Building a business has changed — and in a way that can make your life easier. Thanks to the latest software tools, it’s getting simpler to do things that used to be a huge time suck, like filing payroll and tracking employee work hours.
Before you can start wielding one of those tools, though, you need to pick the right one for your arsenal. And that can be a little tricky. In the last few years, countless startup-supporting software solutions have come onto the scene. Many of them offer fairly similar functionalities, but there are some key aspects that can affect the way you work — and how much work is required.
Because we regularly use a lot of the leading options available today, we thought we’d share our experience. Specifically, we drilled deeper into Gusto and Justworks, two platforms you may want to consider.
Both of these companies offer software to streamline your:
- Health benefits
- 401(k) benefits
- Work hour tracking
It’s important to point out one key difference. Gusto is a payroll company where your startup is the Employer of Record, while Justworks is a professional employer organization (PEO). This means you enter into a co-employment arrangement with them. To understand the differences between a PEO and a payroll company, see our blog post on the subject.
Basically, both of these companies function a lot like an HR department — no internal HR team required.
Both of them offer tiered plans, so the more services you need, the more you’ll pay. And they both charge per employee, so as your team grows, this cost will scale up, too.
All told, though, if you’re not ready to build an HR department or you’re looking for a way to handle some of the bigger annoyances of building a business — like payroll taxes — these solutions can be well worth the investment.
If that sounds like a fit for your startup, it’s worth digging in to find the right payroll company or PEO for you. With that in mind, let’s look at some of the more specific features for both of these software solutions and how they work.
Since Justworks is a PEO, the rates it pays for health and other benefits are considerably more affordable versus going to a health insurance provider as a small company. This is the benefit of pooled rates that PEOs offer. A cost/benefit analysis needs to be done to see if it makes sense to use a PEO, but typically, the costs savings kick in once a company gets to 5+ employees.
If you want to register your business in a new state (say you have remote employees who moved there, establishing a nexus), both Justworks and Gusto can help. But the process varies a little bit depending on the company you choose.
With Justworks, their team takes care of the state registration on your startup’s behalf.
Gusto partners with a company called CorpNet to get the registration handled, but this process can come with additional charges.
State and local taxes (SALT) are increasingly becoming a burden for early-stage technology companies to navigate and administratively handle. As a result, the Justworks solution may save you some time.
Syncing with QuickBooks Online
This is a big one since you want to keep all of your financial info up to date across any solutions you use. Fortunately, most PEO providers know this and play nicely with a lot of different bookkeeping solutions, particularly the biggest name in the game: QuickBooks Online.
Once you set up the right mappings in Gusto, it will automatically sync with QuickBooks on an ongoing basis. Gusto offers department-based mapping, which allows you to drill into your cost centers.
Justworks also integrates with QuickBooks, but it requires a smidge more effort. To get an invoice from Justworks to QuickBooks, you need to manually click “Sync to QuickBooks Online” each time. Similar to Gusto, Justworks also offers department-based mapping.
R&D tax credits
This one is pretty niche. But if you’re a tech startup, the odds are pretty high that ignoring the R&D credit means leaving money on the table. And because it can be used to reduce your payroll taxes, it’s important that your payroll service provider offers a way to factor it in.
When you choose Justworks, that means filing Form 8974 and providing a copy to Justworks Support or your accountant. At that point, they’ll apply the credit for you.
With Gusto, your accountant can submit the credit directly in the solution, through a simple interface, to reduce your payroll taxes.
Ultimately, you’re probably going to want to get your accountant involved to calculate your startup’s R&D tax credit. And they may be able to help you navigate getting that information into your PEO system, but it still helps to know what they’ll be up against there.
If you’re not sure if you qualify for this credit, how to claim it, or how to integrate it with your PEO solution, we can help. Don’t hesitate to reach out to our ShayCPA accountants.
The Basic Justworks plan costs $59 per month per employee for your first 49 employees, then $49 per employee per month for every employee above that. If you want to add access to health, dental, and vision coverage, you’ll need Justworks Plus. That costs $99 per employee per month for employees 1-49 and $89 per employee per month for employees 50+.
Gusto costs less, starting at $40 per month plus $6 per employee per month for their Simple Plan. The Plus plan includes more HR tools and costs $80 per month plus $12 per employee per month.
Both Justworks and Gusto support the payment of contractors and vendors through their platforms. They will also take care of the W-9 collection and 1099 year-end process for you.
It would be wise to discuss this with your accountant. We find that many of our clients pay vendors through multiple payment methods, which can create year-end tax reporting implications if all your processes are not in place correctly.
With everything we’ve outlined so far, Justworks and Gusto both tick the box, albeit in a different way. But we’ve come to a fork in the road now.
Gusto lets you pay international contractors through their solution. That can be a big help whether you’re working with an overseas contractor, expanding your offices, or trying to pay someone who just relocated outside the U.S.
If you choose Justworks, though, you’re out of luck. Their services don’t apply to international contractors, which means you’ll need to find a different way to pay those people.
Tax filing documentation
This is another area worth minding closely. Gusto gives you access to your company’s tax filing info, generally in a format like Form 941 for your specific company. That can make it easy to keep your documentation in order, giving you peace of mind that you’ll be squared away in the event of an audit.
At Justworks, everything gets filed under their Justworks company name and EIN. That means you don’t have access to those tax filings at your individual company level. In fact, if you get audited, all you’ll have to show is a PEO letter from Justworks to explain why that specific form isn’t available for your individual company.
This letter, along with payroll reports that you can export, are more than enough for any financial statement audit. The IRS has a Certified PEO process so they are fully aware of these types of organizations. Justworks, as of this writing, is a Certified PEO.
We’ve just touched on two areas where Gusto is stronger, but Justworks has them beat here. Gusto only offers support from 6 a.m. to 5 p.m. PT/9 a.m. to 8 p.m. ET Monday through Friday. The Justworks Support team, on the other hand, is available 24/7. That means that if you have an urgent question on a night or weekend, you’ll be stuck if you choose Gusto.
At the end of the day, both Justworks and Gusto are useful tools that could be a valuable part of your tech stack. But one might be a better fit for your startup’s specific needs. If you’re not sure which one best meets your requirements, talk with our team. As accountants who specialize in tech startups, we’re able to help companies analyze their needs and find the right solution to match them. Get in touch.