Payroll tax withholding problems are the scary story adult founders tell younger founders to keep them up at night. Every group of operator friends I have has a collection of stories about this. Get an accountant before you hire your first W2 employee, and use a payroll service.
Just the idea of trying to operate as a director/partner at a startup without an accountant gives me the willies. It's mindboggling to think people actually wing it past the point where they're making payroll.
Always always always use a payroll provider. If possible (size permitting) use a PEO (JustWorks, TriNet, etc) to take care of payroll taxes and state/local unemployment registration/withholding etc. (especially if you are distributed and you have folks in many states). Getting this wrong can destroy your company, and PEOs are super cheap by comparison!
Absolutely agree with this. They have software that accurately takes care of so many fine details and at such a reasonable per-employee price point that you would have to be nuts not to use one as a small company. In fact it makes me believe Bannon just didn't give it much thought.
There are LOTS of things you can try to do yourself as an entrepreneur (some are easier than others), but I think this is a handy list. It boils down to risk vs. cost. The cost of outsourcing the three of these is relatively small -- the cost of screwing any one of them up is massive.
2) Unless you are an ISP, in which case you might use office365 or similar for company email, but you absolutely need to know how to properly do your own SMTPd.
He is a prolific poster on HN, whose comments and articles often have pretty good insights.
Yet every time I read about his history, I just ask, why? So many of his choices and risks seem so reckless. Is he truly foolish? Or are we the beneficiaries of hindsight, of stress free decision making, ungrounded in the day-to-day reality of running Amicus?
I think the latter is closer to the truth. Meeting him in real life, I realized he was just as sharp in person as on paper. (Also very good at Catan. Damn you Seth.)
And talking with Seth was one of the conversations that helped me to get started on my business, which should break $200K in sales this year.
From what I know about his current startup investments, I think the headlines will be a lot kinder to him in the years to come.
Seth has ample ambition, and when someone with ambition finds an opportunity they want, but lack the credentials for, they'll fight for it regardless. Seth's mistake was thinking others were the same.
Thanks so much for the empathetic and kind comments. And I'm so happy to hear I played a small part in your business! I'd love to hear more.
For those that don't know, as a first time founder and CEO I made a large number of mistakes I wish I hadn't. In retrospect, they seem bone headed but none of it was clear at the time. I wrote about those mistakes so others might avoid making them [1]. Unfortunately that blog post has been turned into a couple takedown pieces at my expense. Such is life.
Thank you for sharing your experience and journey with us. It's disheartening to see that your courage in speaking up and sharing is rewarded with such a negative attitude. I appreciate your attitude.
If you are an employee of a startup, please make sure to check on ssa.gov to make sure they are receiving your payroll taxes. Because if the startup isn't paying them, and they go bust, this will reduce your social security income at retirement time.
I don't know if there is a way to get up to date info, but you can at least catch it after year end. And if you do find a dependency, bringing it up early to your employer could end up saving them too.
Second this - I had this happen to me, although the founder was lying to me saying he was paying them - after we discovered he was a shithead, I reported him to the DA and 4 years later (last friday) he plead guilty to 2 felonies and has to pay us all back.
Ah this brings back memories. I'm honestly blown away that Amicus only had 3.2M in funding. They consistently got a ton of press (they had at least 2 stories in Techcrunch in 2012 and I remember Seth doing a photoshoot in the General Assembly office). It was also one of a few companies I saw self-combust out of GA, at least this one has become a public cautionary tale ala Knight Capital. Hopefully Topper is doing well
"Bannon pretty much ran the company single-handedly".
I am not following: if he was the only person running the company, how did payroll taxes get so large ? Was it for his own pay? The article neglects what the taxes are for which would have been helpful.
Thanks. Including the principal amount for these taxes + number of payroll entities would have been nice - I am trying to get a sense of the relative proportions of these employment taxes vs actual pay.
The article is just content marketing, sensationalizing a mistake made by an extremely small, early stage startup as a marketing ploy to lead you to the conclusion you should buy this company's software to avoid a similar fate. So not surprising it's light on details. For what it's worth, startups at that stage almost never have a CFO nor any admin/accounting staff. That said, obviously it was a mistake and they should have paid their payroll taxes. But the sentiment in this piece is crafted solely to lead the reader to the conclusion that they should pay for this company's software.
Content marketing is content and marketing, not just marketing, and in this case the content is a good warning to others. Yes, they are trying to sell their product, but they are making a good point, and they aren't shoving their product in your faces. I think you are being hard on them for no good reason.
Startups are hard and early stages are always messy. If the piece was journalistically motivated I'd feel differently, but as a marketing post I don't love the vibe. Just my two cents.
It's not clear how much of that is penalties and how much was the original amount unknowingly owed. The CEO didn't really cost the company the original amount, he just was unaware of it (and may have made different choices if aware)
Just a friendly reminder that payroll tax is not inherently hard, though US payroll tax may be.
Down here in New Zealand, for instance, it's quite reasonable to manage payroll for a smallish company yourself. There are some services/tools which people seem to like too.
In the case of an employee without student loans nor child support payments: once a month, the employer submits some information and pays tax to IRD, usually online. Inputs are the employee's gross income, their IRD number, and the contribution rate to their KiwiSaver (retirement plan). Outputs are effectively four numbers: pay the employee $A, send the IRD $B, and then the company needs to record two other amounts which relate to KiwiSaver. Manually dealing with the last two bits may even be obsolete - there's a new process available now, but I haven't switched to it yet.
Income tax is also quite easy from the employee's perspective: decide how much to contribute to KiwiSaver (usually when you start the job), do your work, and receive your pay. There's no annual tax return to file for most people, as the right amount of money shows up in the right places.
ADP has been around since 1949 [1] and handles even single-employee businesses. It's far more of a value when you scale to 10+ as I recall, but even their one person pricing is far cheaper than this IRS debacle here. Don't forget that if you're a California-based startup, you likely have to file with the state agencies, too -- and that system is so byzantine it'll make you relish the time spent with the IRS forms.
Better still would be to call up any random bookkeeper from the local area. Payroll is ridiculously easy for those who know how to do it and is well within the competency of even a bad bookkeeper.
Just remember to always sign all the checks, no matter how small, and look at the bank statements every month. It'll take maybe 20 minutes a week and saves so much hassle and money later.
Honestly I wouldn't downplay complexity of this stuff. Anyone can Google one item, but there are hundreds of items you need to stay on top of. Missing one could mean a massive liability.
The takeaway should be that if it is not your forte, outsource to an expert or spend a lot of time on it to make sure you get it right.
Yeah, you don't know what you don't know. You are going to miss something if it isn't your main focus and you are not experienced. Outsourcing this stuff is cheap, you just plain gotta do it at that level.
If you have employees, "payroll taxes" are such an obvious concern that nobody can possibly claim ignorance. And there are a zillion startups out there that will automate payroll for you - it really makes no sense to DIY it.
I think it's easy to judge people for their mistakes. There's only so much time and energy an individual can do with 120 hours a week. Seth Bannon just had to juggle too much at one time. I think this is why most investors, including YC, frown on single founders vs startups with multiple founders.
This problem is also probably why YC funded companies like Gusto, so founders can outsource that part of running a startup.
Agree on the incompetence piece, but not because cause it's easy. The incompetence lies in the CEO not delegating that to a bookkeeper and/accountant. They're not even that expensive.
I'm one to talk because I made the same mistake, thinking I could do it all with quickbooks. Three anxiety filled years later I wised up and got a bookkeeper (in addition to my accountant) .
you probably did okay with it, but the better metric is to think of all those hours wasted struggling with financials and compare it to the cost of a bookkeeper. (Speaking here from the same experience, btw)
Thing is you don't necessarily need a CFO early on. What you do need, though, is an accountant. Even ignoring possible financial penalties, the cost is low enough that it is likely a net financial positive. A founder unfamiliar w/ accounting will spend longer trying to accomplish the same tasks, and is wasting time that could more productively be spent elsewhere.
How did nobody balance the books at all in 3 years? He states:
"... I thought, Bank of America’s payroll system automatically withholds payroll taxes every month, it’s all automated. But it wasn’t. There was a single “submit tax” button in a separate part of the Bank of America website that had to be clicked to actually pay the taxes."[0]
Any even semi-competent bookkeper would have noticed this.
Just the idea of trying to operate as a director/partner at a startup without an accountant gives me the willies. It's mindboggling to think people actually wing it past the point where they're making payroll.