Why We Use Gusto for Payroll (And What We Checked Before We Decided)

Before we set up payroll for the first time, we looked at three options: Gusto, ADP, and Paychex. The decision mattered more than we initially thought, because switching payroll processors mid-year is a significant inconvenience that we wanted to avoid.

The comparison was not close. ADP and Paychex are built for larger organizations and priced accordingly. The interfaces reflect decades of enterprise software design decisions. The support model for small accounts is not the model for large ones. We were not a small account at those companies. We were a small account.

What Gusto actually handles

Gusto handles federal and state payroll tax calculations and deposits. When we run payroll, Gusto calculates the federal withholding, Social Security, Medicare, and federal unemployment tax for each employee, withholds the correct amounts, and remits them to the IRS on the required schedule. It does the same for state income tax and state unemployment contributions in each state where we have employees.

It files the quarterly payroll tax returns (Form 941 at the federal level, and the equivalent in each state) and the year-end forms: W-2s for employees, W-3 transmittal to the Social Security Administration, and the 940 for federal unemployment.

It handles new hire reporting, which is a compliance obligation most payroll processors include but which caught us by surprise when we were doing payroll manually.

The worker's compensation integration is useful for businesses in states where Gusto has partnerships with carriers. They offer pay-as-you-go workers' compensation, where the premium is calculated and paid each payroll cycle based on actual wages rather than estimated annually. This eliminates the year-end audit adjustment that comes with traditional workers' comp policies.

Direct deposit for employees and contractors, an employee-facing portal where employees can view their pay stubs and W-2s, and PTO tracking are included in the base plan.

What it does not handle

State registration is the most important limitation. If you hire an employee in a new state, Gusto will not register you as an employer in that state. You have to register for state withholding and state unemployment separately, obtain the account numbers, and then enter them into Gusto before running payroll. The registration process and timeline vary by state. Gusto provides guidance on what is needed, but it does not do it. We are telling you this because the onboarding flow does not flag it, and we learned it by delaying a first paycheck.

International payroll and contractor payments outside the United States are not supported at the standard tier. There is a separate product for contractors in other countries, but it is a different product with different pricing.

Benefits administration beyond health insurance is limited. If you want to offer 401(k) plans, Gusto integrates with a limited set of providers. If your benefits package is complex, a dedicated benefits broker may be a better fit than relying on Gusto's integration for administration.

What the pricing looks like

Gusto's pricing has changed since we first signed up and will likely change again. The current structure is a base monthly fee plus a per-employee per-month charge. The base fee is modest. The per-employee charge is real, and it adds up as the team grows. At ten employees the monthly total is higher than some small businesses budget for payroll administration.

The comparison to ADP and Paychex is not straightforward because those products bundle services differently and charge for things Gusto includes. The comparison we ran when we made the decision: Gusto was meaningfully cheaper for the first five to fifteen employees, and the interface and support were substantially better for a small business operating without an HR department.

The thing we would tell ourselves

Set up the state registrations before you need to run payroll in a new state. The Gusto onboarding flow makes it easy to add an employee without flagging that the state registration has not been completed. We learned this the first time we hired in a second state and had to delay the first paycheck while the state processed our withholding account application.

The payroll processor is not the compliance system. It is the tool that executes after the compliance setup is in place. Gusto does this well. The compliance setup is yours.