We use a 'PEO' (ambrosegroup.com). Essentially, they are the 'employer' for all the employees, and provide payroll, medical, dental, 401k, travel accounts, etc - and bill us for the total (plus something for them) every two weeks.

For a small startup, it makes a lot of sense - no time is taken up with 'HR' issues. And (from my initial research) the group medical rates that they can get more than make up for their administration cost. Making the payroll, etc, all a free bonus...