Find The Best Payroll Systems in 2020

How to choose the best Payroll System for your startup

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The moment when you begin hiring employees is a key point in any startup's life. For founders, picking a payroll system presents an important decision that will matter a lot over time.

Kruze Consulting has helped hundreds of early stage startups set up their first payroll, so we've developed a keen sense of what matters most to founders as they take this step. While there are many factors to consider, above all you need a payroll system that:

  1. Supports your team (since few things tick employees off like getting paid late, or not at all);
  2. Allows for growth as your business needs it; and
  3. Ensures that your company stays compliant with all tax laws (since few things tick the IRS off like not receiving payroll taxes when they're due).

Choosing the right payroll system from the start will ensure that all three of these needs get met, and will save you a world of time and hassle as your company grows. Here's a rundown of our recommended options and the process for setting up payroll for your startup.

COMPARING THE OPTIONS: GUSTO, RIPPLING & JUSTWORKS

Right now, the top three best payroll systems we recommend most for our clients are Gusto, Rippling and Justworks. We like the automated nature of these providers, their low-cost and online UX that makes on-boarding, managing and accounting for payroll easy. Here's a high-level rundown of each:

  Gusto Rippling Justworks
Basic Description The OG cloud payroll and benefits for startups Cloud payroll and benefits plus employee IT management Payroll, benefits and HR admin
Pricing - Starting at $45.00 per month $35.00 per month $29 per month for 100 employees or more;
Pricing - How it scales $6.00 per employee per month $8.00 per employee per month $79 per employee for 2 employee minimum
Online Interface A+ A A+
Integrated Benefits Guideline 401(k)
Health benefits
Workers comp
529
HSA
FSA
Commuter benefits
401(k)
Health benefits
Workers comp
Life & disability
HSA
FSA
Commuter benefits
HR Support
24/7 User Support
401K
Health/Dental Benefits
Workers Comp
HSA
FSA
Commuter Benefits
Funding Raised $516.1M $52M $143M
Visit Gusto.com Rippling.com Justworks.com

HOW TO EVALUATE THE OPTIONS

Here's a breakdown of what we've seen matter most for our clients:

Time Saving

Choosing an option that requires little to no manual, non-strategic work each pay period/month/year is crucial.

Highly Automated

The best payroll systems run on autopilot, minimizing your time spent on data-entry and manual logins.

Intuitive Online Interface

Few founders want to waste time navigating poorly designed softwares/websites. The provider you pick should be simple, intuitive and easy to use, period.

Reliable

Speaks for itself. These three systems have built solid reputations and can be trusted with your company's payroll data and systems.

Strong Customer Support

When you have questions or need help, or when your employees do (usually around payroll time or tax time), that's when solid customer service is worth it, saving everyone time and energy.

Handles Payroll Taxes and Other Compliance

One of the biggest pitfalls for founders to avoid is messing up payroll taxes. A provider that automates these taxes for you is a must.

Easy Company Onboarding

The process of onboarding your company into the system -- filling out all the company info, getting bank accounts connected, registration in necessary states -- should be smooth and simple to save founders/managers time and energy.

Easy Employee Onboarding

Once your startup starts growing, it can happen fast. Some of our clients add 10 to 30 employees each month. Adding new hires to the system and getting them onboarded needs to be easy or else you'll wind up needing to hire someone just to handle data-entry and payroll system onboarding! Offer letters, background checks, benefits enrollment, direct deposit and more are features that a payroll system can offer.

Good Benefit Options/Integration

Good benefits packages are part of what allows startups to attract, hire and retain top talent. Once you are past the earliest stages, employees expect full benefits, and federal and state laws both govern what types of liability employers take on, so it's crucial to get benefits right on both ends. Plus, you want heavy automation and integration so you aren't stuck with data-entry every time an employee wants to make a change in their 401(k) deferral. Even if you aren't going to offer benefits at first, choose a platform that makes it simple to add benefits because moving payroll is disruptive to you and your team.

Simple Accounting

As CPAs to many funded early-stage companies, we care deeply about getting the books right. These three options all API into your accounting software, meaning you won't have to pay thousands of dollars to get your bookkeeping done or spend a day every month dealing with books and payroll.

How to pick the best payroll for your startup

Picking the best payroll system for your startup is harder than it sounds. There are tons of legacy, so-so systems out there that have well-known brands, big sales teams - and a poor product. Unless you want to spend tons of time every month doing manual, repetitive tasks, you need an automated solution that integrates with all of your existing systems. Let’s dig in on how to choose the best one for your needs.

Choose an intuitive interface

So the first thing is a simple, intuitive interface. You will need to know actually how to work this thing and probably some of your team members need to know how to work it. Don’t pick something super complicated! The online interface needs to be well designed, and the online help content needs to be robust. Of course you want a solution with good online support - but you don’t actually want to have to call them all that often.

Insist on autopilot

The next thing is you need to be able to run payroll on autopilot. There is nothing worse for employee morale than when payroll is missed. You don’t want your team asking questions like, "Does the company have enough money?" "Why didn't I get paid last Friday?" So you want autopilot. You need autopilot. It also saves you a lot of time and money with your accountants. There's no real reason to be paying your bookkeepers to run payroll. You should be using a system that runs it automatically.

Get solid tax execution

Next, you need the system to handle tax information, specifically like state payroll tax information, really nicely. Many companies now have remote workers, which means employees in many other states. This dramatically complicates your employment taxes, so getting information into the payroll system is super important. So it’s important that the system can handle that information and also make the employment tax payments to those states correctly 100% of the time.

Require a customer service phone number

We already mentioned it, but great customer service matters. This really starts to become important when your startup is getting acquired by a big public company, because during diligence you may need a bunch of state tax filings - you don’t want paperwork issues like this to delay your exit. Or you just need something that comes up and if you can't get on the phone with your provider, then you could be spinning your wheels and actually delay a fundraising, as VC due diligence is getting much more sophisticated.

Ask your accountant for advice

If you are using outsourced accounting or bookkeeping, like we provide, you will want a good payroll system that provides premium support to your accounting partner. You do not want your accountant sitting there on hold charging for that time. So choose a system that plays well with accounting companies, as yours is likely to have to do some of this work and fix issues for you.

Choose R&D tax automation

As we mentioned before, the best payroll providers make it easy for you to claim the R&D tax credits. Last year, Kruze saved our clients four and a half million dollars in payroll taxes by doing these credits. But only good payroll systems can automatically intake these R&D tax credit forms, and automatically send the right information out to the IRS. And the best ones can get you a real-time credit, so you get the savings quickly. The providers that can't get their act together means our startups don't get their refund for a really long time. That's money that could be in your bank account and could be paying for another engineer or sales person.

Get strong HR reporting

And finally, you want really strong HR reporting. You need to know who's in your organization. You need to be able to see PTO balances, sick leave balances. You need to be able to see who reports to who. You need to be able to sort teammates based on their titles. All that kind of reporting becomes really important as you grow. If your payroll provider invests money in their HR reporting and dashboarding, it can make your life so much easier, make your accountant's life so much easier and save everybody money.

Opt for good accounting integrations

The final thing that you should be looking for is a really nice integration into QuickBooks or the other major accounting packages. When those payroll journal entries come in automatically, it actually saves your bookkeeper a lot of time. And your tax accountant will love it when they're broken out by employee. That makes doing the R&D tax credit a lot easier. So make sure they have a good, clean integration with QuickBooks.

That’s how you find the best payroll provider for your early-stage company.

What are the most popular payroll providers for startups?

The most popular payroll provider for funded startups is Gusto, followed by Rippling. Gusto has well over half of the market share. Analyzing almost 200 funded startups payroll providers, the top 5 most popular are:

  1. Gusto
  2. Rippling
  3. Justworks
  4. Trinet
  5. ADP

Top Startup Payroll Providers

 

Choosing the Payroll System That's right for you

Ultimately, only you as a founder are in a position to know what's most important in choosing your payroll system. Here's our breakdown of the top benefits and differences between Gusto, Rippling and Justworks.

GUSTO

PROS: Gusto (formerly ZenPayroll) is fairly priced, has a good mobile interface, and offers excellent integration with accounting platforms like Quickbooks, expense reimbursement platforms and time-tracking software. Its Autopilot feature makes sure your employees are always paid...and happy, and the platform allows you to set up a customized pay schedule, and change it at any time. As far as compliance, this provider handles federal and state payroll taxes seamlessly and automatically. And there's an excellent support team if you encounter problems. We happen to think that we are the best Gusto accountant - talk to us to find out why!

CONS: The platform offers fewer compliance features than a PEO (Professional Employer Organization) such as Justworks. Unlike Rippling, Gusto lacks easy IT systems management feature. Also there are no integrated background checks, and the company is not registered for benefits in all states, meaning that you have to register your startup in each state in which you have employees - though Gusto does guide you through the process.

Tips for Setting Up Gusto

After working with Gusto for years as a Gold Partner, here are our tips on how to set up Gusto to get the most out of their innovative payroll system:

RIPPLING

PROS: Rippling has an intuitive interface and dashboard that's very user-friendly, and it offers turnkey IT systems management so that when you hire a new employee, it's easy to get them into the system and provide them with a computer and cloud software. Rippling's sync into QBO is the best of the three companies listed (and makes Kruze accounting so much easier!). Also this platform is great at migrating you over from another payroll and benefits firm and works with a third-party benefits broker, which means you have a professional independent broker working to get you the best deal on your benefits.

CONS: Given that they're a younger company and still investing in support, Rippling's customer support is less quick and easy than Gusto's and there are a few bugs in the software that they're still working out. Rippling also has fewer integration options than Gusto, though it does work with the big accounting systems like Expensify and Quickbooks. Plus Rippling is not a PEO, meaning that like Gusto, you're on your own as far as registering in all the relevant states.

JUSTWORKS

PROS: Justworks is a PEO, not just a payroll service, meaning that it will file your payroll taxes under the “JustWorks” name and EIN and you'll be saved the legwork of registering in each state where you have employees. The platform handles your benefits, workers comp, wages and taxes in one system, and will also handle wage garnishment orders. For businesses with 50 employees or more, particularly in heavily-regulated industries, its personalized features and greater compliance support, as well as competitive benefits package, can make it a good choice. Plus they just announced a big Series E round, which may help them bring costs down for customers.

CONS: Due to the additional features it offers, Justworks costs the most of all three options at the moment. It also offers fewer integration options and lacks the IT systems management feature that Rippling offers.

How Do I set up Payroll?

Once you choose the platform you'd like to use, you'll have a few relatively straightforward steps to complete payroll setup.

  1. First off, you'll want to enter all the relevant company information into your new system, including EIN, company bank account details and other business state ID info. Each payroll system we've listed offers easy integration into your bank account to set up direct deposits.
  2. Next you'll need to choose the payroll cycle you're going to be paying your staff (the most common is paying on the 15th and last day of the month, or every other week). You can also set up any necessary bonuses, commissions or tips, plus hourly employees may need different pay schedules than full time.
    NOTE: When you set up your system, you'll have the option to two-day payroll versus four-day payroll. This refers to the elapsed time in between when the payroll is processed to when the money enters employee bank accounts. Four-day allows your payroll provider two days to debit the cash from your bank account, so they don't begin to pay out until they've received the money from you. When you request two-day payroll, your payroll provider is essentially floating your company for a couple days, since the money hasn't arrived yet. Gusto's standard is four-day, but you can apply for 2 day if your payroll total is under a certain dollar amount and the Gusto Risk Assurance Team signs off (you'll be asked to upload an image of your bank account balance for proof that your startup is good for the bigger dollar amount).
  3. You'll need to gather a list of info for all of your employees including: full name, job title, start date, current address, social security number, date of birth and salary details.
  4. Send each employee a login so they can add in their tax and bank information for direct deposit and tax withholding. This is also a good opportunity to verify employee I9s -- documents that ensure that your employees can work legally in the US.
  5. Once you have your employees set up, you'll want to start getting registered in those states (unless you're in a PEO like Justworks, in which case you won't need to register), For each state in which you have employees, you'll need to register for payroll taxes and unemployment taxes. And for each state in which you do business, you'll need to register as well. Your payroll can be blocked if you don't have the state's payroll and unemployment numbers. This step is a lot of work, which is why we handle it for our clients.
  6. Set up your different office locations to make sure employees are taxed through the right offices and right states.
  7. Verify that your employees added in all the correct information and are eligible to work in the US.
  8. Don't forget to add holidays, vacation policies and accrual systems to your payroll system, so employees can put in PTO requests directly through the software.

WHAT IF MY PAYROLL TAXES GET MESSED UP?

Mistakes in payroll taxes can be a massive headache, involving endless notices, state and federal requests for late taxes plus penalties, and hours on the phone with various agencies. So taking action to make sure both your federal and state payroll taxes are set up correctly from the start can be a lifesaver.

If you do find yourself facing a payroll tax error, the first move is to reach out to your accounting firm or accountant. Fixing the problem can be complex depending on the states involved and the IRS regulations. You can also reach out to the support desk at your payroll provider. Every one of the options we've listed will have people trained to help you, though Gusto in particular has excellent customer support in this department.

For more info on payroll taxes for startups, click here.

IS A PEO A GOOD IDEA?

PEOs, or "professional employer organizations" may make sense for many companies. In particular, they can be great for companies hiring talent in multiple states/jurisdictions, taking care of payroll taxes, benefits negotiation and maintenance and other HR busy work. On the cons side, they can be more expensive and offer lower flexibility on benefit choices.

Ultimately, the decision to go with a PEO is one of money vs time. Busy founders can save serious time avoiding HR busywork if they choose to work with the right PEO. And while PEOs do rightfully point out that they can reduce benefits costs due to their negotiating power, a startup would likely end up paying more overall for their payroll costs.

As we’ve already mentioned, we think Justworks is a solid provider used by many clients. Another great player is Trinet.

PAYROLL PITFALLS TO AVOID

We see just about every payroll blowup and error possible. Here's a list of the most common mistakes to avoid.

Founders/CEOs Paying Themselves Outside of Payroll. All directors, officers and founders at a company cannot receive payments as contractors -- rather, all payments to them must be run through payroll. So once you set up payroll, if you've paid yourself prior to doing so, make sure that the amount you received in the past is run through the new payroll system, and the proper taxes are paid.

Mistakes Involving Remote Workers. On a platform, like the ones we recommend, you have to be sure that the home state of each remote worker is listed correctly in the system. If you have a remote employee listed as working in California but they live in Texas, you're in trouble. Payroll taxes must be paid in each worker's home state, and so this info must be accurately entered with the payroll provider in order to avoid payroll tax problems.

Blocked Payrolls. This one is a great way to tick off employees, since it means that payroll can't be run, so no one gets paid. The most common cause is when startups forget that when they hire someone in a new state, they need to register for business and payroll taxes in that state. When the CEO forgets this step and then onboards a new employee, the whole company's payroll gets blocked a couple weeks later. Often we have to jump in and fast track registrations to keep payroll from getting blocked.

HOW TO SET UP PAYROLL FOR INTERNATIONAL EMPLOYEES

    When you are hiring international employees, you’ve got a few choices on how to set up payroll. You could:

  1. Set up an entity in the foreign country where the employees are working, and then set up a system for that country
  2. Pay the employees as contractors
  3. Use an international PEO

We typically recommend the third option for paying international employees - setting up an international or global PEO. We don’t think the first option, setting up an international entity, is a great idea at first. Setting up and running a subsidiary actually creates a lot of legal costs and a lot of local jurisdiction compliance headaches.

    Here are some of the advantages of a global PEO for paying international employees:

  • Allows you to run payroll in other countries through another entity
  • Allows payment to employees & contractors
  • Employees have access to more benefits and perks than contracts
  • Keeps you tax compliant with the country you are operating in

After you have 10 to 20 employees in any particular foreign country, it may make sense to do the first option, and set up an international subsidiary/entity to employ the team. But before then, a global PEO really helps make international paying and employing easier.

SETTING UP PAYROLL FOR FOUNDERS

A common question we get is “how should founders pay themselves.” And the basic answer is “through payroll.”

The reason for that is that the IRS really doesn't like it when founders who own a big equity percentage of a company pay themselves as contractors. The IRS feels like you're trying to avoid paying payroll taxes if you pay yourself that way. And since the IRS knows you own a lot of the company, they feel like you should be an employee of the company. (Don’t underestimate how much the IRS knows about you and your company!)

And so you really want to comply with the IRS, so make sure you're an employee and make sure you run it through a payroll system, because the payroll taxes will be taken out of your paycheck and sent to the federal or state authority. So that way you'll be in compliance. It's so much easier.

At Kruze, we’ve seen the nightmare scenarios where founders just honestly just didn't know better, weren't working with an accounting firm, and they just started writing themselves checks out of the company bank account. And the IRS will pick up on that and see that money was leaving the company bank account and going to someone else with no taxes paid. That leads to an endless parade of penalties and paperwork. It’s a huge headache.

GETTING YOUR R&D TAX CREDIT REBATES

There's a lot to know about the R&D tax credit. Startup taxes

Luckily, each payroll provider we've listed offers services to help receive your R&D credit in your payroll taxes, making the process of receiving the credit much easier. Gusto has a mechanism where you can pay a $100 monthly fee and you get your R&D credit in real-time, meaning that a piece of it comes with each pay period. Rippling can handle the R&D credit by sending you a refund check, but does not have the automated real-time feature. Justworks, like Rippling, will send the full amount of the R&D credit claimed on your return once the IRS processes it.

STILL HAVE QUESTIONS?

We know that setting up payroll is a big move for your business. Stuck on a step or not sure how to proceed? Feel free to send us your questions!

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A CPA Firm Specialized in Startup Accounting & Finance

A CPA Firm Specialized in Startup Accounting & Finance

Startups are our niche, and our passion. Our clients have raised over $3.5 billion in venture capital financing. We are one of only a few outsourced accounting firms that specialize in funded early-stage companies - we only offer financial and tax services to fast growing startups in the Seed, Series A, Series B and Series C stages.

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The Right Accounting Partner for Your Startup’s Next Round

We know how to de-risk your startup’s next venture capital round. Our team makes sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.

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What types of startups does Kruze Consulting usually work with?

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