How to Simplify Employee Benefits Management with Payroll Integrations

The demand for specialized employee benefits management solutions is rising as employers seek better, more personalized packages to attract and retain top talent in an increasingly diverse and virtualized workforce. The global employee benefits platform market is projected to double to $2 billion between 2024 and 2032, while the broader benefits broker market is already valued at $43 billion.

New federal legislation and employer incentives that aim to increase the average American’s savings have given rise to a new breed of tech-forward, personalized benefits that offer more affordable alternatives to traditional employer-sponsored benefits. By leveraging technology like API-based payroll integrations, these benefits providers are able to automate and streamline admin processes, which significantly reduces costs for employers. The result is more accessible, affordable, and easily implemented benefits for employees.

What are employer-sponsored benefits?

Employer-sponsored benefits include workplace benefits that are fully or partially paid for by the employer—things like health insurance, health savings accounts (HSA), retirement plans, financial wellness programs, emergency financing, and fringe benefits. Benefits sponsored by an employer are typically available to employees at a significantly lower cost than if they were to access them directly. 

Today, the cost of offering and administering traditional benefits like retirement accounts and health insurance has become so expensive that some small to midsize business (SMB) employers can’t afford to sponsor them. The new wave of employer-sponsored benefits, supported by tech-forward providers, offer alternative benefits, made more affordable in large part because they’re more efficient. Examples include health savings and reimbursement arrangements (ICHRA), simplified retirement plans, and emergency savings/financing options. 

Many of these new-age benefits work by directly integrating with the employer’s payroll system to streamline data collection and manage payroll deductions automatically. This direct connection reduces the administrative burden on both the employer and the benefits provider and makes it easier to calculate the tax impact of those deductions and contributions.

But gaining bi-directional access to those payroll systems is easier said than done, which is why employee benefits management has traditionally been so challenging and expensive. 

Challenges of traditional employee benefits management

To effectively administer benefits to their customers’ employees, benefits providers need to enroll eligible employees in relevant plans, stay up-to-date on qualified life events, manage employee deductions or employer contributions, and maintain compliance with state and federal regulations. Without direct access to the employer’s payroll system, these tasks become challenging for a variety of reasons.

Challenge 1: Difficulty in collecting accurate and timely data 

Without payroll integrations, benefits applications have to rely on file-based data-sharing methods like SFTP or CSV uploads to access the information held in employers’ payroll systems. This requires significant HR admin work: employers either manually enter details into the benefits systems or request batch files from payroll providers, often at an additional fee. While file-based data transfer doesn’t inherently impact the data, manual touchpoints in file-based data-sharing methods increase the risk of errors and lead to bad data in the form of typos and other inaccuracies. 

“Manual file uploads are not only time-consuming, they’re wrought with errors. It simply didn’t align with our product vision.” – Erika Davison Aviles, Co-Founder and Head of Product, TempoPay. 

Moreover, payroll data isn’t standardized across providers, meaning each provider stores the same information in different formats and under different field names. File-based data sharing methods like SFTP don’t address this issue, forcing benefits providers to standardize the incoming data and adding further complexity to the process.

Challenge 2: The complexity of creating and updating deductions

Benefits providers need to keep a close tab on payroll deductions, which can vary based on things like employees enrolling in new benefits, adjusting their elections, or making changes to retirement contributions. For example, an employee might want to increase their contributions to a 401(k) or payroll-linked emergency savings account at any time.

Benefits applications also need to write those changes back to the employer’s payroll system so the most updated deductions and contributions information are reflected on the employee’s paycheck. Accuracy and timeliness here are critical, raising the stakes for benefits applications that rely on manual processes. 

If the benefits provider doesn’t have direct access to the payroll system, HR administrators may be on the hook for manually making these adjustments—a workflow that costs employers hundreds of man-hours and thousands of dollars each year. For instance, 64% of HR leaders spend 9 hours weekly on manual data entry, with each data point costing an average of $4.78. 

This is particularly challenging for SMBs with small HR teams and without the budget to sponsor traditional benefit packages.

Challenge 3: Security and compliance issues

The sensitive and personal nature of employment data, which includes details like SSNs and financial information, makes employee benefits a highly regulated industry. Payroll and employment data are governed by strict regulations regarding how this data is collected, stored, and used. 

And staying compliant isn’t just about how that data is shared—the provider also has to keep track of employee eligibility data, like when new employees can join plans, when employees leave the company, or when a qualifying life event occurs. Non-compliance means steep penalties for the employer—talk about a bad user experience.

The slow, manual nature of old-school integration methods makes it hard for both employers and benefits providers to stay on top of compliance guidelines while managing employee benefits.

Advantages of using payroll API integrations to power employer-sponsored benefits management

Application programming interfaces (APIs) allow two systems to connect with each other to share information reliably and securely. Specifically, payroll APIs allow benefits providers to connect their software with the employer’s payroll system to automatically pull relevant data and write changes back.

API-based payroll integrations are a game-changer when it comes to employee benefits management. They offer several advantages like:

• Automatic data collection
• Enhanced data security
• Automated eligibility checks
• Streamlined onboarding and enrollment
• Dynamic deductions management

Automatic data collection

Payroll API integrations create a direct connection between the payroll provider and the benefits application, offering access to payroll data in near real-time. 

Unlike manual data-sharing methods that only update periodically, API integrations ensure data is always current. This enables benefits providers to quickly verify employee information, track changes, and adjust contributions or deductions on an ongoing basis, not just at the end of each pay cycle. This near-real-time data transfer significantly improves accuracy and plan responsiveness and reduces the risk of compliance failures.

Plus, with API integrations, employers only need to authorize data access once when setting up the connection. After that, they don’t need to worry about how and when the data is shared on a day-to-day basis. This saves HR admins hours each week, allowing them to focus on more strategic tasks. 

Enhanced data security

Using payroll integrations enhances data security by eliminating the need to send sensitive personal information (PII) through insecure channels like email. Even FTP-based file transfers are at risk of being intercepted if not properly authenticated and encrypted.

API-based payroll integrations, on the other hand, provide a secure, thoroughly encrypted connection between payroll systems and benefits applications, protecting employee data from unauthorized access and breaches. This increased security is crucial for maintaining trust and compliance with data protection regulations, safeguarding both employee information and the organization’s reputation.

Automated eligibility checks

With payroll API integrations, benefits applications can efficiently collect and organize key details like hire dates, employment status, and compensation. This allows them to automatically determine eligibility based on criteria like tenure, job title, and salary—improving the operational efficiency of benefit plans. For example, they can automatically verify if an employee meets the service length, employment status, and compensation requirements for various tax-advantaged plans like 401(k).

Streamlined enrollment

Payroll integrations make enrolling in benefits faster and easier through continuous access to the most up-to-date employee data. Auto-enrolling employees in benefits plans using payroll integrations eliminates the need for monotonous data entry and multiple back-and-forths. This further reduces the complexity and friction often associated with benefits administration, leading to a better overall user experience.

Dynamic deductions management

Bi-directional or 360° payroll integrations let benefits applications automatically read vital employment data and write deductions back to each employer’s payroll system without having to go through the employer or communicate with the payroll provider. This ensures that payroll is always up-to-date and adjusted for any changes in employee benefits, like changes in coverage or contribution levels. By giving the benefits provider the ability to adjust the payroll directly, API integrations minimize errors, ensure compliance, and provide a smooth, hassle-free user experience throughout the benefits lifecycle.

Examples of how payroll integrations simplify employee benefits management

Payroll integrations simplify the implementation and management of various employee benefits by automating data collection and deduction updates, reducing errors, and enhancing overall efficiency. Let’s look at a few real-life use cases.

1) How payroll integrations simplify HSA/FSA benefits processing

API integrations play a crucial role in managing Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). These applications need access to payroll data like employees’ contribution rates and salaries or hourly wages in order to calculate how much should be deducted from each paycheck. With 360° payroll integrations, HSAs and FSAs can automatically create and modify pre-tax contributions in the payroll system. They can then confirm that contributions are correctly withheld from each paycheck and updates are seamlessly applied in accordance with IRS limits.

For example, Lane Health, a Health Savings Account (HSA) provider, saved their customers 8-12 hours of manual data entry each month by using payroll API integrations.

2) How payroll integrations streamline student loan repayment benefits

Helping employees to pay off their student loans through tax-free deductions is a benefit that is quickly increasing in popularity. Payroll integrations dynamically adjust deductions based on what percentage of their paycheck employees choose to contribute. They can also incorporate employer matches, automatically calculating and adding these contributions. This automation ensures that repayments are consistent and accurate.

3) How payroll integrations simplify financial wellness benefits processing

Financial wellness programs benefit greatly from payroll integrations. By syncing detailed and holistic compensation information—including salary, bonuses or commissions, and equity—these platforms can offer personalized educational insights and tips to employees, such as how much to save or budget each month. This data-driven approach helps employees make informed financial decisions, enhancing their overall financial health. Payroll integrations also ensure that the advice provided is based on the total picture of the employee’s compensation, making financial wellness programs more effective and tailored to individual needs.

4) How payroll integrations simplify fringe benefits processing

Fringe benefits can include anything from commuter benefits to mental wellness programs. By using payroll integrations, fringe benefit platforms can offer a smoother and more enjoyable experience to employers and employees. For example, commuter benefits applications can use payroll integrations to accurately calculate and apply pre-tax deductions for transit passes or parking expenses. 

Payroll integrations are the future of seamless employee benefits management

To sum it up, the demand for affordable and personalized employee benefits is growing rapidly, and tech-savvy benefits providers are riding this momentum by using 360° payroll integrations to offer innovative solutions to employers of all sizes. By directly integrating with employers’ payroll systems, these benefits applications are streamlining data access to save time and reduce errors—ensuring a more affordable and more accessible experience for both employers and employees. 

Unlock access to hundreds of HR and payroll systems with Finch

Finch’s Unified Employment API gives benefits providers read and write access to data from hundreds of HR and payroll providers, covering 88% of the U.S. payroll market—all through a single integration. With Finch, you can scale HR and payroll integrations, simplify employer onboarding, auto-enroll employees in benefits plans, and manage deductions automatically, all without the hassle of ongoing integration maintenance.

Using Finch means spending less time building technical bridges and more time on product innovation. Schedule a call with our sales team to learn more about how we can support your specific use case, or try it yourself for free.

‍