Bambee's Vision to Save American Small Businesses Billions in Payroll Penalties

I can guess what you’re thinking after reading the title, "just what the world needs - yet another payroll solution".

The honest answer is yes, that's exactly what the world needs, and here’s why:

10 years ago, businesses had three ways to pay their workers: use one of two established payroll providers, pay cash, or through their CPA.

This is no longer the case. In the last decade, the number of payroll providers has exploded - a Google search for "payroll solution" returns over 1.3 billion results, representing as many providers fighting in the market.

But examining the value propositions of today’s top payroll providers reveals few discernible differences. What you'll find on their websites is varying flavors of the same thing: the ability to record employee hours, distinctions between exempt / nonexempt employees and contractors, tax filing, and direct deposit. Play musical chairs with their logos and who would know the difference?

In other words, you'd be hard pressed to find true innovation. 

To be clear, I respect many of the great Payroll businesses that exist in the market. I just have a dramatically different vision for the industry’s future and how to transform it to better serve The American Small Business.

Today, society is currently learning an important lesson. Folks are learning to value questioning norms, about gender, sexuality, and race. Courageous people have dared to push society to answer, “what is gender?”, thus opening a lane of rich expression and growing acceptance of expanded norms. If you’re wondering about the answer here - gender is fluid, but I digress 😊.  As a member of the LGBTQIA community these are questions I’ve long had, first about myself, then more broadly. I think, at least in part, as an entrepreneur this is why I question everything. In the context of HR, Technology, and Payroll, the Bambee team and I dared to ask, what is value?

Is processing payments to employees “value”? If yes, then what’s the value of the convenience of  processing wages digitally, rather than in-person? And how much is that value worth? Generally, how much is convenience worth? 

Payroll companies have successfully automated the exchange of services for wages and abstracted tax collection with technology, all of which was innovative and valuable at one time. But this innovation was introduced to the market over 20 years ago and has remained largely unchanged since then. 

So how do so many billion dollar payroll companies keep appearing and growing in size if they aren’t innovating on the value they’re providing to their consumers?

The answer is simple: size of market and switching costs. 

Americans are self-starters, so we launch new small businesses all the time.  In 2021, new business applications jumped a whopping 23% over the prior year according to the US Census.

Payroll as an industry makes it difficult for companies to switch providers: onboarding is cumbersome, migrating employee direct deposit setups carries administrative burden, not to mention the headache of dealing with taxes when switching payroll providers mid-year. Small businesses ask ”why move to a new payroll product when it takes so much effort with little benefit on the other side?” Successfully locking-in customers reduces the incentive for companies to innovate.

Perhaps this dynamic is just fine. So we asked, is there any value left to discover? Or is payroll a commoditized solution, akin to aspirin?

In short, we found the answer to that first question is yes, certain aspects of payroll still have objective and quantifiable value. For example, the importance of filing accurate payroll taxes to the government is easy to intuit. Uncle Sam gladly lets you know when you’ve made a mistake.

Incorrect tax filings aren’t the only major penalties small businesses face. Wage & hour mistakes are equally painful and onerous. The Department of Labor reports 14,000+ new wage & hour claims for payroll mistakes filed against businesses each year. In fact, 40% of small businesses incur a wage & hour penalty every single year, resulting in billions of dollars in penalties over 10 years. That’s billions in under-delivered value to small businesses. Inside this multi-billion dollar wage & hour problem, is opportunity for more innovation and better ways to service the market. This is precisely what Bambee Guided Payroll will aim to do. 

Clearly, mistakes are a common occurrence for small businesses operating on the largest payroll platforms, but there is little to no support by the payroll providers themselves to solve these problems. Recall that payroll customers are loath to move to another provider. So payroll enterprise value continues to balloon year over year, while small businesses remain trapped. The team at Bambee thinks this dynamic is bullshit.

So how is Bambee Guided Payroll different?

First, I won’t be disingenuous and pretend that the increase in customer retention from vendor lock-in, from which the other payroll companies benefit, wasn’t part of the appeal. But Bambee never does anything simply because it's good for business. We lead with what’s good for our customers and in parallel prove why it’s also good for Bambee.

We approached payroll to shake up the status quo and fuel our endeavor with two core beliefs:

1. Small business shouldn’t be punished for making honest mistakes
2. The commoditized convenience of payroll should be free 

Bambee’s Guided Payroll is unique in that it’s the only payroll product on the market that comes with the guidance of a dedicated HR Manager, there to help small businesses navigate wage and hour compliance, enhanced by automated processes to ensure that everything runs smoothly.

But why is human guidance necessary?

The most frequent type of complaint to the Department of Labor is related to wage and hour calculations - Small American companies are being punished for making mistakes because of clerical errors (addressable via technology) and HR knowledge gaps (requiring professional guidance). 

Fortune 500 companies staff entire teams to help them navigate these concerns. But small business owners and their employees have been left on an island. Before our Guided Payroll product, they were expected to work through complex compensation scenarios on their own. With Bambee, they have a partner that leverages technology and human support for real-world scenario guidance, with the aim of error reduction.

So how do we get Bambee Guided Payroll into the hands of those small businesses that need it most?

We make it free.

We've launched Bambee Guided Payroll as an absolutely free service in 2022 for the smaller business segment, which we define as companies with up to 19 employees. Bambee customers with 20+ employees will only pay $4 per employee, which represents a savings of 40% to 70% vs. market leaders.

Will payroll eventually be free for every company on the Bambee platform?  

Yes, that is our goal. 

Is this just a loss leader strategy? 

No, but who really cares? Win-win is what we aim for with every product we release.

To be clear, we don't make our money on payroll. Bambee is an HR practices company, and our ability to help clients quickly reach compliance is rooted in the timely and thorough knowledge of their activities. With Guided Payroll, Bambee can see when a new employee is hired, when a star is promoted, and when independent contractors are paid.  This helps us service our customers better and in turn makes them less prone to risk. For example, changes to a company’s payroll might have us ask things like:

• Have your new employees signed critical HR policies?
• Are you fostering a healthy culture through feedback and dialog to your team?
• Are your new employees enrolled in appropriate workplace training, like sexual harassment prevention?  
• Are you terminating your employees with dignity and in a compliant manner?  
• Is your independent contractor truly "independent" or are they misclassified?

For customers on our payroll offering, we have immediate insight into each of these potential risks. Then, through the combination of HR Autopilot, which automates our clients' key HR practices, and their dedicated HR Manager, we bring fast HR relief by reducing both risk and workload. Proactive HR makes us that much more efficient and ultimately creates fewer opportunities for our customers to make mistakes. We pass those efficiency gains back to the customer in the form of cost savings.

Guided Payroll - anchored on guidance from a dedicated HR manager - is a huge leap forward for us and for our customers. At scale this means an employment market with fewer mistakes, happier and more productive workplaces, and maybe even a little more dignity for small businesses and the people they employ.

Of course, Bambee's payroll product also includes the various flavors of the table stakes features with which I started this post: standard payroll processes, two-day direct deposit, and automated filing of accurate federal, state, and local taxes. We just believe that those features are a footnote; not flagship value propositions.

Bambee Guided Payroll is now live in all 50 states and will add thousands of new payroll customers in 2022. We are working to deliver new features to our Guided Payroll Product every day but for now, our ability to deliver this service to 4 million small businesses, for free, feels like a win.