Payroll Management for Growing Companies: Beyond Basic Processing

When you had 5 employees in one state, payroll was simple. Enter hours, run payroll, done. At 25 employees across 5 states with varying compensation structures, it's a different beast entirely.

Growing companies need payroll systems that scale with them—handling new states, benefit complexity, compliance changes, and integration with other systems. This guide helps you navigate payroll as you grow.

Payroll Complexity as Companies Grow

Simple Stage (1-10 Employees)

• Single state
• Mostly salaried or simple hourly
• Basic benefits (if any)
• Owner can handle or simple provider

Growing Stage (10-50 Employees)

• Multiple states (remote work)
• Mix of salary, hourly, commission
• Benefits administration complexity
• Need robust provider with good support

Scaling Stage (50-200 Employees)

• Many states, possibly international
• Complex compensation (equity, bonuses)
• Full benefits suite
• HRIS integration requirements
• Need enterprise-capable provider

In-House vs. Outsourced Payroll

In-House Payroll

• Pros: Full control, no vendor dependency, may be cheaper at very large scale
• Cons: Requires expertise, compliance risk on you, software costs, time-consuming
• Best for: Large companies with dedicated payroll staff (200+ employees typically)

Outsourced Payroll

• Pros: Compliance handled, expertise included, scales easily, time savings
• Cons: Monthly cost, dependent on vendor, less control
• Best for: Most growing companies (10-200 employees)

Our Recommendation

For companies with 10-200 employees, outsourced payroll is almost always the right choice. The compliance complexity, time savings, and cost of errors make self-processing risky. Focus your team on running the business, not payroll tax filings.

Payroll Provider Landscape

Modern Cloud Providers

• Gusto: Great UX, strong for smaller companies, solid benefits
• Rippling: HR platform with payroll, good for tech companies, scales well
• Justworks: PEO model, bundled HR/benefits/payroll

Traditional Providers

• ADP: Market leader, full suite, better for larger companies
• Paychex: Similar to ADP, strong service network
• Paylocity: Mid-market focus, good HR integration

International Specialists

• Deel: International contractors and EOR services
• Remote: Similar to Deel, strong in EOR
• Oyster: Global employment platform

Multi-State Payroll Compliance

Remote work has made multi-state payroll the norm, not the exception. Each state brings new compliance requirements.

What Multi-State Requires

• State registration: Register as employer in each state
• Tax withholding: Withhold correct state (and sometimes local) taxes
• Unemployment insurance: State UI registration and tax payments
• Workers' compensation: Coverage in each state
• Tax filings: Quarterly and annual returns per state

Complexity Drivers

• Varying rules: Each state has different withholding rates and rules
• Local taxes: Some localities have additional taxes (NYC, Philadelphia)
• Reciprocity: Some states have reciprocal agreements
• Nexus triggers: One employee in a state can create tax nexus

Benefits Administration

Payroll and benefits are intertwined—benefits affect gross-to-net calculations, and payroll systems often manage benefits enrollment.

Common Benefits

• Health insurance: Medical, dental, vision
• Retirement: 401(k) with company match
• Life/disability: Basic and supplemental coverage
• FSA/HSA: Tax-advantaged healthcare accounts
• PTO/leave: Vacation, sick, parental leave

Integration Considerations

• Bundled vs. separate: Some payroll providers include benefits; others integrate
• Deduction accuracy: Benefits deductions must flow correctly to payroll
• Enrollment sync: Changes in benefits should update payroll automatically

Payroll Accounting and Integration

Payroll Journal Entries

Each payroll run creates journal entries:

• Gross wages: Debit wage expense accounts
• Employer taxes: Debit employer tax expense
• Employee withholdings: Credit liability accounts
• Net pay: Credit cash (or payroll clearing)

Integration with Accounting

• Automatic sync: Best providers push journal entries to accounting software
• Mapping: Map payroll accounts to GL accounts
• Timing: Entries should post when payroll is processed

Reconciliation

• Liability reconciliation: Verify payroll liabilities match what's owed
• Tax deposit verification: Confirm taxes were deposited correctly
• Bank reconciliation: Match payroll cash to bank statement

Payroll Fraud Prevention

Payroll is a common target for fraud. Controls protect against both internal and external threats.

Common Fraud Types

• Ghost employees: Payments to fictitious employees
• Falsified hours: Inflated time worked
• Unauthorized raises: Salary changes without approval
• Commission manipulation: Inflated sales for commission

Prevention Controls

• Segregation of duties: Different people add employees, process payroll, review
• Payroll review: Someone reviews every payroll before processing
• New employee verification: Verify identity and authorization
• Change approval: Pay changes require documented approval
• Bank account verification: Verify direct deposit changes

Frequently Asked Questions