Today San Francisco-based ZenPayroll announced the launch of its cloud-based payroll service in addition to having raised $6.1 million in funding from Salesforce, Google Ventures, Sherpalo Ventures and several CEOs and co-founders of companies including Box, Yammer, Dropbox, and YouTube among others. The Y Combinator alum is looking to help SMB owners streamline payroll processing, manage related taxes and compliance issues, and administer benefits.
Co-founded by three Stanford alums, CEO Joshua Reeves spoke with BetaKit about the pain point that SMBs across the U.S. face with payroll systems that still require a lot of manual data entry and administration. “We’d actually each been running our own companies before ZenPayroll, and I had been running a company and we’d been using PayChex…ADP and PayChex are two largest companies [in the industry] worth about $38 billion,” said Reeves in an interview. “We had no idea so much of this industry today is still done very manually and over half of the businesses are still doing it with paper, pen, and spreadsheets. There’s huge segments of business owners who have never moved into software, and we think this is the right time to make that shift.”
Using ZenPayroll, employers can automate both payroll tax calculations and payments and provide direct deposit, as well as filling out government documents online and archiving them for future access through the company’s dashboard. With over 15,000 tax codes in the U.S., some federal, some state-specific, ZenPayroll’s approach is to simplify and automate much of the work for SMB owners, so that they’re guided through entering their information once and it’s automated from there.
Employees on the other hand can also be given access so they can manage their paystubs, employment documents, personal information, and review details. The cloud-based service can also be accessed on any connected device, including desktop, tablet, and mobile, and accessibility is one of the big trends Reeves believes will drive adoption, the others being the increasing level of trust SMBs have with storing their data on the cloud and the rise of online services like online tax filing, signature, and faxing services that allow for paperless automation.
The SaaS startup will charge a monthly subscription of $25 plus $4 for the first ten employees, and then $1 for each additional employee. Meaning SMBs with five employees can expect to pay a flat rate of $45 a month for all their payroll needs. While that might be an effective pricing model for smaller startups, as companies hire that per-employee pricing could add up, so the company will likely need to add different bulk pricing as their customers grow.
Other startups looking to tackle the SMB payroll headache include Wave Accounting, which recently launched its Payroll product in the U.S. who also charge $25 a month and $5 for the first five employees with a discounted tier structure for every employee after that. The other key point to note is that Wave’s payroll feature is built both as a standalone product and as something that integrates with its free accounting software. Both startups will be looking to disrupt an industry dominated by companies like PayChex, Intuit Payroll and ADP. There are also startups tackling the international market, with PayrollHero focusing specifically on Asian companies.
According to Reeves, the company already has several millions being processed through its system, and a waiting list of over 1,000 companies. He was also keen to point out that although their initial focus is on the SMB market, the company will look to tackle the problem for larger enterprises down the road. The biggest challenge for the company will be converting SMB owners who’ve never used payroll software, and getting enterprises with huge investment in existing payroll systems to convert, something the company believes it will be able to do with its focus on building the product with a focus on ease of use.