Photo Credit: Nattanan Kanchanaprat from Pixabay

According to a recent report, the global cloud-based payroll software market is estimated to grow at 6% CAGR from $11.6 billion in 2021 to reach over $16.8 billion by 2027. San Francisco-based Gusto recently entered the Decacorn club in this space.

Gusto’s Offerings

Founded in 2011 by Edward Kim, Joshua Reeves, and Tomer London, Gusto develops web-based payroll solutions for small and medium-sized businesses. The company was set up was set up when its founders realized there were glaring gaps within the payroll processing solutions available for small businesses.

It operates an online platform that provides payroll, benefits, human resources, and integration services for both employers and employees in the United States. Gusto offers health benefits and workers’ compensation benefits that include medical insurance, commuter benefits, 401 (k) contributions, in addition to workers’ compensation insurance plans, time tracking, integration services, and access to employees for processing payroll from web-enabled devices such as smartphones and tables. Contractors and employees also have the ability to view previous pay stubs, review their payroll forms, verify personal details, statistics about their pay, tax payments, federal forms filing services, and security and support services.

The pandemic had a significant impact on small businesses. Several businesses shut down, and others took loans to offset declining sales. Gusto’s customers asked Gusto to defer payments as the bottom line shrunk. But the government’s stimulus, and now the opening of conditions has helped Gusto and its customers. Gusto’s benefits, tax, and payroll tools helped distribute more than $4 billion in Paycheck Protection Program loans to businesses that did survive.

Gusto’s Acquisitions

Recently, Gusto announced its acquisition of Remote Team. The pandemic has accelerated the creation of remotely located teams. Remote Team helps provide HR technology for remote companies offering services needed to hire remote workers in other states and abroad. The acquisition will add several new features to Gusto’s software, including international contractor payments and simplified business tax registration. Terms of the acquisition were not disclosed.

Gusto also announced the acquisition of Ardius, a SaaS firm that automates tax compliance and helps small businesses navigate the R&D tax credit. Ardius was set up by Joshua Lee, a tax tech expert, in 2018 to democratize tax incentives. Today, Ardius integrates with companies’ existing financial systems to discover and categorize tax credit-eligible expenses. Post the acquisition, Ardius will continue to operate as a stand-alone business. However, Gusto is developing a new integration that works to further simplify the process for accounting partners and businesses to secure the tax credits that they’ve earned. Terms of the acquisition were not disclosed.

Gusto’s Financials

Gusto operates on a subscription-based model. The pricing is dependent on the nature of the services that its customers want to use. Being privately held, it does not divulge its financials.

Gusto has raised $746.1 million in 13 rounds of funding from Friends & Family Capital, Glynn Capital Management, Fidelity Management and Research Company, Sands Capital Ventures, Emerson Collective, Emergence Capital, Dragoneer Investment Group, 9Yards Capital, Franklin Templeton, and Cross Creek. Its most recent round was held in May 2022 where it raised $55 million at a valuation of nearly $10 billion.

Gusto faces competition from bigger players like ADP and Paychex, who together command almost 10% of the market share. The payroll market is pegged as a highly fragmented market, and Gusto appears to be using the payroll business and rolling up adjacent HRTech players.

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