Startup payroll looks simple for about a year. It gets complicated at the first three events: hiring in a second state or country, issuing equity, and taking on hourly staff. Buying with those in view saves a migration.
Get the classification right before anything else
The expensive early mistake is treating people as contractors who are employees in substance. It is cheap to fix in month one and expensive later, when it arrives as back taxes and penalties. No software decides this for you, so read the tests that apply and write down the reasoning for each person you engage rather than deciding by invoice format.
A second state or country is the first real break
Registrations, withholding, unemployment accounts and filings multiply with each jurisdiction, and products differ enormously in how much of that they handle. Ask specifically what happens when you hire in a new state: does the product register for you, tell you to, or silently do nothing. The answer is the main reason startups change payroll provider.
Equity compensation touches payroll sooner than founders expect
Exercises and vesting events create withholding and reporting obligations, and the data usually lives in a cap table rather than in payroll. Decide early how the two systems will talk, even if the answer is a documented manual process. Discovering this in a quarter with several exercises is a bad week.
Hourly staff change the product you need
The moment someone is paid by the hour you need time capture, overtime rules and a defensible hours record. Salary-only payroll products handle this thinly. If hourly work is coming, factor it into the choice now, because the migration is much worse once there are people and history in the system.
Questions people ask about startup payroll software
Can we run payroll ourselves at the start?
Technically yes in a single state with a few salaried people. The risk is filings and deposits, which is where small employers most often incur penalties.
When should we switch off a basic tool?
Usually at the second jurisdiction or the first hourly hire, whichever comes first.
What about contractors abroad?
Different rules again, and the classification question is sharper. Decide it before the invoices start rather than after.