Square Adds Payroll To Its Ever-Expanding Offerings For Small Businesses

Square is quickly becoming the one-stop shop for small merchants.

In the last year, the San Francisco-based financial services company launched a scheduling and booking system, marketing tools and Square Capital, a small business cash advance program. On Tuesday, Square added payroll to that list of services, introducing a product that it hopes can take on incumbents like ADP and Intuit by helping business owners better track employee hours and financial records.

On course for an initial public offering later this year according to insiders, Square's push into payroll is the company's latest move to diversify beyond its core business of processing credit card payments. While it introduced a new reader last month that will allow merchants to accept smartphone-based payment forms like Apple Pay, the company is hoping that it can offer them more tools to help run their businesses more efficiently.

"In talking to merchants there was a theme of how scary it was to hire and pay employees," said Lauren Myrick, who leads the Square Payroll team. "Most solutions were not really focused on hourly employees, but on salaried employees. Could we do for payroll what we've done for small business financing or credit card processing?"

Square Payroll, which has been tested with 600 merchants of varying size, will initially be available to California-based businesses only, though the company's intent is to make it available across the country, said Myrick. The focus, she added, will be on the small business owner who hires hourly employees, a demographic that accounts for most of the nation's 6 million businesses. Three out of every five workers in the U.S. today are paid hourly, while 90% of businesses have less than 20 employees, according to Square.

That's a similar target for the likes of ZenPayroll, another San Francisco-based startup that's raised more than $85 million to tackle the payroll industry. Having launched his company's product almost three years ago, CEO Joshua Reeves said that ZenPayroll has more than 10,000 customers and has processed billions of dollars in employee payments already.

"Our whole mission is to simplify the life of the business owner in the middle of Oklahoma that has done payroll by hand for 30 years and is now choosing us to serve them," said Reeves.

While Zenpayroll and Square will likely be competing for similar customers, there is plenty of territory to share, with Reeves pointing to the fact that incumbents like ADP, Intuit and Paychex only serve about a sixth of the nation's 6 million businesses. About 40% are still doing payroll by hand, he said.

Myrick said early users of Square Payroll have been able to save hours on bookkeeping by using integrated software and online forms instead of paper and pencil to keep track of employee hours. Square will also handle tax and withholding calculations, automatically processing and filing documents for businesses. That will help in reducing the $4.5 billion in payroll penalties accrued by American businesses in the year ending last September, said Myrick.