Payroll processor or part-time bookkeeper for startup? (US/SF)

March 21, 2008 9:13 PM

StartupFilter: Payroll processing co or part-time bookkeeper for SF Bay Area co?

My friend and I started a company. Until now, it's just been the two of us working for equity. We're about to hire our first full-time employee, and want to stay on the good side of the IRS and the labor department.

Should we: a) get a payroll company to handle payroll and tax compliance, and if so, which one?, b) hire a part-time bookkeeper to do this, and if so, is there a good one in the East Bay, c) man up and do this stuff ourselves in QuickBooks Pro, or d) just hire people as contractors to work on well-defined projects until we are larger?

Additional info: we have no income yet, no debt, and are a CA S-Corp. We're funding this out of our own pockets for now, and plan to do so for the next six months.

Both of us are smart enough to learn tax and labor law, but would prefer not to have to.

posted by anonymous to work & money (6 comments total)

I worked for a start-up about two years ago who used Gevity for their outsourced payroll and benefits. They were fine, but I didn't ever need anything from them. If anything they waited until the last second to send out W-2s.

I'd say give the contractor thing a long hard thought though. You can more easily implement features in terms of contractor time and schedule your cashflow and development time much more granularly.

I don't know anything about QBP.
posted by rhizome at 10:57 PM on March 21, 2008

As someone who's been in your boat, I think outsourcing is the way to go. Once you have employees there are many additional issues to consider beyond payroll: benefits, worker's comp insurance, local, state and federal labor laws, etc.

I've used Gevity in the past for my company, as well as several of the other co-employment providers. They've all done a pretty good job for me, but they come with some pluses and minuses. On the plus side, you get a complete benefits package, they are responsible for all state and federal tax filings, other state and federal compliance issues, workers comp, unemployment, etc. For this, expect to pay 1 - 2% of your payroll as a service fee, plus all the taxes and benefits. Don't know if their benefits package is optional, if not, expect them to require to contribute at least 50% of a single employee's medical coverage as a minimum. They may have a minimum number of employees as well, I believe Gevity's at one time was five. The service fee isn't bad when your payroll is still small, but it really starts to add up as you grow. On the minus side, you and your employees are a few among several hundred thousand people they process each week, and you may find communication becomes an issue. Until you get over 50 employees you're probably locked in to their benefits plan, which may be more expensive than you're able to get on your own, especially with the typical young-male computer worker demographic (cheap to insure). Back to the plus side, you don't have to shop your benefits plan looking for better deals, which can take a chunk of time every year.

Me-mail me if you want more details.
posted by JohnYaYa at 4:17 AM on March 22, 2008

QuickBooks is an excellent bookkeeping application for small business. The QuickBooks Payroll service is also very useful. You will probably want someone knowledgeable about both QuickBooks and accounting to set it up for you and show you how to use it, though, since that will help you avoid making a lot of mistakes that could be costly (in money or time) to fix later. QuickBooks has a "Pro Advisor" program now of people certified to do just that: http://proadvisor.intuit.com/referral/index.jhtml?lid=leftnav
posted by Jacqueline at 7:43 AM on March 22, 2008

If you go the route of having employees vs. contractors, I'd suggest you outsource for the simple reason that you should devote as much time and energy as you can to your core business, not to administration.

Any of the big providers (ADP, Paychex, etc.) can probably do the work, but you might find a local bookeepper more willing to adapt to your needs than to ask you to fit into their system.
posted by dzot at 8:26 AM on March 22, 2008

One of my companies uses QuickBooks and ADP, and the other has hired a bookkeeper. The second company is running much more smoothly even though it has three times as many employees.
posted by nicwolff at 9:51 AM on March 22, 2008

My wife and I own a small retail store and we use QuickBooks for our accounting and for our payroll. We use Intuit's "enhanced" payroll service (with a monthly fee) which is the mid-level option. Enhanced payroll helps us e-file taxes, reminds us what dates different liabilities are due, and keeps track of the amounts we owe. They have a less advanced option which only helps you track and create the paychecks and they have a more expensive option which will take care of the filing and payment of taxes for you. We have eight part-time employees.

dzot's point, that you will gain by letting someone else handle this task for you, may be more appropriate for you. Our opinion differs in our situation because we'd like to learn every aspect of our business administration. We want to know how our books look at any given time and we'd like to keep track of the payroll and payroll liabilities, so that if we do ever end up outsourcing, we'll know that our bookkeeper or accountant is following all applicable rules and filings appropriately. I think a lot of small business owners will tell you that having a handle on your financial situation is critical. If you don't understand where your business stands financially, you had better have an accountant who will keep you appraised.

Our situation, should we decide to get larger (open another store location), would be essentially the same. We could continue to do our own payroll for two stores without doubling the amount of work.
posted by battlecj at 1:12 PM on March 25, 2008 [1 favorite]