By Anwuli Chukwurah
You finally have enough money to pay people.
Your business is growing, and you want to streamline your vendor and payroll operations. There are two types of people expenses: 1099 contractors and W2 employees. 1099 contractors are people or vendors you hire to help with a business problem. You can’t control how and when they do their job. You sign a contract with the contractor with an expected deliverable and hope to get the agreed-upon deliverable. A W2 employee is someone that you can control how and when they do their job. You pay their payroll taxes via your payroll system. They would also receive company benefits such as health care insurance and paid time off.
4 tools you can use to pay your contractors/vendors and employees:¹
- W2 Employees & Contractors: Gusto and Justworks
- Contractors/Vendors Only: Ramp and Melio
Gusto
Gusto is a payroll and HR platform for small to medium-sized businesses. It’s not free. Most payroll platforms are not free and have a monthly base cost plus a per-employee fee. I do not like dealing with the headaches that come with payroll, as there are many different rules and regulations based on where your employees live. Instead, I would outsource this to a system that will ensure all correct forms and taxes are paid and filed. Yes, you can do this yourself, but it’s best to focus your energy on what will grow the company rather than being bogged down by payroll and HR paperwork.
You can also get healthcare benefits through Gusto for your company. Gusto takes a week to implement if you’ve never had an employee before. It’ll take longer if you have historical payroll and employee information that needs to be entered to make sure everything looks right and the proper payroll taxes are being paid. It can also pay contractors, but I suggest using Ramp or Melio for better details and controls.
Justworks
Justworks Payroll is another payroll platform for small to medium-sized businesses. It’s not free, but it provides the same capabilities as Gusto and allows you to be set up within a week. The only downside is that it operates in fewer states than Gusto. Again, the system will ensure all correct forms and taxes are filed and paid. The difference between Justworks and Gusto is that Justworks has a more extensive payroll product, Justworks PEO, that will allow you access to better healthcare benefits for your team. So, if you want to transition to this product, you can start with Justworks. If you’re looking at costs, go with Gusto, as it’s less expensive on a monthly basis.
Ramp
I’ve discussed Ramp several times as my top option for paying your vendors and contractors. It’s a free system that allows you to pay your vendors via ACH, check, or card and create virtual/physical credit cards for your team. It also allows you to implement controls such as not allowing any bills to be paid unless a second person in the team approves the expense. It’s very easy to set up and can be used within three days. It takes three days because your account has to be approved to be on the system. As a business, you need at least $75K in your bank, as that’s how they calculate your card limit without requiring your personal credit score. If you don’t have this amount yet, you can use Melio to pay your vendors until you need business credit cards for your team.
Melio
Melio is a free system that allows you to pay your bills and contractors via ACH, card, or check. It also allows you to pay your international contractors with a transaction fee as well. It’s straightforward to set up and use from the first day. It syncs with Quickbooks Online, so all bills paid via Melio are already recorded in your financials. Before Quickbooks Online rolled out its native bill pay option, it partnered with Melio. It also allows you to implement approval workflows — making sure the right bills are getting paid and no bills are paid without the approval of a designated manager.
Choosing one tool from each category will solve all your operation needs when paying people. The great thing about these tools is that they integrate with your accounting system, such as Quickbooks Online. So, there will be no double work to ensure all payment transactions are recorded. They will also guarantee you collect the right forms from your vendors/contractors and employees. Nothing is more annoying than finding out you need a form from a vendor you stopped paying eight months ago. Now you must send the awkward email, hoping they respond with the requested form.
About the author:
Anwuli Chukwurah is a versatile finance professional with a track record of starting new finance organizations and scaling them for growth in fast-paced entrepreneurial environments. She has over 6+ years of experience working with small business owners, startups, and nonprofit organizations to help connect finance with their business goals. She aims to ensure her clients become comfortable and adept at navigating their numbers. She works with clients at Woolichooks and writes a newsletter for non-finance folks.
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