Strengthening ties with SMBs, Chase now offers digital payroll processing

Banks are shifting their focus to serve the small business segment as SMB customers are increasingly seeking services elsewhere. The lack of flexibility and adaptability in legacy banking infrastructure has provided fintechs and payment processors such as Square, PayPal, and Stripe with the opportunity to better address the payment needs of SMBs.

In a move to compete with non-bank players, JPMC’s Chase Payment Solutions has forged a partnership with Gusto, a payroll platform, to provide digital payroll services to its small business payments clients.

Chase serves around 5 million small businesses, with a wide range of financial services, including personal banking, credit cards, small business loans, and payment processing among others.

“Building payroll at a national scale requires deep knowledge and understanding. With Gusto Embedded, we are able to decrease the time to offer a leading payroll service while increasing the value we’re able to deliver to our customers,” said Jessica Young, at Chase Payment Solutions in a statement.

Launched in 2012 as ZenPayroll, Gusto processes payroll, provides HR services, and other employee benefits like health insurance and 401(k) accounts. Small and midsize businesses can directly sign up on Gusto.com to hire, pay, and insure their employees. Gusto Embedded Payroll was launched by Gusto in 2021 and enables software developers to embed and customize Gusto’s payroll API directly into their existing software. This means the embedded payroll feature directed at Chase Payments’ SMB clients can be accessed by logging into Chase.com, where business clients can also carry out other financial operations like payments and banking – all from the same place.

“We’ve taken everything we’ve built over the last 11 years for Gusto.com and baked that into Gusto Embedded to enable other business platforms to build their own payroll products,” Tomer London, co-founder and CPO of Gusto told Tearsheet.

Gusto Embedded is compatible with organizations serving small and medium businesses including vertical SaaS companies, fintechs, banks, and neobanks, among other firms. In 2021, Gusto also acquired Symmetry Software, a payroll tax and withholding calculation platform to provide more developer-friendly payroll infrastructure platforms in the industry. 

“We deliver our proven payroll, tax filing, payments, and compliance infrastructure via APIs and via pre-built user flows from over a decade of deep experience to help partners sell and support payroll,” added London.

The challenges of compliance and complexity in servicing payroll software

While employers need to process payroll, it isn't just a disbursement -- and involves lots of touchpoints with extensive laws related to compliance.

“Payroll is rooted in compliance and customers demand reliability above all else,” said London.

Payroll compliance means aligning with all federal, state, and local regulations that direct how employees are paid. These laws further branch into tax regulations, wage and hour rules, and other applicable requirements varying according to each company. Employers that fail to comply with any of these laws may face penalties that can eat into their profits or a complete company close down in some cases. These chances are more than likely for small businesses that still use manual procedures for data entry and payroll, which can give rise to increased errors and delays.

The Internal Revenue Service (IRS) reported that over 40% of small businesses get fined an average of $845 each year for payroll-tax-related issues as a consequence of missed or late payments, mostly.

As every city, county, and state has its own layers of tax filing requirements and there are tens of thousands of tax agencies in the US, SMB owners often run into state and local income tax issues, according to London.

“In some situations, it takes years until a tax agency alerts employers about an issue with a payroll they have run. Employers then may need to go back to old employees and correct their old W-2s, which is a terrible experience,” he said.

However, businesses can steer clear of compliance inaccuracies to a large extent by turning to automation and software for compliance and technology.

Platforms like Gusto can make a difference by helping their clients simplify the process of running payroll, generating pay stubs, calculating withholding taxes, and filing the right documentation with the respective agencies. One of the central issues of payroll also involves safeguarding employee data. The amount of intricacies and technicalities involved in this process is what likely led Chase Payments to partner with Gusto to provide the underlying technology for the new payroll feature – and save business owners time to focus on their core business.

With over 300,000 customers and a decade of experience managing the ins and outs of payroll by processing over two-thirds of a trillion dollars in payroll for several employers across the country, Gusto believes its core tax filing and compliance infrastructure is built to scale and can now manage partners as large as Chase. 

According to London, this is imperative because scaling means setting the stage to have more tax and compliance specialists on board, covering edge cases, and engaging government stakeholders in ways that smaller payroll providers may not be able to.