How Does Gusto Work?

No matter the size or stage of your business, Gusto’s key functionalities work together in a cohesive system to handle everything from hiring to onboarding and team management. This ensures increased HR capabilities, efficiency, and ease of operations throughout your organization. Its clients include Snapbar, Floyd Lee Locums, and inVigor Law Group. 

Gusto’s extensive suite of tools and innovative functionalities can be tailored to address the unique challenges of businesses across various industries. Here’s how Gusto works to improve and streamline complex HR operations. 

Getting started with Gusto requires no prior payroll experience or technical setup. The platform walks you through each stage - from entering your business details to running your payroll - with guided prompts, automated calculations, and employee self-service that handles most of the data entry for you. Users consistently describe the setup as straightforward enough to complete in a single session, provided your tax details, employee information, and bank account details are ready before you begin. 

Step 1: Create Your Free Gusto Account 

Create an account where you will not be charged until you run your first payroll. During signup, you will select your plan and begin entering your company details directly inside Gusto's guided onboarding checklist, which tells you exactly what is needed at each step and what to have ready before proceeding. Keep in mind that your Employer Identification Number (EIN) is required before you can hire anyone or run payroll. 

Step 2: Register For A State Or Local Business ID 

Depending on where your business operates, state and local governments may require a separate tax ID for processing purposes. Rather than navigating this alone, Gusto provides state-specific registration resources directly within the platform for all 50 states — covering the agencies, forms, and requirements relevant to each state where your employees live or work. 

Once done with external registration, enter your federal EIN, legal entity name, and business address in Gusto’s dashboard. You will then be prompted to sign Form 8655 (the IRS authorization that allows Gusto to file and pay payroll taxes directly on your behalf). Gusto automatically sets your account to a semi-weekly deposit schedule and Form 941 filing by default to protect against IRS penalties from the start. 

Step 3: Gather Your Team's Information 

For every employee and contractor, you will need their full name, employment start date, date of birth, current address, work location, Form I-9, and either a W-4 (employees) or W-9 (contractors). After entering their email, Gusto then automatically sends each team member a welcome email with a unique link to their own self-onboarding portal. From there, employees complete the process independently i.e., entering their social security number, setting up direct deposit, and enrolling in any available benefits such as health insurance and retirement plans, 

Step 4: Classify Your Employees Correctly 

Misclassifying an employee as a contractor means failing to withhold income taxes and payroll taxes on their behalf — an error that triggers back taxes, amended returns, interest, and IRS penalties. If the classification of workers is unclear, the IRS Form SS-8 resolves it definitively. 

Inside Gusto, classification happens at the point of adding each team member. You select whether they are a W-2 employee, a 1099 domestic contractor, or an international contractor, with each classification triggering a different onboarding flow, tax withholding setup, and payment method within the platform. 

Step 5: Choose A Pay Period And Link Your Bank Account 

Select from weekly, biweekly, semimonthly, or monthly cycles, factoring in your state's legal requirements, your business cash flow, and your employees' financial needs. Once set, communicate the schedule to your team in writing so they can plan accordingly. For teams with consistent pay, activate ‘AutoPilot™’ at this stage to have Gusto run payroll fully automatically on your chosen schedule each period.

Next, connect to the back account that must be a business checking account and cannot be a credit card, savings account, or a team member's personal account. Gusto offers two bank verification methods: instant verification via Plaid, or manual verification through two small micro-transactions. Payroll cannot be processed until verification is complete, so completing this step well ahead of your first pay date is strongly recommended. 

Step 6: Enter Previous Payroll Records 

For businesses switching mid-year from another provider, Gusto's onboarding includes a dedicated step for importing historical payroll data. Click Get started, confirm your active and dismissed employee lists, and select each prior quarter and check date, where employees were paid.

Once entered, Gusto prompts you to compare your total net pay figures against your previous provider's Year-To-Date (YTD) totals — any mismatches can be corrected inline before proceeding. Gusto uses this data to calculate accurate year-to-date tax liabilities and generate correct W-2s at year-end even if you joined mid-year. If you have no prior payroll records, select I don't have any payrolls to report to complete the step and move on. 

Step 7: Run The Payroll 

Before running your first payroll in Gusto, the following should be at your disposal: physical addresses for all employee work locations, federal EIN and legal entity name, state tax registration details for every state where employees work, and your business bank account routing and account numbers. 

Once setup is confirmed, go to the Pay section in your Gusto dashboard, find the active pay period, and click Run Payroll. Review the payroll deadline and scheduled payday, select which linked bank account to debit for this run, and confirm all employee hours, PTO, bonuses, and deductions in the summary view. 

Click Submit then Gusto debits your account, deposits pay into employee accounts, and simultaneously routes all withheld taxes to the correct federal, state, and local agencies. W-2s and 1099s are automatically generated and filed at year-end too. 

Note: New employers default to 4-day ACH processing — submit payroll at least four business days before payday, with a daily cutoff of 4pm PT. If errors are identified after submission, Gusto allows payroll to be cancelled and resubmitted before the debit date — beyond that point, corrections must be processed as an off-cycle payroll run. 

For first-time payroll setups, most businesses complete the full Gusto onboarding — from account creation to running their first payroll — within a single session, with no technical expertise or prior payroll experience required. 

Businesses switching from another provider are typically live within seven days and ready by their next payroll cycle, with setup at no extra cost regardless of plan. For mid-year switchers, historical payroll data is imported within the onboarding flow itself as covered in Step 6 above, ensuring W-2 accuracy from day one without waiting until January to make the move.

Businesses of 25 or more on the Premium plan also receive white-glove data migration, a dedicated customer success manager, and full account setup handled on their behalf. 

In addition to employers, Gusto also comes equipped with features for employees to access their payroll details. These include: 

Employee Accounts 

 Every employee gets their own self-service dashboard to view pay stubs, submit time-off requests, track hours worked, update personal information, and access tax documents, including W-2s — with lifetime account access retained even after they leave the company or change jobs 

Gusto Wallet 

The Gusto Wallet mobile app gives employees direct control over how they receive and manage their pay with a Gusto Visa debit card. Key capabilities include: 

• Early Pay: Receive paychecks up to two days early when deposited into a Gusto Spending account, with funds held in an FDIC-insured account through nbkc bank, Member FDIC (up to $250,000)
• On-Demand Pay: Access paycheck advances between paydays through On-Demand Pay, powered by Clair; fee-free within 2–3 business days or available instantly for a flat fee per advance, with no interest or subscription fees
• Savings Goals: Create up to five automated savings goals funded directly from each paycheck, with variable APY and instant transfer back to the Spending account when needed
• Budget Tools: Set monthly spending limits by category (housing, food, transportation) and track actual spending against those limits within the app 

Gusto's platform is built around the idea that payroll, HR, and benefits should not operate as separate systems. Here, each feature is designed to feed into the next, keeping data accurate and teams aligned without manual intervention. So when a new employee is added through the hiring module, their role, start date, and compensation details automatically flow into payroll. Therefore, any benefits enrollment deductions are then synced with payroll calculations in real time.

Here is a closer look at how each core capability works and what it means for the day-to-day running of your business. 

Payroll And Tax Filing 

Gusto’s full-service payroll and tax filing system brings running payroll down to just a few clicks. It allows you to choose between running it manually or automating it, supporting both salaried and hourly employees, along with the option to add any additional bonuses, tips, and reimbursements. For teams with predictable pay cycles, AutoPilot™ takes automation a step further — once configured, it runs payroll entirely on its own each pay period, requiring zero input from the employer. Furthermore, it: 

• Offers unlimited payroll runs at no extra charge
• Ensures compliance with state tax registration in all 50 states
• Handles all tax calculations (employee and employer taxes)
• Automatically submits necessary forms to the Internal Revenue Service (IRS)
• International payments for contractors in over 120 countries
• Offers multiple pay speed options — Instant Pay (minutes, 24/7/365), Same-Day Pay (within hours), and Next-Day Pay (day before payday)
• Supports paper check printing for employees without bank accounts, alongside the default direct deposit
• Supports Payroll Approvals on all plans, allowing a designated approver to review and authorize each payroll run before submission (with edit-only vs. submit access controls available on Plus and Premium plans) 

This enables you to pay remote and in-house employees whenever and however you want, all while ensuring automated legal and tax compliance. 

Benefits Administration 

Through its comprehensive benefits administration, Gusto seamlessly integrates employee benefits and manages them well within the payroll system. This includes: 

• Health benefits like dental, vision, and life insurance
• Financial benefits like 401(k), workers' compensation programs
• Retirement plans that include Gusto's 401(k), powered by Guideline, syncing automatically with payroll and offering tax credits that can reclaim plan costs
• Tax-advantaged benefits including Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), Dependent Care FSAs, and Commuter Benefits
• Gusto Employee Wallet helps employees plan post-tax savings and paycheck breakdowns, and utilize smart financial tools to secure their financial future