Simplifying Self-Employed Finances
The gig economy is expanding rapidly, not only for those working part-time but also for full-time self-employed individuals. Although nearly 17 million individuals are self-employed in the US alone, SaaS companies often neglect this demographic by building dedicated and accessible self-employed financial tools.
To address these challenges, Formations offers self-employed individuals a tailored solution that empowers them with tax-efficient business structures, financial visibility, and automated tax management. By incorporating embedded payroll, they have adapted their product to meet the specific needs of self-employed individuals, particularly for predictive tax optimization. Formations’ mission is to democratize access to financial tools to help the self-employed run their business with the support and insight typically only bigger businesses can afford. Read the full case study here.
Understanding the Self-Employed Ecosystem
Formations identifies three core categories within the self-employed ecosystem:
- The gig economy
- The supplemental income sector
- The part-time economy
Their focus, however, is on the full-time self-employed—those who make a living in real estate, consulting, therapy, and more. Formations has set its sights on the 15 million “self-employed by choice” individuals in this category.
“15 million of the 17 million self-employed individuals (and families!) in this country are self-employed by choice. That’s shocking in a world with ~3% unemployment. These are real people with real problems trying to make a living. We created Formations to maximize the well-being of people who are self-employed by choice.”
Uri Bar-Joseph, Co-founder and COO, Formations
Continuous Tax Management: A Paradigm Shift
Formations identified a significant challenge within the self-employed community: traditional tax management. Unlike typical corporate employees, where taxes are deducted regularly, the self-employed often deal with tax matters once or twice a year.
Formations introduced a paradigm shift for the full-time self-employed—continuous tax management. Every dollar earned is meticulously marked for appropriate tax treatment, giving users constant visibility and control. Payroll, managing the majority of tax payments, plays a crucial role in this transformative process.
“Collectively self-employed individuals overpay on taxes by roughly $1 billion each year. We’re trying to democratize access to the same tools that corporate America uses to avoid overpaying on taxes.”
Shahar Plinner, Co-founder and CEO, Formations
Choosing Gusto Embedded: A Strategic Decision
Understanding the critical role of payroll in helping the self-employed optimize their tax liabilities, Formations looked for a partner to enhance its offering. Gusto Embedded stood out as the ideal choice. Uri Bar-Joseph, co-founder and COO, highlighted Gusto’s stability and reliability, essential traits in handling the complexity of payroll. The decision to go with Gusto Embedded over traditional players like ADP and Intuit was rooted in Gusto’s agility, responsiveness, and focus on serving partners effectively.
“Early on, we realized we didn’t want to align with the old school, old brand, legacy players. We want to partner with someone who gives us the time of day when we reach out… The startup payroll API vendors had impressive API docs initially, but they don’t have a consumer product. Since payroll is super complicated, we wanted a stable solution. We want a partner who has proven they can consistently and reliably serve this market; Gusto fits that bill.”
Uri Bar-Joseph, Co-founder and COO, Formations
The Embedded Advantage: Control, Streamlining, and Cost Reduction
For Formations, the embedded approach had its clear advantages. It allowed them full control over the user experience, streamlining the payroll process and reducing customer distractions. Embedded payroll improves the user experience and reduces costs by approximately 40%. With Gusto Embedded, Formations tailored the payroll product precisely to the needs of self-employed individuals, avoiding the overwhelm of typical payroll solutions designed for more established businesses.
Transforming the User Experience and Driving Engagement
Embedded payroll brought tangible benefits to Formations and its users. Customers no longer needed to navigate to an external platform, fostering a one-stop-shop experience. The streamlined payroll process gave users a better sense of control. Approximately 80% of Monthly Active Users now log in weekly, reflecting the consistent visibility provided through the Formations dashboard. Improved alerts and relevant updates reduced the need for extensive handholding, mirroring the smooth operations of corporate America.
“At the outset, we had a decision: build for people or for businesses. We chose people. Our solution helps real people make real changes to the trajectory of their financial life, and in turn improve their personal well-being.”
Shahar Plinner, Co-founder and CEO, Formations
Future Vision: Democratizing Financial Tools for the Self-Employed
Looking ahead, Formations envisions becoming the platform of choice for self-employed individuals, aiming to capture a portion of the estimated $1 billion of annual overpayment in taxes by the self-employed. The goal is to democratize access to the financial tools used by corporate giants for tax optimization. With Gusto Embedded as a key ally, Formations is on track to continue to grow and shape the landscape of self-employment, providing an all-in-one solution that empowers individuals to take control of their financial destinies.
Formations’ partnership with Gusto Embedded underscores embedded payroll’s strategic position in the fintech landscape. It’s a testament to how innovative solutions and the right technology can bring about significant positive change. As the self-employed community continues to grow, Formations, powered by Gusto Embedded, stands at the forefront, unlocking financial freedom for those who choose the path less traveled.
Learn more about how Formations and Gusto Embedded have partnered to build embedded payroll: read the case study!
