless payroll system.

How Does a Company Pay Workers If It Is Still Not Earning Revenue at the Start-Up of a Business?

When resources are tight, companies can still find ways to compensate their employees for their hard work. We covered financing options earlier in this blog that include bank loans, business lines of credit, and investors. But startups also have the option to offer equity to employees. By sharing equity with employees, you’re spreading out the risk—and long-term rewards—of starting a new business with more people. Equity can be an enticing piece of overall compensation that frees up other financial resources.

Ready to leverage all of your financial tools to launch or grow your business? Give us a call today!

What Is the Best Way To Pay Employees in a Small Business?

There is no “one-size-fits-all” startup compensation guide that you can copy and paste into your business model. Whether you operate on salary, hourly pay, or use equity to supplement compensation packages, how you pay your employees depends on your startup’s financial situation. However, it’s always important to be consistent and ensure your employees understand when, how, and how much you’ll pay them.

Ready to discover the best way for your business to pay employees? Get in touch with the experts at Milestone.

How To Pay Employees By Direct Deposit?

Follow these steps to pay employees by direct deposit:

  1. Select a direct deposit provider and set up your account.
  2. Gather banking information from employees, and record it in your system.
  3. Set a direct deposit schedule that you can stick to.
  4. Process payroll.

Direct deposit is a critical startup salary and equity compensation tool because employees expect this level of convenience when it comes to getting paid. At Milestone, we can help you modernize your payroll systems. Contact us to learn more.

Make Payroll a Breeze with Milestone’s Fractional HR Services!

Milestone’s payroll services make paying your employees a straightforward process. Whether you need help navigating compliance, weighing funding options, or organizing your payroll system, our experts are ready to dive right in. The best part? Our fractional HR services are available for a fraction of the cost of full-time employees. That’s good news for optimizing your resources while launching or growing your business. Reach out today to get started. 

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