Startup back-office HR guide: Payroll, compliance, and benefits

Published on Jun 03, 2024

Startup back-office HR guide: Payroll, compliance, and benefits

HR might seem boring, but it can kill your startup if done wrong. Miss payroll or screw up compliance, and your employees quit as you drown in fines. But what are the right tools for your HR stack that won’t bog you down with busy work?

We’ve done the work of comparing Gusto, Rippling, Zest, and other HR providers so you don’t have to. Based on my experiences as CFO of our venture firm, SignalFire, and our work with more than one hundred portfolio companies, we’ve laid out our recommendations for the best HR tools, how to decide which is right for you, and tips for how to put them to work.

In our recent startup launch guide to incorporation, banking, and equity, we reviewed the top software for getting your company off the ground. Now let’s dig into how to keep your team paid, legally employed, and happy at your company. 

This is the second post in SignalFire’s back-office strategy series, which also includes our startup launch guide to incorporation, banking, and equity and our guide to paying bills and bookkeeping. The big takeaway: get these tools in place early. Things only get crazier as your company scales, so it’s much easier to sort them out before you have lots of expenses, employees, and customers to worry about.

Payroll/HRIS

Paying your employees is nonnegotiable.

Paying your employees on time builds trust with your team and enables loyalty over time. Once a payment is late or inaccurate, 25% of workers start exploring other opportunities. If payments are late again, that number nearly doubles. 

Here are a few mistakes we highly suggest you avoid:

  1. Paying employees with personal finances
  2. Misclassifying employees as independent contractors
  3. Complicating HR services with endless paperwork and processes

Payroll software is inexpensive, easy to use, and helps with a growing team.

When to start using a payroll provider

Your payroll might begin with yourself. But by the time you need to consistently pay employees, you’ll want to have started working with a payroll provider. 

If you're in build mode, you probably won't want to spend several hours each week working on payroll; you'll need that creative energy to overcome whatever challenges your company is facing at the time.

What is payroll?

In its simplest definition, payroll is paying your employees. More specifically, payroll is distributing wages to your employees and withholding taxes to pay to the appropriate taxing jurisdictions. 

On a granular level, payroll encompasses the following tasks:

  • Accurately calculating salary
  • Calculating and paying payroll taxes
  • Staying compliant as you bring on contractors
  • Sending new-hire reports to the government
  • Collecting new-hire paperwork including I-9 processing
  • Deducting benefits from payroll
  • Withholding taxes and quarterly filings
  • Filing end-of-year taxes
  • Preparing W-2s and 1099s
  • General management of employee records

Pro-Tip: If you’re going to offer benefits and deduct premiums or 401(k) from paychecks, you’ll spare yourself a lot of headache if you use the payroll provider as your benefits administrator. 

Payroll suggested vendors

Gusto (our pick for early-stage): Gusto is a modern, online people platform that helps small businesses take care of their teams. On top of full-service payroll, Gusto offers health insurance, 401(k)s, expert HR, and team management tools.

Rippling (our pick for later-stage): If you've outgrown Gusto or are looking to combine payroll and benefits with the IT components of onboarding, Rippling might be right for you. They make it easy to manage your team's payroll, benefits, hardware (e.g., computers, phones), and apps—an all-in-one, modern platform.

Now that you know how to pay everyone, check out our startup headcount planning guide to figure out how many people to hire, when, and for what, and our org design and leveling guide for compensation and titling strategy tips.

HR compliance

Oversee every aspect of employment.

Human resource (HR) compliance is an area many startups seem to talk about but very few seem to do well—or at all. Unfortunately, HR isn't as easily simplified or automated as other parts of your back-office stack, like payroll or accounting.

When to build HR

The way you think about process, work structure, and organizational culture from day one will set the foundation for HR at your company. Ideally, HR will be a manifestation of the aspirations of your founding team.

In other words, proactivity is better than reactivity as far as HR is concerned. You don't want to start a people team because it's suggested, for legal reasons, or because culture is in disarray. 

What is HR compliance?

HR oversees every aspect of employment. You'll need to comply with labor laws and employment standards, administer employee benefits, and organize employee files. HR also handles onboarding—offer letters, employee information for payroll, I-9 employment verification, equity paperwork, and any employment agreements such as noncompete and intellectual property—and offboarding.

We recommend subscribing to an HR compliance tool to help make sure you’re following all of the right laws, training, postings, notices, and regulations. Once you reach certain thresholds of employees, certain states will require mandatory trainings, posting and/or additional rules—talk to your legal counsel to help you navigate when you hit these milestones. This is generally >50 employees and will be handled with a product like Rippling. 

HR compliance suggested vendors

Gusto (our pick): Gusto is a modern, online people platform that helps small businesses take care of their teams. On top of full-service payroll, Gusto offers health insurance, 401(k)s, expert HR, and team management tools.

ThinkHR: A people risk management service that offers an end-to-end approach to HR, compliance, and people risk management.

Rippling: If you've outgrown Gusto or are looking to combine payroll and benefits with the IT components of onboarding, Rippling might be right for you. They make it easy to manage your team's payroll, benefits, hardware (e.g., computers, phones), and apps—an all-in-one platform.

For more on how to become an attractive place to work, check out our crash course in HR strategy fundamentals:

Benefits

From workers’ compensation to healthcare to snacks, take care of your employees.

Benefits change based on talent requirements, but you'll always need to provide some level of benefits to comply with the law and remain competitive. You might not be able to afford much, but it's worth thinking about what you want to offer.

When to offer benefits

Once you're ready to start hiring employees, you should start thinking about benefits. To attract quality employees, you'll need to stand out. However, if you have a stellar founding team and a product with traction, some potential hires might not need frills.

What are benefits?

There are necessities and premium benefits. For example, you're required to comply with workers’ compensation requirements, retirement and disability, state and federal taxes, and federal family and medical leave.

Healthcare is critical, but quality packages are even more crucial for employees with families. You don't need to provide dental and vision, but they are almost a prerequisite in Silicon Valley. Ask your peers and seek out recent compensation surveys to benchmark the percentage of premiums you plan to cover as a benefit ranging from 0–100%. 

If you want to step up your game, fringe benefits include pet-friendly offices, stocked kitchens, travel stipends, gym reimbursements, and professional development opportunities. If your team is remote or hybrid, consider the recommendations from our work-from-home guide to making employees feel included and appreciated.

Benefits suggested vendors

Gusto (our pick): Gusto is a modern, online people platform that helps small businesses take care of their teams. On top of full-service payroll, Gusto offers health insurance, 401(k)s, expert HR, and team management tools.

Rippling: If you've outgrown Gusto or are looking to combine payroll and benefits with the IT components of onboarding, Rippling might be right for you. They make it easy to manage your team's payroll, benefits, hardware (e.g., computers, phones), and apps—an all-in-one, modern platform.

Zest: Zest is a customizable perk card that can be given to your employees with recurring benefits, spot rewards, and other ways to recognize and reward your team. This would be used in addition to working with traditional benefits administrators.

Private Broker: You might also have a private broker; we can recommend one or two who can find you good group coverage that is a little more flexible than what you might get directly from Rippling or Gusto. You’ll still need to integrate those offerings with the HMIS/Payroll system to accurately report benefits to employees. 

With our recommended stack, your startup’s HR function should run smoothly so you can focus on … everything else. Look out for the next installment of our startup back-office guide focused on finance to help you with bookkeeping, accounting, and expenses.

*Portfolio company founders listed above have not received any compensation for this feedback and did not invest in a SignalFire fund. Please refer to our disclosures page for additional disclosures.

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