Cloud startup simplifies small-business payroll

ZenPayroll automates filing for both full-time employees and contractors. A new API links the service to time managers and other human resources apps.

Tax regulations and other legal requirements make processing payroll one of the toughest management tasks for small-business owners, and data suggests that up to one-third of them are fined every year for mistakes. 

Cloud service provider ZenPayroll is tackling this challenge head-on: since its launch about 10 months ago, it has expanded from its original market in California to cover seven states and is expanding its geographic reach rapidly. ZenPayroll's customers are managing roughly $150 million in annual payroll using the service, said the company's co-founder and CEO, Joshua Reeves.

"We are taking what Square has done in terms of its focus on automation and ease-of-use, and bringing this to the payroll space," Reeves said.

ZenPayroll's application, which is hosted in the cloud, handles the task of goverment reporting and processing as an electronic process. The San Francisco-based company hopes to build on its early momentum with a new application programming interface (API) that will tie and connect its service to other small-business applications and services, such as scheduling software or expense reporting apps. That will make it easier to share data, instead of having to reenter it. So, for example, the time card information from the scheduler could be used to calculate an employee's paycheck.

"We're looking at how payroll fits into the ecosystem," Reeves said.

The API has already captured the attention of other HR and financial management software companies, including Expensify, Deputy and BambooHR.

"When companies can reimburse their employees effortlessly through payroll, they close the loop in expense management and everyone wins," said David Barrett, CEO and founder of Expensify, in a statement.

Brooklyn Cruiser, which designs and sells urban bicycles, adopted ZenPayroll several months ago to reduce the amount of time it spends on calculating paychecks for its 10 employees and contractors.

Ryan Zagata, president of the company, tried other solutions including one from Intuit and found them overly complicated. He approached the service after it made its California debut, intrigued by its simplicity and the relatively short set-up time required.

"It was taking me too much time to figure things out, and I actually ended up working with contractors to keep it simpler," he said. 

ZenPayroll, which has raised $6.1 million in funding so far from Y-Combinator and individual investors, isn't the only new player seeking to exploit the need for payroll services among small businesses. Another new company carving out a position is New York-based Justworks, which just snagged $1 million in venture capital funding led by Index Ventures. It is licensed in 25 states so far, and plans to be nationwide by the end of 2014.