Unlocking Efficiency: How Payroll APIs Can Automate Payroll Management

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Payroll APIs enable significant efficiencies in a business’ back-office. From streamlining data entry to automating direct deposit switching and even facilitating asset verification for loans, the benefits of payroll APIs are many.

First, it’s essential to understand some key payroll concepts.

Streamlined Data Entry

The little automatons we take for granted—auto-syncing your calendar with your smartphone or Netflix automatically playing the next episode—make our lives easier. In the same way, payroll APIs can streamline the data entry process for businesses by connecting disparate payroll systems and allowing them to exchange information seamlessly.

The best payroll API providers will offer a centralized hub where all your consumer, employee, and company data is synced in one place. This allows you to make accurate decisions based on real-time data. The best APIs will also ensure that all your data is secured with strong encryption in transit and at rest.

When evaluating the security of an API, ask about their security certifications and review any audit reports. This will help you assess the risk of your consumer and employee data being stolen from their system. Additionally, look for an API solution that offers enterprise-ready safeguards and a clear and concise policy on how they will manage personal data.

Automated Payroll Processing

Payroll APIs allow for deeper integration into consumer permissioned data, as they can be used to verify income and employment, which is particularly useful when launching services that require access to a client’s payroll information (e.g., paycheck-attached lending or credit-building products). These APIs will differ in their coverage (the number of employers and employees connected to the platform) and the kind of data they can provide, such as wage data or the number of hours worked.

For example, a vertical SaaS company serving restaurants could integrate its internal payroll system with a payroll API to automatically capture the necessary data for each restaurant’s employees and allow them to self-service any changes. This significantly improved the prior process, often requiring lengthy paperwork and phone calls. Additionally, it provides greater transparency to consumers while removing barriers that have historically prevented many customers from engaging in the service they need. From deposit switching to asset verification for a loan, this type of deeper integration can improve a consumer’s UX and streamline numerous time-consuming processes.

Real-Time Reporting

For many organizations, payroll is a significant source of information that needs to be accurately reported and distributed in real time. This ensures all employees are compensated correctly and on time, promoting higher employee satisfaction and motivation. Additionally, it reduces financial challenges for the company by preventing overpaying or underpaying.

Payroll APIs connect the payroll ecosystem to open up this valuable data for consumption by third parties, reducing friction and making financial services more personalized to meet consumer needs. Traditionally, this data has been accessible via screen scraping, where credentials are shared, the user is impersonated, and payroll information is pulled from the system. A more reliable and secure alternative is payroll API connectivity, where the data is securely requested from the system via API.

Accessing consumers’ income and employment data programmatically enables various financial services for the first time. Examples include a new generation of neobanks for gig workers and couples, credit-building products that utilize paycheck-attached lending to minimize fraud, and more. To make the most of these new opportunities, it’s essential to understand the core concepts that power payroll APIs like pay period, payment schedule and types, in-hand income, gross and net pay, reimbursements, benefits, and deductions.

Automated Direct Deposit

Payroll APIs allow neobanks, CUs, and fintech companies to allow consumers to have their paychecks automatically transferred to a savings or checking account, eliminating the need to send a physical check. They also make it easier to access funds when needed, like during a financial emergency.

To ensure that payroll APIs provide these benefits, choosing a provider with high accuracy and speed of data integration is essential. It’s also important to ask about the cost of implementation, transaction costs, minimums, and ongoing monitoring fees.

Building products with payroll data is complex because of the nuanced process of managing the 13,000 labor, taxation, and withholding jurisdictions. Payroll-as-a-Service APIs can automate this process, freeing time to focus on the user experience. They also enable platforms to take advantage of this rich source of consumer-permission data for various uses, such as verifying income and employment for mortgages and credit cards or providing earned wage access and paycheck-linked lending to boost customer engagement. Research shows this is particularly attractive to millennials and other emerging customers who value personalized features.

Time-Saving Reporting

Streamlining data integration through payroll APIs has benefits beyond accounting and HR. For example, mortgage lenders can use these data solutions to access an applicant’s income and credit history in real-time. This can dramatically speed up background checks, reduce fraud, and increase the quality of loan applications.

Payroll APIs can also be used to help de-risk lending by allowing loans to be paid directly from an employee’s paycheck (also known as “payroll attached” or “payment linked”)—a model that is growing in popularity with consumers and employers. Payroll-attached lending can decrease the cost of debt, increase return and borrower satisfaction, and improve risk modeling by reducing late fees and default rates.

When evaluating a provider’s platform, look for an easy-to-use interface and documentation to help you quickly set up your organization with a payroll data solution. Additionally, it is essential to understand how much a provider can offer pre-launch marketing and engineering support and post-launch maintenance. Finally, consider how long a provider has been in the market and whether they have an established network of industry-leading partners.

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