"This is fine" ... except it wasn't

“It's okay. The PEO handles that.” She was confident. Breezy.

Except the company used Gusto. Gusto isn’t a PEO.

A PEO (Professional Employer Organization) is a payroll model that takes on compliance liability as a service. A PEO will register with the states, negotiate better insurance rates for small groups, and manage most of your payroll settings for you. All you have to do is pay a lot more and give up control over a million tiny decisions. It’s a handy approach, but not the only one.

Gusto is user-friendly, flexible, and cost-effective, but someone still has to do the work.

She hadn’t. And now the company owed tens of thousands in back taxes, penalties, and interest.

No PEO? No problem... On Opposite Day!

The HR manager was a thoughtful culture architect. Great with people. Empathetic and efficient. As an HR department of one, she’d created an environment where people loved to work. I was called in because they were having trouble with a few vendors. 

And as usual, the problem wasn’t the vendors, but how the company was using the tools.

The HR manager had used a PEO before, so when she joined this company, she assumed self-managed payroll worked the same way. All that tax and benefits stuff was automated. Right?

Wrong.

I only caught it while setting up disability insurance deductions. “Why isn’t Jeff paying his unemployment tax?” I asked.

She waved it off. “I already submitted that to Gusto. They're working on it.”

“But it's been 8 months. Haven’t you gotten a letter?”

“Yeah,” she said, like I was being dense. “I sent them to Gusto’s tax team. They handle that stuff.”

“I’m pretty sure this is out of their control,” I said. By 'pretty sure' I meant 'absolutely certain.'

The company had received a dozen warning letters from the state. She’d dutifully uploaded each one to Gusto. Gusto had replied, telling her what she had to do next. She’d skimmed them, but missed that she was the one who had to act.

By the time I pieced it all together, it was a mess: Back taxes. Penalties. Messed-up W2s. Hours of clean-up across several states.

She wasn’t careless. She was doing a job she was never trained to do.

Knowing how to build culture isn’t the same as knowing the technical minutiae of tax compliance and benefit setup. You don’t expect the air traffic controller to fly the plane. Or the pilot to fix the engine.

Payroll and benefit compliance is technical work. And technical work requires a lot of specialized experience. You need someone who understands how the taxes work and how labor laws apply. Someone who can translate between finance and HR, and who knows how to translate it into action on your team.

Keep your charismatic HR leader in the office, but give them the technical support they need to make sure your systems match reality. 

If you’re an HR team of one who’s tired of taking the fall when payroll and benefits break down, hit me up. I’d love to talk about how I can build systems that make you look good.

Good at HR, bad at payroll? Let's talk.