Wondering how much your VC-backed startup's tax return will cost?   Check out our startup tax cost calculator to get an estimate now!


With Scott Orn

A Startup Podcast by Kruze Consulting

Subscribe on:

Scott Orn

Scott Orn, CFA

Kathryn Petralia explains how Keep Financial helps companies offer effective employee incentive programs

Posted on: 06/13/2023

Kathryn Petralia

Kathryn Petralia

Co-Founder and Chief Keeper - Keep Financial

Kathryn Petralia of Keep Financial - Podcast Summary

Kathryn Petralia explains how Keep Financial helps companies offer effective employee incentive programs, and leverages bonuses and financial compensation to motivate workers and improve hiring.

Kathryn Petralia of Keep Financial - Podcast Transcript

Scott: Welcome to Founders and Friends Podcast. Before we get to our guest, special shout out to Kruze Consulting. We do all your startup accounting, startup taxes, and tons of consulting. We’re whatever comes up like financial models, budget to actuals, maybe some state registration, sales tax, VC due diligence support. Whatever comes up for your company, we’re there for you. Seven hundred and fifty clients strong now, $10 billion in capital raise by our clients, I can’t believe it, $2 billion this year. It’s been a crazy awesome year. So, check us out at kruzeconsulting.com and now onto our guest.
Singer: (singing) So, when your troubles are mounting in tax or accounting, you go the Kruze from Founders and Friends. It’s Kruze Consulting’s Founders and Friends, with your host, Scotty Orn.
Scott: Welcome to Founder and Friends podcast, with Scott Orn of Kruze Consulting. And today, my very special guest is Kathryn Petralia of Keep. Welcome, Kathryn.
Kathryn: Thank you so much. I have a question for you Scott. Is everyone very special?
Scott: Everyone is, actually. I say the same thing every time because it allows me to relax and get in my rhythm. And as I told you, I always start the podcast by asking the guest to retrace their career and how you had the idea for your company, Keep. And you have a good curveball there, too, because you’re part of the founding team. But it was awe, right?
Kathryn: It is true. My co-founder and I, this is the third company we started together. And he had the idea for Kabbage, which was a company we sold to American Express a few years ago. But he’s the idea guy. I’m more of the, “That’s a good idea or a bad idea,” guy, so I just want to make sure that we don’t make mistakes.
Scott: And then, “make it happen,” kind of person. So, you started Kabbage, you have a background in lending, you sold Kabbage to AmEx, and then you’re like, “Hey, there’s this other opportunity we should pursue”?
Kathryn: It’s interesting. We spent a lot of time at Kabbage dealing with people and people issues, and retention and attracting talent and compensation, compensation management, bonuses. All the things around why people work for you basically, which is mostly money. We all work for money. And in light of the great resignation and the war on talents are all of these topics that were kind of at the forefront, I would say. In late ‘21, early ‘22, mid ‘22, my co-founder, Rob, who used to be a lawyer, was thinking back on his time as a lawyer. And he, one time, did a negotiation, a contract for a Harvard Medical School graduate who was recruited by the Tifton, Georgia Healthcare System, which you probably don’t know Georgia that well. But it’s not a place you’ve heard of and you probably don’t want to go there. This physician was given a very large loan to come work in Tifton for four years, and so Rob was like, “Wouldn’t it be interesting to give that kind of bonus opportunity to all employers? How could we let all employers attract new talent by giving them access to funds that they would have to give back if they didn’t stay?”
Scott: And so that’s their origin story. I didn’t know that. Maybe explain the key product. How does this service work?
Kathryn: We help employers provide upfront cash compensation to employees that vests over time or vests based on work activities. Could be shift-based bonus or delivery-based bonuses, or whatever the metric is that is used to measure that employee. So, our goal is to help employers provide more compensation upfront with the knowledge and expectation that they’ll get what they’re expecting from that employee over time. And if the employee leaves, then they have to pay it back. This is not a new concept from a compensation perspective, but it’s a new concept to let somebody else help you manage it.
Scott: I think it’s super cool because it’s like a documentation solution or a structure you’re putting in place. I can’t tell you how many offer letters over the years that I’ve either issued or seen that have some type of upfront bonus, like a signing bonus. Or in the CPA world, oftentimes, there’s a CPA bonus or something like that when you pass your CPA. But there’s no policing it. There’s no management of it whatsoever because usually the company is too disorganized and we just can’t really do it. And so that was what I thought was so interesting is you’ve created this mechanism to make it easy to manage.
Kathryn: We did. And it’s one of the things that’s hard for large employers, even employers with 100,000 employees. Again, to put it in perspective, 90% of all the jobs in the world are service jobs. So they’re hourly jobs, people who don’t get bonuses. Only 11% of employees in the US get a bonus at all. So, it’s hard for those of us who work in the bonus-receiving world and the thought workers or whatever, more highly compensated employees, to remember this. But it’s true that we want to attract and retain talent across the spectrum of employees, and so we’re used to providing front-end bonuses. Again, sign-on, relocation, retention and tuition reimbursement. That applies to the top 10% of our employees, but not to all of them.
Scott: But this is applicable across the economy because I was just thinking the grocery store by me has a big sign that has $1,000 bonus if you start working at the grocery store. I know police departments have a hard time recruiting these days, and so you’ll oftentimes see a billboard you’re driving by that says, “The Alameda County Police Department, $20,000 bonus if you sign up,” right? And that’s what’s so cool is Keep applicable throughout every job. Every employer can create this kind of win-win structure with their prospective employees.
Kathryn: That’s true. No matter how large and no matter how small.
Scott: Have you integrated this into the payroll systems? How does it work? And I can’t help but ask that question because I’m an accountant. But mechanically, maybe walk someone through a hypothetical vesting schedule and how the payroll stuff actually happens.
Kathryn: I’m going to give you my favorite use case, which is nursing. My cousin, she works in Birmingham, Alabama as a nurse in the neonatal unit and she gets paid $40 an hour to do her job. However, for hard-to-fill shifts, they will pay $140 an hour to fill that shift.
Scott: Wow.
Kathryn: So the use case for Keep is give a nurse or any skilled worker in this space, whether it’s a nurse or anybody up and down the spectrum, give them $10,000, $4,000, $30,000, whatever the number is upfront and return for them working a specific number of hard-to-fill ships over some period of time. That’s the use case. So, what happens: Let’s just presume the mic cousin gets $10,000 and she needs to … Let’s say $12,000 because the math is easier.
Scott: Yeah.
Kathryn: So she gets $12,000 and she has to work 12 crappy shifts over the next 12 months. And they’re happy about that because they’re solving their problem for the next 12 months, not for this weekend where they pay her more money. So now, she works the 12 shifts. Every shift she works, that’s a unit. It’s decremented from the $12,000 that she would owe. At the end of 12 months, if she’s worked all 12 shifts, then she doesn’t know anything. The $12,000 is all hers. And so that’s how our platform and product works. We help the employer manage the compensation and we manage collecting it in the event that the employee doesn’t meet their obligations, whether it’s time-based or whether it’s shift-based.
Scott: Yep. And does it take payroll taxes out and things like that, or how does it work?
Kathryn: Great question. So, we are integrated with almost all of the major payroll platforms for reading data. So, we can see what the tax rates are and we can see withholdings for almost every employee because it’s not 100% of the systems. We’re able to make the calculation because what happens is the employee receives the amount net of anticipated payroll taxes.
Scott: It makes me happy. Yeah.
Kathryn: It’s great. What’s even cooler, which you’re going to love as somebody who understands accounting, is that that payroll tax doesn’t have to be paid until vesting occurs.
Scott: Oh, interesting.
Kathryn: And also, it remains a receivable, not an expense, until vesting occurs.
Scott: And I think there’s a kind of hidden bonus there, which is you don’t have to go back and amend your payroll taxes if the person doesn’t achieve the milestones, right? And the person didn’t have to pay payroll taxes and pay money back that they didn’t actually have. That’s really smart. Kind of like protecting ourselves from ourselves kind of situation.
Kathryn: Everyone’s protected. The employer is protected and the employee is protected by this process. But most importantly, you get to take advantage of, I would say, the taxation benefits that accrue with vesting compensation, versus what happens with upfront cash compensation.
Scott: That’s really interesting. And so, the person is happy because they worked those extra shifts, they showed up at the hospital, and they get the money on schedule.
Kathryn: Upfront. They get the money upfront.
Scott: Oh, upfront. Oh, interesting. Wow, that’s even better because then they can invest that money or do whatever they want with it. Wow, that’s really cool. And so, you used that nursing example. Where’s it working? Do you have clients that you can talk about or industries that really work?
Kathryn: I can’t name names. We’re not there yet. I think we will be soon enough. But we do have clients. Healthcare is a huge opportunity. But I think where we’re seeing a lot of traction is where there’s pain for employers. So, the pain is mostly happening in areas like healthcare, logistics, transportation, manufacturing, hospitality, restaurant, retail, these kinds of places. Not necessarily your highest compensated employees, but that’s okay. That happens, too, from time to time. Right now, in tech, there’s a little bit of stagnation, but it’ll go back to where it was. Even if tech never recovers, more employees live in the other areas than any others.
Scott: But also, you mentioned logistics. I know people who work in warehouses. Amazon’s constantly in the news for having a hard time maintaining their staffing levels, right? So, this feels like an extra tool they can use to retain people and make it worth those people’s while, essentially.
Kathryn: Speaking of naming names, not that they’re a client of ours, but Amazon actually has been, historically in the last year or two, paying upfront bonuses to people to work in the warehouses because they’re having such a hard time. And that puts a lot of pressure on the other warehousing and logistics locations where they are, which many of them are in the same area. So, we have an opportunity to help people compete with Amazon.
Scott: That’s really cool. And then, we named some public service. Have you started working with any government agencies? And again, I’m not asking you to name names, but I’m just kind of curious what the uptake is there because, again, nurses, police officers. My dad was a fireman. I could see those being really attractive.
Kathryn: For better or worse, healthcare is private, generally privatized, so healthcare is easy to get to. Government is hard. It’s hard to get government contracts. And we are actually in a great position, as Keep, to do that just from our corporate structure and the people we have working for us and our size. But we haven’t yet cracked the government code. I think that’s an interesting place for us. We think there’s a lot of need. The government is competing aggressively with private sector for talent. My sister is an epidemiologist at the CDC. My brother is in the Army. I recognize that these are great places to work hard to get better talent.
Scott: It’s Scott Orn of Kruze Consulting, taking a quick pit stop to give some of the groups at Kruze a big shout-out. First up is our tax team, amazing. They can do your federal and state income tax returns, R&D tax credits, sales tax help. Anything you need for state registrations, they do it all. We’re so grateful for all their awesome work. Also, our finance team is doing amazing work now. They build financial models, budget actuals, and help your company navigate the VC due diligence process. I guess our tax team does that too on the tax side, but the finance team is doing great work. Then I think everyone knows our accounting team is pretty awesome but want to give them a shout-out too. Thanks, and back to the guest. And you mentioned your brother is in the Army, but I’m constantly seeing that the recruiting for the Army is down or not hitting targets. So, this seems like another awesome tool for the armed forces to use.
Kathryn: Christopher, if you’re listening, you should use Keep.
Scott: Or Christopher’s superior officer needs to use Keep or something.
Kathryn: He’s a pretty senior guy.
Scott: Okay, great.
Kathryn: I think he may make a decision.
Scott: I love it. I love it. I’m looking forward. Things that are exciting on the forefront, like new features or integrations. And I don’t actually know the stage of your company, but startups always have one eye on the future and one eye on now, and making sure they’re executing well. Is there something that you’re excited about coming out?
Kathryn: I’m excited about two things. One of them is more, I would say, internal in the way the product works. For the people who are managing compensation, specifically payroll, we think it’s going to be great when our platform and product lives within payroll and HRIS in general for employers, especially larger employers, which they employ most of the people in the world. So that’s something that we’re working towards right now. And then, I think the second thing I’m thinking about is when we think about the preponderance of Americans and workers in the world who are, again, this 90% who don’t have access to bonuses and they are hourly workers in service-type roles, we would like to help them build wealth. So, our goal is to create a financial services platform that, at the point of compensation, gives them flexibility to figure out how they want to deploy their own income and not rely on this sort of antiquated thing that we’ve had for the last 100 years where banks sit on your money for a couple of weeks before you get it. And where you can have access to not just the money that you earned in the last two weeks, but also maybe the money you’re going to earn in the next 12 months.
Scott: And that was where my brain was going when you were talking about getting the cash upfront and paying taxes and on the vestings. Because I was like, “Oh, you could invest this in an S&P 500 stock index,” or something super safe, but also a accrue either dividends or interest, or whatever it is, in the meantime instead of letting that money sit in someone else’s account. So it sounds like that’s kind of the path you’re on there.
Kathryn: That’s exactly right.
Scott: That’s really cool.
Kathryn: That’s exactly right.
Scott: Super cool.
Kathryn: And also, how do you help your employers help you? So, let’s imagine that there was an employer and they said, “Well, we’re going to give you an upfront bonus and it’ll be $2,500 if you just take the money.” If you put it in an IRA, it’ll be $5,000. If you pay off student debt, it’ll be $7,000. So, we can actually help direct compensation to things that help employees manage and build financial wellness, let’s say.
Scott: I love it. And you know this, I’m sure, but especially with 401Ks, a lot of companies really encourage that, those contributions, for a couple reasons. A, it’s a great way to build wealth for the employee base. But there’s also contribution testing that basically everyone in the organization needs to be contributing at different levels, not just with the executive team that makes a ton of money, right? And so, it’s beneficial for everybody to be contributing more to incentivize those contributions. I’m sure the executive teams that you’re pitching or selling this to understand that, and that’s really exciting.
Kathryn: But the people have to understand it as well. And so, what we found at our last company, Kabbage, was that we had entry-level employees or hourly employees who were not participating in our 401K matching program because they were paying off student debt. They couldn’t afford to participate, which necessarily disadvantaged them. They didn’t have the opportunity to build future wealth because they’re paying down debt that may or may not have been helping them in their career. That’s a different conversation for another time. But it disadvantaged them unbelievably financially.
Scott: Especially if they’re not even taking advantage of the matching, because we have a matching program at Kruze too.
Kathryn: The tax code only allows you to take matching for IRA, not for matching on paying down student debt.
Scott: Oh, interesting. So, you could create an incentive that way. That’s really cool too. Wow, you got some good stuff going there. I want to be respectful of your time, so we can wrap up here in a second. But how do people reach out, especially if they’re maybe the HR team or the CFO team at a company that’s interested in Keep? How do they get in touch?
Kathryn: It’s great how you picked up on the two teams that we talk to. We talked to people in People and we talk to people in Finance most of the time. We think those are the two teams that generally work together to manage compensation. So, it doesn’t really live in one particular place. It’s kind of is this really amazing cooperation between HR and Finance to make this work. You can find us at keepfinancial.com. You can find me at catherine@keepfinancial.com. I’m on LinkedIn. Lots of ways. We’re easy to find for sure.
Scott: Reach out. And it sounds like you have use cases across different industries. The cool thing about doing something in pay and incentives and incentive compensation is this is how humans are motivated. This is applicable to everybody.
Kathryn: We all work for money.
Scott: Yes, exactly. Well, Kathryn, thank you so much for talking about Keep and for coming by. I really appreciate it. You rock, and I’m super excited for you.
Kathryn: Thanks.
Scott: My pleasure. My pleasure.
Kathryn: I’m very excited. I don’t say that to everybody.
Scott: I can tell. You’re going places. This is a cool company. This is really dorky, but the fact that you’ve thought through all the payroll stuff because there’s nothing worse than payroll penalties and just that mess. That had to be one of the harder things you figured out, actually, and so to do all that ahead of time …
Kathryn: So complicated.
Scott: And integrating in the HRIS systems and the payroll systems is huge, too, because everyone kind of wants one-stop shop. So, everything you’re saying is making sense to me, and it’s exciting for us.
Kathryn: Thank you.
Scott: Awesome. All right. Thank you so much.
Singer: (singing) So, when your troubles are mounting in tax or accounting, you go the Kruze from Founders and Friends. It’s Kruze Consulting’s Founders and Friends, with your host, Scotty Orn.

Find out why Kruze Consulting is one of the leading accounting firms in San Francisco and the US, serving funded, early-stage companies. Kruze clients have raised over $15 billion in venture capital and seed financing, and our research and development tax credit work has saved clients millions of dollars in burn rate and payroll taxes. Contact Kruze to learn more.

Explore podcasts from these experts

  Talk to a leading startup CPA