Why embedded payroll is core to the solution. And why Gusto is the right partner.
In today’s fast-evolving employment landscape, the rise of the Business of One segment has created a need for solutions that cater specifically to these needs. Collective, a one-stop-shop for the Business of One, has emerged as a pioneering platform that simplifies back-office operations for these small businesses.
Collective simplifies the back office finances and enables members to optimize their tax savings by creating a corporate entity and selecting the S corp tax status. However, regulatory compliance becomes an important requirement to unlock these tax benefits, with regular W-2 payroll as a crucial component.
Initially, Collective managed payroll for members via integration with Gusto, but they transitioned to embedded payroll with Gusto Embedded in 2022. This strategic shift aimed to enhance the user experience, minimize support-related challenges, and improve overall unit economics.
“The US system for taxes is more complex than most other countries in the world. So we wanted to help the largest group of founders — the 37% of Americans, or 59 million people, that are self-employed — focus on their passion and not their paperwork.”
Hooman Radfar – Co-Founder and CEO, Collective
Understanding Collective’s vision and the challenges faced regarding payroll is important to understand how working with Gusto Embedded has benefitted Collective and its customers. Read the full case study here.
The Vision of Collective and the Rise of the Business of One
Collective was founded to support self-employed individuals, or the Business of One, by simplifying their operational complexities. All three Collective co-founders have worked as freelancers and understood the pain points of this segment.
They aimed to create a one-stop solution allowing sole proprietors to focus on their passion rather than paperwork. With a significant percentage of Americans (37%) falling into this category, the Business of One segment is growing rapidly, fueled by internet platforms that facilitate turning passion projects into viable businesses.
“A Business of One spends the equivalent of one full day each week on back-office tasks versus generating revenue. That’s 20% or more of their time! So, the more Collective can do for members, the more time they can save and the more they can earn.”
Patrick Bragg – VP Product Management, Collective
Listen to The SMB Tech Innovators episode The technology boom that’s boosting the small business market with Hooman Radfar the Co-Founder and CEO, Collective, to learn more about Collective’s perspective on Embedded Payroll.
The Importance of Embedded Payroll for the Business of One
Collective recognized the significance of incorporating payroll into their solution early. Members operate their businesses as corporations with the S corp tax status, so paying themselves as an employee is required to access tax savings. However, without the support of tools like Collective, the complexity of payroll and taxes can deter individuals from pursuing these benefits. By offering W-2 payroll as part of their solution, Collective aimed to alleviate this burden and empower their members to optimize their tax savings while providing a simplified experience for all back-office needs.
“Not just payroll but fintech in general: building out new products takes a really long time. I worked at PayPal in the early days and I learned quickly that if you mess with people’s money, the emotion is much higher than if you lose a package.”
Patrick Bragg – VP Product Management, Collective
Building Embedded Payroll – Experience and Compliance Matter
When evaluating embedded payroll options, Collective chose Gusto Embedded Payroll for its extensive experience and established compliance infrastructure. Recognizing the time and effort required to build compliance from scratch, Collective sought a reliable partner with a proven track record. Gusto’s decade-long expertise in payroll and its comprehensive support system stood out, ensuring the seamless handling of tax law nuances and compliance requirements as Collective scaled to meet its customers’ needs.
“When we looked at other companies, new payroll API startups… but it takes so long to build compliance. You don’t want to work with the new kid on the block.”
Patrick Bragg – VP Product Management, Collective
Overcoming Challenges and Unlocking Innovation
Embedded payroll is a new paradigm for users and thus building full-service payroll in another software platform offers a new challenge for many engineers. As one of the first partners building with Gusto Embedded, Collective initially faced challenges translating their customers’ needs to the mechanics of embedded payroll. Deep collaboration and access to the expertise of Gusto Embedded’s technical services team helped overcome these obstacles.
Collective has found Gusto’s experience particularly valuable when it comes to the nuance of tax law and payroll compliance. Collective started serving members exclusively in California and now, as the company scales nationally, the team feels confident Gusto Embedded can support their members at scale.
Collective noted the Gusto team’s knowledge not just of the payroll intricacies of states like Pennsylvania and Ohio (which have notoriously complex tax jurisdictions) but also the support enablement program and resources available to Collective’s CS team. As a result, Collective built an in-app product that enhanced the user experience and added to its customer success operation to maintain the overall value of its solution.
“Gusto Embedded is a great product when you want to own the user experience and want more flexibility to serve specific use cases.”
Patrick Bragg – VP Product Management, Collective
The Bottom Line – A Great Experience Pays Dividends
By embracing embedded payroll with Gusto, Collective improved the user experience and reduced costs. Qualitative feedback from users attested to the positive impact of seamlessly integrated payroll within the Collective platform. Furthermore, from a financial perspective, Collective experienced a 50%+ margin improvement on their payroll costs.
“Just like AWS abstracted away the need for developers to think about racks and boxes and thereby unlocked a lot of innovation. Our hope is to unlock innovation among the self-employed by abstracting away all of the things that are necessary but not sufficient to run a business: bookkeeping, accounting, payroll, etc.”
Hooman Radfar – Co-Founder and CEO, Collective
Collective’s collaboration with Gusto Embedded Payroll has just begun. By seamlessly integrating payroll management into their all-in-one solution, Collective has empowered their members to focus on their passions while efficiently managing their back-office operations. The positive outcomes achieved in terms of user experience and increased margins per customer reinforce the importance of choosing the right embedded payroll partner for businesses catering to the unique needs of the Business of One.
Learn more about how Collective and Gusto Embedded work!
