ZenPayroll adds support for contract workers, preps for expansion to Florida, Texas, and soon New York

By Michael Carney , written on June 12, 2013

From The News Desk

Anyone who has ever been involved in the payroll process almost certainly despises it. Whether done manually, or contracted out to a third-party, payroll has always been a necessary evil of business. Since graduating from Y-Combinator’s Winter 2012 class, ZenPayroll has been systematically reinventing the payroll experience by offering an automated, cloud-based solution.

When it launched out of beta in December, the company attracted the largest Seed round in YC history, at $6.1 million from both leading VCs and top Silicon Valley founders. In April, the company rolled out an update that added support for accountants, and thus making it possible for a single individual or firm to manage multiple companies’ payroll processes from a single dashboard. Today, ZenPayroll is adding support for contractors, aka 1099 workers.

ZenPayroll’s real magic is in its ability to automate the dozens of taxes, fees, and forms that companies must file for every employee to remain compliant with local, state, and federal regulations. The software can manage adding employee hours, overtime pay, bonuses, reimbursements, garnishments, and benefits, as well as issue periodic payments via check or direct deposit. It also offers both employers and employees long term tracking of payments and filings, even after an individual leaves the company.

Today, that suite of services is available for both W-2 and 1099 workers.

“The nature of work is changing given the decline of lifetime employment. People often have several jobs at one time and many companies employ contractors as a part of running their business,” says ZenPayroll co-founder and CEO Joshua Reeves.

ZenPayroll is available in California only at the moment, but will expand to Texas and Florida early next month with New York following shortly, according to its CEO. The plan is to be available nationwide by the end of the year, with Canada soon to follow. The service is priced on a SaaS model, with companies paying a flat fee of $25 plus $4 per employee or contractor per month. Beyond the first 10 payees, this fee falls to $2 for each additional person. This means that a company of five pays $45 per month, and a company of 20 pays $85. The accountant dashboard is free.

In addition to institutional backers Google Ventures, Data Collective, Sherpalo Ventures, and, the company also received investments from Box CEO and co-founder Aaron Levie, Yammer CEO and co-founder David Sacks, Dropbox CEO and co-founder Drew Houston, YouTube co-founder Jawed Karim, Yelp CEO and co-founder Jeremy Stoppelman, Badgeville CEO and co-founder Kris Duggan, SugarCRM CEO Larry Augustin, and Zuora CEO and co-founder Tien Tzuo.

There are six million companies in the US that require payroll, 3.7 million or which have less than five employees. ZenPayroll is focused squarely on the small and mid-sized business (SMB) long tail initially, leaving the enterprise market to the the entrenched incumbents ADP, Paychex, and Intuit for the time being. On the startup front, ZenPayroll competes with Wave Accounting, which is backed by its own $18.6 million in venture capital. Even at modest marketshare, however, ZenPayroll's SaaS model makes for a sizable business. It's biggest risk is that someone dramatically undercut it in price.

There’s nothing about ZenPayroll that limits its usefulness to the enterprise market, simply the lack of a sales force capable of landing these accounts – the company employs just 20 people with no outbound sales team. But looking forward, this is exactly where ZenPayroll is headed and a classic innovator’s dilemma has prevented the incumbents from abandoning their costly and cumbersome offerings. The question will be how quickly it can move upstream and how much market share it can grab before one of the big boys comes knocking with an acquisition offer or gobbles up one of its early competitors.

It’s no surprise that the bulk the company’s early customers have come from inbound interest. Incorrectly managing tax filings, be they for full time or contract workers, can be a source of significant financial and legal headaches. More than a third of US small businesses are fined each year for payroll errors, totalling more than $5 billion worth of penalties in 2011. Beyond this, the process of managing payroll through standard solutions costs the economy millions of man-hours of productivity. In both cases, there is a measurable benefit to ZenPayroll’s cloud-based solution. As a result, ZenPayroll even has thousands of companies outside of California waiting for it to begin supporting their states.

Payroll will never go back to paper and spreadsheets and shoeboxes full of receipts. Nor does managing this process it need to be a tens to hundreds of thousands of dollar expense each year. ZenPayroll has ensured that business owners have access to a better way.