Payroll

Almost half (49%) of HR professionals use seven or more different software products every day to manage their workforce. These systems are rarely able to communicate with each other, which means the data often differs slightly in each database—unless the HR team manually updates each system daily—making it difficult for employers to get a comprehensive overview of their workforce. Fortunately, there’s a better way: payroll integrations. 

From streamlining pay to keeping retirement benefits up-to-date and efficiently managing benefits enrollment and deductions, payroll integrations enable the faster, more accurate workflows that HR professionals want. 

In this guide, we’ll look at payroll integrations in detail—including common use cases, benefits, and challenges—as well as how they’re commonly built and maintained. 

What are payroll integrations?

Payroll integrations are a means of connecting payroll systems to the other HR, benefits, and fintech solutions HR teams use to manage their workforce. Built on APIs, payroll integrations automate the exchange of data between the employer’s primary source of truth (the payroll system) and other applications, so the information held in each system is always accurate and up to date.  

As payroll processing becomes more complex, API payroll integrations offer a range of benefits, including easier access to accurate data, automation, and more intuitive workflows.

Common use cases for payroll API integrations

From managing 401(k) plans to streamlining tax compliance, payroll API integrations optimize various HR and administrative functions, enhancing efficiency and accuracy. Typical use cases for these integrations include:

401(k) and retirement

By integrating with payroll systems, 401(k) recordkeepers and third-party administrators (TPAs) can streamline sponsor onboarding, automate retirement plan enrollment, easily manage deductions, and access all the information required for yearly record-keeping audits. 

Real-world success: How Human Interest Streamlines 401(k) Operations and Onboarding with Finch

HR tech

HR tech platforms are supposed to integrate with a company’s existing systems—but with so many payroll providers, that’s not always feasible. With an API-based payroll integration, there’s no need to update employee data across systems—it’s synced automatically.

Employee benefits

Benefits platforms rely on frequent, manual updates, often leading to errors and delays. Using a payroll integration helps employers onboard new hires, enroll them in any benefits programs, and automatically manage deductions.

Real-world success: How Lane Health Helps More Employees Afford Medical Expenses 

B2B fintech

By connecting payroll and HRIS data, API integrations allow employers to quickly and easily access insights around pay data, operational expenditure, compensation benchmarking, and more.

Real-world success: How Rillet Stood Up 40 Payroll Integrations in Just 5 Days 

Insurance

Insurance carriers need accurate and up-to-date company and employee data when providing quotes, underwriting policies, and managing claims. Integrations allow carriers to access the data held in employer systems of record. 

Tax and compliance

Up-to-date information is also crucial for tax and compliance platforms, but collecting this data is labor-intensive and manually sharing that data can often produce errors. Payroll integrations allow instant access to critical employee data in near real time. 

Benefits of payroll integrations

Payroll integrations bring numerous benefits, from saving time and eliminating data silos to enhancing the employee experience. Here's a closer look at how they benefit various stakeholders, including app developers, employers, and payroll providers:

Benefits for application developers

• Improves access to high-quality data: Your potential customers have had enough of dealing with out-of-date, inaccurate data. But they also want to know that their data is in safe hands. Payroll integrations can reduce compliance risks by only collecting strictly necessary data directly synced from employer systems of record—not via email or other unsecured channels. By pulling the data automatically, your application can build automated workflows to expedite payroll processing, increasing the likelihood of meeting Service Level Agreements (SLAs). 
• Simplifies workflows: Streamlined onboarding and an intuitive user experience help your customers achieve a faster time to value. Since they no longer need to manually enter data or switch between multiple applications, they can operate more efficiently and realize a return on their investment much faster. 
• Increases total addressable market (TAM): HR teams don’t want more solutions that can’t integrate with their existing tech stack—they’ve got enough of those. Integrations are now table stakes for them. For employment tech SaaS tools, ensuring your solution integrates with as many payroll systems as possible significantly increases your potential customer base—and ultimately, your revenue.

Benefits for employers

• Reduces administrative burden: Payroll integrations streamline HR tasks, saving valuable time. With 84% of HR professionals emphasizing the importance of tech stack integration, it's clear they spend too much time—up to 10 hours a week—working in disparate employment systems. Integrations free them from mundane data entry, allowing them to focus on HR tasks that require a human touch.
• Improves employee experience: Payroll integrations make it easier to create a comprehensive experience for the employee across all the systems they use to log hours, review pay statements, and manage their benefits, like health insurance and retirement plans. When all of this data is synced across platforms, employees can make changes—like updating their 401(k) contribution, for example—and rest assured that it will be accurately reflected in their next paycheck. 
• Removes data silos: Instead of toggling between multiple applications, integrating payroll systems with other HR applications creates a centralized system for managing employee data. This kind of integrated experience isn’t just more user-friendly—it’s more accurate and efficient, too.

Benefits for payroll providers

• Efficient, reliable connections: Payroll providers are the gatekeepers of mission-critical employee data. Integrations allow these systems of record to freely exchange data with the other applications their customers use. That creates a better experience for the employer and further cements the provider’s role as the primary source of truth for their customers.

3 ways to build payroll integrations

Payroll integrations can be split into three main build options—building a direct (custom) integration using the payroll provider’s API, using a unified API, or using an iPaaS solution. Here’s a closer look at the pros and cons of each method—and when they are most appropriate to use:

Custom API integrations

Custom API payroll integrations are usually created in-house, connecting the application to a single payroll provider. These are best suited for organizations that require a high level of customization and that have significant development resources.

Unified payroll APIs

Building payroll integrations with a unified API like Finch means organizations only need one integration to seamlessly connect with any one of hundreds of payroll providers. A unified API is an excellent choice for organizations with limited customization needs that don’t have the time or resources to build custom integrations in-house. Choosing a unified payroll API also allows for rapid scalability and data standardization across multiple providers.

iPaaS solutions

Integration Platform as a Service (iPaaS) solutions help internal development teams create custom 1:1 payroll integrations. iPaaS solutions are best suited to organizations with limited in-house technical capabilities that don’t need to move quickly. That’s because they are fairly low-code solutions as compared to other approaches and provide the basic rails for building an integration but still require a decent amount of internal development work to customize the integration to the particular application using it. iPaaS solutions can be difficult to scale because they’re often tailored to specific, well-defined use cases.

Challenges of building and maintaining payroll integrations

Building and maintaining payroll integrations can pose significant challenges, from varying data quality standards to ongoing maintenance demands. Common challenges include:

Data quality and standardization

The format and quality of data often vary significantly between payroll providers, so applications building a custom 1:1 payroll integration need to ensure the data is standardized to match their internal field names and formatting. Otherwise, the Operations team would need to manually map each data field, costing precious time and making it more difficult to build automated workflows. Establishing data standards can help standardize the quality, accuracy, and consistency of data from a wide range of sources. 

Gated APIs and partnership requirements

Payroll platforms don’t often have public APIs, which means partnerships with providers are required to access API keys, documentation, and other essential information. Getting these agreements approved can take a significant amount of time, on top of the additional burden of security checks and fees. This can be challenging to overcome for start-ups looking to integrate their products with the broader market.

Cost of building and maintaining 1:1 integrations 

The cost of building just one custom integration can quickly run into six figures—our research shows that just one in-house integration typically costs upwards of $187,000. In the highly fragmented payroll market, where the top three providers only account for about 45% of employers, applications need to build dozens or even hundreds of in-house integrations to support all of their customers, which is rarely cost-effective. 

Source: Finch’s Guide to the U.S. Payroll Landscape

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Ongoing integration maintenance requirements

Building 1:1 integrations is one thing—maintaining them is another. Even after they're built, these integrations need ongoing maintenance—including updates as and when required—which can be costly and resource-intensive. 

Lack of scalability 

Scaling in-house payroll integrations is expensive and requires significant time from software development teams. From accessing the API and developer documentation for each payroll provider to creating custom code and untangling data intricacies, it’s a massive amount of work. Multiply that by the number of integrations required—and it’s an untenable option. 

Get started with payroll API integrations

For businesses looking to simplify payroll integrations, Finch’s Unified Employment API streamlines connectivity across hundreds of payroll providers. Only Finch offers secure, standardized, and comprehensive two-way integrations with the largest network of payroll and HRIS systems. 

Our experience makes Finch the best choice for developers working in employment tech, too: we’ve got the integration know-how, data depth, granularity (down to individual employee pay statements), and SME knowledge you need to succeed. Finch also uses assisted integrations to significantly expand data coverage—particularly important for niche or “long-tail” providers with only a small market share—and Finch Flatfile for organizations that want the benefits of a unified API without the need to build an integration to Finch.

If you’re ready to tap into the power of payroll integration, we’re here to help. Try Finch for free or schedule a consultation with our team.

Introduced in 2020, the Individual Coverage Health Reimbursement Arrangement, or ICHRA, has gained popularity as an affordable employer-sponsored health benefit. ICHRAs deliver employees access to more personalized health insurance plans and can make it easier for employers to manage their costs. 

The nature of ICHRA administration requires providers to manage dynamic payroll contributions and deductions that can change from month to month and employee to employee. As a result, ICHRA providers are increasingly relying on payroll integrations to access their customers’ payroll systems and manage reimbursements and deductions on their behalf. Bidirectional payroll integrations give providers two-way access to employers’ payroll systems, meaning they can work faster—and with fewer resources.

What is an ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-sponsored health benefit that reimburses employees for individual health insurance premiums and medical expenses. Employers set aside a monthly allowance for each employee, which they can use to cover the cost of their plan, eligible medical expenses, or both.

Unlike traditional group plans, ICHRAs offer flexibility, allowing employees to select any health plan that suits their needs and get reimbursed up to a limit defined by their employer. This provides tailored coverage options while effectively controlling costs.

Under an ICHRA, employees are reimbursed for qualified healthcare expenses through their paycheck up to the employer limit. In some cases, the employee may be able to pay for costs that exceed their reimbursement limit through payroll deductions. That means ICHRA providers need to be able to reimburse employees for their expenses and make deductions from their paychecks. 

Key components of ICHRA administration

Administering an Individual Coverage Health Reimbursement Arrangement (ICHRA) involves three key steps. 

Step 1: Set up reimbursement plans

To implement an ICHRA, the employer has to set reimbursement limits for each class of employee. The classes are defined by employment status (full-time, part-time, or temporary), geographic location, whether the employee is salaried or hourly, and whether the employee is part of a collective bargaining agreement. 

Step 2: Manage employee eligibility and enrollment

Once the reimbursement limit has been set, employees need to be enrolled in the plan based on eligibility criteria. ICHRA providers need to be able to pull employee data like hire date, employment status (full-time or part-time), and salary and wage information to determine eligibility and the right class for each employee. They’ll also need to track employees’ proof of coverage once submitted to ensure the plan meets regulatory requirements.

Step 3: Manage reimbursements and deductions

When an employee submits a reimbursement request, the provider needs to be able to track and approve requests and reimburse the employee for the correct amount through their paycheck. If the employee exceeds their reimbursement limit, they may be able to pay the balance through their paycheck as well—so providers also need to be able to manage payroll deductions within each pay cycle.

How payroll integrations power ICHRA administration

As the provider, the first step to successful ICHRA administration is ensuring you have accurate and timely access to an employer’s payroll data. Because health expenses can fluctuate month to month and employee to employee, the reimbursements and payroll deductions that ICHRAs require are complex and always changing. 

Without the ability to pull data directly from the payroll system and write changes back to that system, the responsibility of updating employees’ paychecks would fall on the employer. That’s a ton of work for any HR department, but especially taxing for small employers without the resources of enterprise businesses. Creating a best-in-class customer experience means reducing the administrative workload on your customers by managing this work on their behalf. 

But with multiple employers, all of which could have tens, hundreds, or thousands of employees, this is no small feat. Automating this work can help—and that’s where payroll integrations come in.

360° payroll integrations allow ICHRA providers to fetch data directly from the employers’ payroll systems and update reimbursements and deductions automatically—making it the most efficient and secure way to access mission-critical payroll data for ICHRA administrators. 

Let’s take a closer look at how payroll integrations can power ICHRA administration. 

1) Comprehensive, reliable data access

Payroll integrations create a seamless connection between the payroll system and your own software, syncing information between the two on a daily basis or on-demand. When an employee is hired, terminated, or sees a salary adjustment, that information is automatically shared with you—along with all the details you need to determine eligibility. And when the data is standardized—as it is through unified API providers like Finch—you can receive data from any payroll provider in the same format. (In other words, data is mapped across different providers’ various field names to a single, consistent field name.)

Removing manual processes from the workflow—like asking employers to manually send files with payroll information—can increase the overall accuracy of the data and create a better experience for your customers. HR admins spend an average nine hours per week manually updating benefits-related data between systems. 

2) Automated payroll contributions 

After each statement period, you likely deliver a report with the total reimbursements due to each employee. The employer will then take that information and either upload it to their payroll systems themselves or work with their payroll provider to distribute the reimbursements to each employee. 

Now imagine how much better the employer experience would be if that were done automatically. Bidirectional payroll integrations enable just that: you can write the employer’s contributions to each individual employee’s paycheck, through the payroll system, without ever having to involve the employer.

Each employee’s total reimbursement can vary each period, so using automated workflows to calculate what they’re owed and write the amount back to the payroll system guarantees the employer makes accurate contributions each period. This ensures that each employee is reimbursed in full for all of their qualified medical expenses in a given period, and unused funds are retained by the employer.

3) Automated payroll deductions

Under some plans, employees whose premiums exceed their reimbursement limit can use pre-tax deductions from their paycheck to pay the balance. In that case, you as the provider need to be able to make payroll deductions equal to the amount the employee owes each month.

Like with employer contributions, deductions can be automatically managed through 360° payroll integrations. Based on their class and reimbursement limit, you can calculate how much needs to be deducted from an employee’s paycheck before taxes to cover their health plan expenses, then send that information to the payroll system on the employer’s behalf. 

4) Improved efficiency

Directly connecting to an employer’s source of truth through a payroll integration eliminates bottlenecks in ICHRA administration. For example: you can pull all the data pertaining to employee eligibility to quickly identify eligible employees and their reimbursement class during enrollment. Plus, when employee data is refreshed daily or on-demand, you don’t need to wait for employers to send their payroll data through manual channels or SFTP to begin processing contributions or deductions.

5) Improved compliance and better reporting

As in any regulated industry, maintaining compliance with state and federal ICHRA requirements is paramount. With on-demand access to standardized data from each employer, you can easily verify that each employee is eligible to participate and that the plan complies with requirements defined by the ACA, ERISA, and other government regulations. For example, payroll integrations make it easier for you as an ICHRA provider or for a third-party administrator to automatically verify that ICHRA plans do not favor highly compensated employees and adhere to IRS non-discrimination rules. 

Plus, evergreen access to employers’ organization and payroll data means you can more easily offer additional administrative benefits, like year-to-date summaries and insights from census data that could help employers to understand how they can best serve their workforce. For example, you might highlight that the employer has enough hourly employees to add an additional ICHRA class.

Unlock access to hundreds of HR and payroll systems with Finch

Payroll integrations have immense value in ICHRA administration, but building and maintaining multiple API integrations is costly, resource-intensive, and often not scalable. With Finch’s Unified Employment API, you only need to build one integration—to Finch—to access hundreds of payroll and HR systems at once.

Finch offers the widest and deepest available coverage of HR and payroll systems—4x more than any other unified API. Schedule a call with our sales team to learn more, or try it yourself for free.

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.

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SECURE Act 2.0 is driving fundamental shifts in how retirement plan administrators operate. 

The most immediate impact of these laws on recordkeepers will be related to compliance, but the ripple effects will reach much further, putting recordkeepers under tremendous pressure to adapt—fast. 

Our whitepaper explores how recordkeepers can keep pace with the ever-changing landscape. Download today and learn: 

• How to maintain compliance in the era of SECURE Act 2.0 
• Strategies to enhance the sponsor experience 
• How automated integrations will empower recordkeepers to work faster and more efficiently

If you’ve ever worked in the retirement benefits space, you know that keeping track of information between systems is one of the most challenging aspects of managing 401(k) plans. Using manual methods makes it even more difficult. For this reason, the popularity of automated 401(k) payroll integrations is on the rise. 

In this article, we will cover how 401(k) payroll integrations work, the differences between 180 and 360-degree payroll integrations, the cost and risks of sharing data manually, and some frequently asked questions. 

We will also discuss how Finch is powering payroll integrations for top players in the retirement benefits industry such as Human Interest, Betterment, Ubiquity, and more—helping them offer best-in-class 401(k) experiences for employers and individuals.

How payroll integrations work in 401(k)

A 401(k) plan is a defined contribution plan. Employees receive a certain amount at retirement based on their contributions over the years. They defer a part of their wages into a 401(k) account which is processed and managed by plan administrators and recordkeepers. 

Employers, or plan sponsors, are in charge of running and overseeing the retirement plan. They:

• Enroll employees into 401(k) plans based on their eligibility
• Calculate contribution details 
• Record deduction details for each pay cycle

While employers can offload some of the responsibilities to a recordkeeper, there is often still a surprising amount of manual work involved. Typically, employers manually enter the data and make necessary adjustments in their payroll system or to their recordkeeper’s system.

Some plans allow employees (or participants) to submit modification requests for their deferral options too. This leads to more administrative burden and complexity for employers and recordkeepers. 

In the absence of 401(k) payroll integrations, plan sponsors are responsible for ensuring employee deductions and employer contributions are always up-to-date between systems. 

But when the employer’s payroll is fully integrated with the plan administrator's system, any changes made to employment status or contribution rates are automatically adjusted.

Who benefits from 401(k) payroll integrations?

401(k) payroll integrations are critical to all stakeholders involved in enabling retirement benefits to employees. This includes plan sponsors, payroll providers, 401(k)/retirement plan administrators, and recordkeepers. 

Plan Sponsors

401(k) plan sponsors benefit greatly from payroll integrations. They automate employee enrollment as well as contribution and match updates. This boosts operational efficiency, reduces data entry errors, and eliminates the need for manual data reconciliation by sponsors.

Payroll Providers

According to a recent survey we ran, today’s employers on average use 6-7 employment systems. As a result, they are always on the lookout for integrated experiences. As retirement benefits gain popularity among employers, especially small and medium businesses (SMB), the demand for payroll providers that easily integrate with chosen 401(k) plan administrators will also rise. This makes integrations essential in the payroll tool decision-making process.

401(k)/Retirement Benefits Plan Administrator

Retirement plan administrators can improve data accuracy and process efficiency with payroll integrations. They can also use it to offer customizable and tailored 401(k) solutions. This helps them build trust and loyalty with employers in the competitive retirement benefits market.

Recordkeepers and Third Party Administrators (TPA)

Recordkeepers and TPAs can harness bi-directional data synchronization—that is, the ability to pull employment information from payroll systems and push contribution data back —enabled by payroll integrations, to reduce data reconciliation efforts and demonstrate higher responsiveness throughout the retirement plan cycle. 

180° vs 360° payroll integrations in 401(k)

Payroll integrations are automated connections between employers’ payroll systems and 401(k) plan administrators. There are two types of connections available based on the scope of data flow: 180 payroll integrations and 360 payroll integrations. 

180 degree payroll integration

In a 180 degree payroll integration, data flow is unidirectional—from payroll providers to the 401(k) systems. This means whenever employment data (such as termination, address, promotion, etc.) is changed in payroll systems,  a 180 degree integration will automatically update the information in the 401(k) software or the recordkeeper’s system. 

However, if an employee modifies their contribution details in the 401(k) tool, it will not be reflected in the payroll system. The employer will have to update the changes on the payroll platform manually. This leaves room for data entry errors.

While it is more advanced than manual data entry, bulk uploads, or SFTP, 180 degree integrations are still limiting in scope. 

360 degree payroll integration

With 360 degree payroll integrations 401(k) plan providers can bi-directionally sync data with the employer’s payroll system:

• Any data updated in the payroll system is captured in the 401(k) tool 
• Any contribution changes made in the recordkeeper’s system are automatically adjusted in the payroll tool 

This ensures consistent and up-to-date information exchange between all systems of record. Recordkeepers can automate the entire benefits workflow—from enrollment to deductions changes.

For this reason, 360 degree payroll integration is often a favorite by sponsors. 

Benefits of 180 and 360 degree payroll integrations 

A complete integration between payroll and 401(k) systems is critical. It solves multiple problems for the retirement benefits ecosystem. Payroll integrations can:

Reduce administrative burden and save time for plan sponsors

Extracting and uploading data manually from one system to another every pay period is inefficient and resource-heavy. Employers can save significant time by using advanced integration technology to automatically track and capture retirement data changes.

Improve data accuracy to maintain compliance

401(k) is a heavily regulated industry and the compliance requirements for retirement plan providers are quite strict. 

The manual data entry process is prone to data entry errors causing compliance risks. They can also cause delays in updating deferral details leading to late deposits, wrong investments, penalties, and increased tax liability for employees. 

401(k) payroll integrations, automate and eliminate compliance risks by directly capturing data from the employers’ source of truth. 

Improve 401(k) yearly audit with streamlined employee census

Eligibility to 401(k) plans depends on the employment details captured in the employee census report. Employee census data include:

• Individual employee information (name, address, SSN, date of birth)
• Employment details (date of joining, compensation, eligibility information, employment status)
• 401(k) information (employee deferral and contribution amount)

As employee information changes throughout the year, so does their census data. 

Typically, organizations conduct yearly census updates and send employment data to their recordkeeper. Each time a new employee joins or leaves the organization, plan sponsors must send their eligibility or distribution details to their recordkeepers. It helps to keep the 401(k) plans up-to-date. 

But, doing so involves a lot of back-and-forth data exchange between employers, plan administrators, and recordkeepers. These manual processes can make it more difficult to manage.

180 or 360 degree payroll integrations sync employee census with recordkeepers and ensure that the retirement plan is always compliant and correct. 

Enhance user experience

If you are a 401(k) plan administrator, your ability to attract and retain customers depends on two things: 

• How much administrative burden you can reduce for them 
• How easily they can navigate between different systems they already use

360 payroll integrations enable you to do both. 

FAQs about 401(k) payroll integrations

1. What is the best payroll integration method?

Most 401(k) administrators prefer a 360 payroll integration. It enables them to fetch data from the payroll systems and update contribution changes back into the payroll system without having to lift a finger. Plus, it saves their customers, the employers, the headache of ensuring no data is missed.

But, a 180 payroll integration is better than no integration. Plus, only some payroll systems support 360 integrations. 

Regardless of the use case, manual data entry is the least preferred method for most sponsors and providers due to its inefficient and outdated mechanisms. 

2. How much do payroll integrations cost?

To scale your business as a 401(k) plan administrator or a recordkeeper, you need to provide some level of payroll integration. 

But, building integrations in-house is a costly affair. It requires technical expertise, and hundreds of building, testing, deployment, and maintenance hours. As of 2023, building just one payroll integration can cost SaaS businesses in the retirement industry an average of $187,500. 

Now, multiply that by 5,700+ payroll providers in the U.S. market today, and you’ll see how unrealistic this method is. 

If you have limited engineering bandwidth, look for a unified solution that will make payroll integrations easy and cost effective. 

3. What is the best way to implement a 360 payroll integration strategy? 

If you are an employer, look for a 401(k) plan partner offering bi-directional data sync capabilities (i.e., a 360 degree integration) with your payroll provider.

If you are a retirement solution company i.e. a 401(k) plan provider, recordkeeper, or TPA, create a shortlist of payroll providers that your customers use most. Then explore what a direct integration might look like for each — or contact Finch. 

Finch is a unified employment API that makes payroll integrations quick and easy for retirement benefits solutions. It allows applications to read accurate employment data and write back deduction details back into the payroll system. 

No manual data entry, bulk upload, or SFTP setup is needed. Learn more about Finch’s automated deductions here

How is Finch different from other payroll integration solutions in the market?

• Immediate integration capabilities: Finch is the only payroll integration solution today that offers integrations with 200+ HR and payroll providers in the US. By connecting once with Finch, you can immediately unlock access to hundreds of HR and payroll tools.
• Smooth employer onboarding with Finch Connect: Employers can connect their payroll to your system in two easy steps during onboarding. 1) They select their payroll providers from the options provided, and 2) they sync their account and set up permissions for data transfer using Finch Connect. Thus, completing the onboarding process in 30 seconds. 
• Manage integrations on autopilot: Finch is designed for ‘set up and forget’. It does all the heavy lifting for building and managing integrations. It enables smooth, consistent, and fresh employment data exchange between systems. 

Building a 401(k)/ retirement benefits solution? Let us help you

Finch is powering retirement benefits platforms and 401(k) plan providers like Human Interest, Ubiquity, and Betterment offer employers 360 degree integrations with the payroll provider of their choice. Want to learn more? Set up a call with our sales team here or get started with Finch today for free.

The payroll landscape is constantly evolving, and staying on top of emerging challenges and budding trends is imperative, if not exactly easy.

Recently, we sat down with Keely Aguayo, a nine-year payroll veteran and Finch’s own payroll and benefits advisor, to talk about what’s new and next in the space. Having worked in payroll leadership positions at some of the most exciting and fast-growing companies, she offered tremendous insights on post-pandemic complexities, reporting shortcomings, and more that we didn’t want to keep to ourselves.

Diana:
Great to chat with you today. As a quick intro to the audience, my name is Diana Liu. I’m the first business hire at Finch and currently work on product and channel partnerships. I am incredibly excited to interview our resident payroll expert, Keely, about all things payroll today. Keely, would you mind giving a quick intro about yourself and your background, as well as what you're doing at Finch?

Keely:
Sure. Hi, everyone. My name is Keely. I've been working with venture-backed startups to manage payroll, benefits, and compliance for about nine years now, and I am currently advising Finch on all payroll and benefits needs in relation to their product.

Diana:
Awesome, thank you so much for that intro. So, you've had a chance to do payroll for some of the most tech-forward companies in HR tech. I'm really curious to know – what are some interesting trends that you're seeing? What are some of the biggest improvements that you've been noticing over time?

Keely:
I remember when I first started doing payroll, you had two options. You either went with basic ADP or you went with Paychex or QuickBooks payroll. There weren’t a ton of options out there, and it has been so interesting, almost mind boggling, to see how many new players have come into the market to do payroll and benefits, or one or the other, or HRIS. There are so many names out there that are doing this really well.

I would say the biggest trend that I'm seeing now is rather than just being a payroll provider, providers are now trying to be an all-in-one solution. They want to manage payroll, they want to manage benefits, they want to manage compliance, they want to be able to do all your state filings, help you with registrations, help you really hire these distributed workforces that are becoming so common these days in the tech industry. And it's been really great to see. Obviously, some companies are doing it better than others, but it's so great to know that there are so many options out there now for people to look at when they're looking for a new payroll benefits and compliance provider.

Diana:
I'm also really curious, do you see any high-level or major differences between providers that service primarily SMBs versus enterprise employers?

Keely:
No, I feel like the provider that works best for a company is very much company-specific. And what that means is, what is their priority? Is their priority a pretty HRIS system that can have all the functionality that they need? Is their priority, "Look, we have a really complex payroll system. We have three different payroll cycles. We have to figure this out. We need a payroll system where the payroll module needs to be super functional." Or maybe it's just, "I don't want to do anything manual, so I want to make sure you are currently integrated with all of my benefits providers, 401(k), health—that it's an all-in-one shop."

And so, it really depends on what the company is looking for, because it's very hard for these payroll providers to do all of it well, right? They're going to concentrate on one section of what they offer. Some of them have an amazing HRIS system, but their payroll's really manual, or it's lacking, or it's not as up to date as some of the other providers on the market. Whereas some others really concentrate on the payroll side of things. Maybe they started out as a payroll provider, and they moved into HRIS, but they weren't able to make their HRIS as functional and as great as their payroll. So, it's really company-specific.

Diana:
That makes a lot of sense. And I'm now thinking about my previous company, where, when the pandemic happened, people were allowed to start working remotely and they moved all over the place. I'm really curious to hear, what was your own experience managing payroll throughout the whole pandemic?

Keely:
It has definitely been a struggle for a lot of companies. I was remote prior to the pandemic and actually worked with a lot of remote companies, so it was a little bit easier for me to jump in. I knew the nuances. I knew how registrations were going to work, how filings were going to work. I knew that organizations would need to put in some kind of formal process for moves and whatnot. A lot of companies struggled in 2020. I worked with one company—they had 400 people in New York in 2020. At the end of 2020, they had 42 left.

Where did these 350 people go? Yes, some talked to their managers, some put in formal requests with HR, but some didn't say anything until they got their W-2 and were like, "Oh, so sorry, we actually moved across state lines. Can you correct us?" That’s a huge burden on not only the company but the payroll provider, and it's a huge cost, because to redo filings and regenerate forms and that kind of thing is both time consuming and very costly. So, it’s important to put a process around what that looks like but also, from a company standpoint, deciding if you’re going to allow it. Is this just something you are allowing for this year? Is this something you’re going to allow going forward? If you don't allow it, what does that look like?

So, it was a big struggle, and a lot of companies did not do well with it, while others did really well with it. It depended on how you approached it, how much you were on top of it, and what kind of information you provided to the employees. If you didn't tell them that they needed to communicate things, or you didn't give them a way to easily communicate things, it definitely caused a lot of struggles.

I would say the most I've ever seen companies struggle was early 2021, and it was really just fixing filings and W-2s and getting things straight and finding out where their workforce actually was. A big one was obviously if they changed countries, that's huge. “What are we going to do? How are we going to support this?” On the international side, there's a lot of players that have come onto the market since the pandemic started—new payroll providers that work in 120 countries and manage your entire workforce. And that is a byproduct of the pandemic and the issues it caused with US-based companies.

Diana:
I'm really curious to get your take on employers of record, or EORs. I feel like a few major players have popped up in the last few years, as you've mentioned.

Keely:
EORs are great, obviously, for companies that have a few employees in a particular country but are not at the point where they are able to open up a legal entity there. The EOR stands in as the legal employer in those cases and takes care of all the regulated aspects of employment like payroll, taxes, and benefits.

As with anything, some EORs are great, some are not so great. You can run into issues. EORs are very costly. At what point does it make sense to create your own entity? And I think that's where a lot of companies are struggling now. Maybe the EOR worked when they had less than five people, but now that they have 20 people in the country, does it make sense to open an entity? Does it make sense to offer benefits? What would that look like, and what would be the cost? So, I think EORs are great for what they do, but having 20 or 30 EORs can be a little too much for a company to manage.

Diana:
I'm wondering, even with all of these changes, what do you think are some current pain points that still exist today?

Keely:
I would say the biggest pain point I see in payroll systems is reporting. I find most payroll systems still lack in their quality of reports, the ability to customize reports, and the ability to have a bank or general report storage that encompasses everything an organization can need.

The way most payroll providers fix this is they do custom reporting, but that can get really confusing and it can be really hard to get the information you need. And then, when auditors come in, insurance providers come in, 401(k) providers come in—maybe you're acquiring a company or you're raising your next round of funding—it can be really difficult to give everyone all the information they ask for.

I would say another thing that comes into play a lot is integrations. My prior company had about a thousand employees. Our payroll system did not integrate with our benefits provider, and that required manual uploads on both ends every month to make changes.

That can be a lot of work for companies but it's one of those things that's like, "Who do we want to partner with? We're not going to integrate with everyone." Maybe you like your benefits and don't want to rock the boat with your employees, but you need a new payroll system and have to decide if you can take on the manual work. And that's where you're seeing a lot of payroll teams within an organization getting very granular—where it's not just enough to have a payroll manager anymore. Now you need the payroll specialist, you need the payroll coordinator, you might even need a director of payroll. And a lot of it has to do with payroll systems not being able to be this true source that they claim to be.

Diana:
Sounds like painful manual work to have to update the deductions from payroll to 401(k) every month. Integrations are exactly what Finch provides and this is the exact problem that we're trying to solve. I'm wondering if that's potentially why you decided to start working and advising at Finch.

Keely:
I really liked what Finch was doing, and in my first conversation with Ansel I thought, “Why aren't more companies using this backend integration to be able to pull the data that they need?" That's really what attracted me to Finch. I like that it's still like a scrappy startup. They're building something that others are not. They're really trying to build a solution that works with payroll providers and benefits providers. It's not just a one-bucket thing. And honestly, the team's great. I am so happy to be here.

Diana:
This might be a bit of a spicy question, but I'm wondering, what are some product improvement opportunities or suggestions that you have for Finch or the Finch product?

Keely:
It's very hard to get in the mind of these benefits and payroll providers and be able to support every single deduction and contribution they have. Another byproduct of the pandemic is that you are seeing so many more fringe benefits offered by companies—that is, all of the perks, benefits, and stipends that, in addition to salary, add up to someone’s total compensation package. Things like wellness benefits and employers paying cell phone bills and offering work-from-home internet stipends are all examples of fringe benefits. Those have been gaining traction over the years, but since the pandemic, it has gotten crazy. These things are expected by employees, and every payroll system and HRIS system does it differently. So, some may word it this way, some may word it that way, some may limit how many you can have. So, it's very hard for any one product to be able to pull every subset of data without being the engineer and the product team on the other side of the table.

On that note, I've had some really great client calls since I've been at Finch, and I do see the product going in that way, and I love the idea that we are able to customize it to an extent. I had a recent client call where they had 180 different deduction codes, and I was like, "There's no way we can pull that many data points." And we did an amazing, eye-opening mapping exercise where it was like, "Yes, the Finch product can pull these data points. This is just what it's going to look like. And then these are the ones we can't do, but let's ask questions and see how we can make it work for you." So, I love that the product's still at that phase where we can really customize it and that we're moving that way. But there are also limitations, as in all systems.

Diana:
That is great feedback for our product. Thank you for that. I know the product operations team, which you're part of, has been working really hard at researching how to make our product more robust. I would love to know, what are some upcoming projects that you're really excited to work on here at Finch?

Keely:
I'm actually going into these payroll and benefit systems, researching the capabilities there, and then going back to the product team and telling them, "Okay, this is what it looks like in this system. This is what we would need to do on the Finch side to be able to pull the data that XYZ company is asking for." So, that's really exciting.

We're also building out playbooks where we are going to have a specific set of instructions and all of these cool videos for each provider that we work with that we will eventually be able to use in our sales pitches. Like, "Hey, we work with another client that uses this system,, and this is what we did for them, and this is the data we can pull.” I'm really excited about that and building out those products that will help Finch grow.

Diana:
That sounds like some really impactful and detailed work. That's amazing to hear. It's been really great chatting with and learning from you, and I deeply appreciate the time.

Keely:
Thank you for having me, Diana.

This interview has been edited for clarity.

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