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Gusto Launches Embedded Payroll API for Vertical SaaS Platforms

Gusto, a leading provider of payroll and benefits management software, has announced the availability of its services through an API to third-party platforms. This new offering, known as “Gusto Embedded Payroll,” is designed to enable vertical SaaS companies to integrate payroll functionality directly into their own customer-facing applications.

Strategic Growth and Enhanced Value Proposition

This strategic move to distribute portions of its service via partner platforms is anticipated to accelerate Gusto’s expansion. For the partnering platforms, the inclusion of payroll services is expected to significantly enhance the appeal of their offerings to small and medium-sized businesses.

The Rise of the "Business in a Box"

Tomer London, Gusto’s co-founder and chief product officer, explained that vertical SaaS companies are increasingly providing comprehensive “business in a box” solutions. Integrating payroll is a logical progression, given that employee compensation represents a substantial operational cost for most businesses. In fact, payroll often constitutes a company’s single largest expense.

Future API Expansion

Josh Reeves, Gusto’s co-founder and CEO, suggested that further expansion of API access to other Gusto services is planned for the future. The company’s internal architecture, built upon interconnected APIs, facilitates this expansion, allowing for relatively streamlined integration for third-party developers.

Company Background and Funding

Gusto, previously known as ZenPayroll, has secured substantial funding throughout its history, including a $200 million investment in 2019. As of 2019, PitchBook data indicates the company’s valuation reached $3.8 billion.

A Deliberate and Timely Decision

The decision to offer its core services via an API wasn’t impulsive, according to the co-founders. It was the result of extensive deliberation over several years, awaiting the opportune moment in the market. The emergence of vertical SaaS presented the ideal conditions for this initiative.

Squire: An Early Adopter

Squire, a vertical SaaS company specializing in software for barber shops, is among the first partners to adopt Gusto’s embedded payroll service. Squire has previously secured funding rounds totaling $83 million between 2019 and 2020.

Targeted Software and Integrated Solutions

Squire exemplifies the model of developing software specifically tailored to a particular industry. By incorporating Gusto’s embedded payroll, Squire can provide a more complete digital solution for its customers, streamlining their business operations. This integration also allows Gusto to generate additional revenue from its existing codebase.

The Trend Towards API-Driven Services

Gusto’s move aligns with a growing trend observed by TechCrunch, where more startups are opting to deliver their services through APIs rather than solely as managed services. While not a nascent startup, Gusto’s adaptation reflects the evolving landscape of the technology industry.

Financial Performance and Growth

The embedded payroll service is projected to maintain similar economic characteristics to Gusto’s core offering. Josh Reeves reported that Gusto experienced a 50% growth rate in the previous year.