Payroll, employees and contractors

You should strongly consider using a PEO or EOR platform when hiring employees and contractors, as there is a lot of complexity in contracting and employment.

For a PEO, you will hire the employee but they will be “co-employed” by the PEO. This means you pay the PEO, and the PEO pays the employee, but you have full control.

• If you do not use a PEO, you will need to handle a lot more tax and benefit work and for most small startups it isn’t worth it. For instance, you will have to handle payroll taxes for any state your employees reside in.
• With a PEO, you still need to find and hire employees, but the employees will be co-employed by the PEO. The employees shouldn’t care that they are employed by a PEO, and it is quite common for startups.
• To make hires, even on a PEO, you will need an offer letter template from your lawyers, along with things like option grant agreements (if they are getting equity), non-disclosure agreements, etc. – your lawyers should have templates on hand, or you can ask them to prepare the first few.

For contractors, similar to a PEO, the EOR will handle tax reporting and paying the contractor, and you will just pay the EOR.

• You will likely still have other contractors and vendors that aren’t paid through the EOR, for instance your lawyers.
• At the end of the year, you will need to send them a 1099 form showing how much you paid them. If you were keeping track for your profit and loss statement, this should be easy, and there are software solutions that will generate and send the actual tax form for you.

Payroll tax credits

Even if you use a PEO, you will still be eligible for various employment related tax credits. For startups, the biggest one is commonly the R&D tax credit.

• This credit can be earned for things like paying software engineers to develop new software.
• The credit can be applied against payroll taxes, which you will owe even if the company is unprofitable – so it is almost always worth it to claim if you are eligible.
• Your accountant can help you file for this, or you can work with a specialized firm.

Key finance people

There are various finance related jobs and professionals:

• An accountant (CPA) is someone who works on tax matters, either annual tax returns or more specific tax issues, and can prepare your financial statements and tax returns.