Streamline Payroll Compliance Reporting with Payroll APIs

Preparing payroll compliance reports is a major undertaking for any business. Not only do employers need to keep track of ever-changing regulations that vary from location to location, they also need to keep track of hundreds of data points for every employee, ranging from how much they’ve earned to the benefits they’ve taken advantage of.

Payroll providers and third-party accounting firms can help to make the process less daunting, but it’s still critical that employers maintain a central source of truth with all of the data necessary to prove they’re in compliance with state and federal laws. 

Payroll APIs offer a solution by connecting the employer’s payroll system to the various platforms they use to manage benefits such as 401(k), health insurance, cafeteria plans, and more. Through API payroll integrations, employers can be assured that their data is always in sync and can prepare accurate reporting. 

What is payroll compliance and why is reporting critical for businesses?

Payroll compliance refers to adhering to the many local and federal regulations that govern how employees are paid. These regulations dictate rules regarding taxes, labor requirements (such as minimum wage), benefit reporting, garnishments, and more. Employers are required to keep records proving their compliance, remit taxes, and submit forms to the appropriate agencies.

If employers don’t comply with federal and state laws, they can be assessed fines or other monetary penalties. They may also need to make adjustments to impacted employees’ payroll. A missed deduction due to an error, for example, might result in an employee being overpaid. When that error is later corrected, it can strain the relationship since employees should be able to trust that they’re being paid on time and accurately. 

It’s imperative for employers not only to comply, but to maintain detailed records outlining their compliance with all payroll-related laws. Compliance reporting also prepares employers for potential audits, either from regulators or audit firms. 

Common challenges in payroll compliance

Payroll compliance is complicated, even for seasoned payroll professionals. It often requires specialized knowledge and robust processes to manage compliance effectively. 

Complex tax requirements

Taxes must be accurately calculated and withheld at the federal, state, and local levels. Any company with employees in multiple states has to comply with each jurisdiction’s tax laws and meet multiple filing deadlines. Tax laws and employee-elected benefits can change, impacting the amount of taxes withheld for each paycheck.

Data accuracy

Every time there is a change to an employee’s payroll data — whether they’ve been hired or terminated, added dependents, enrolled in a new benefit, moved to a new tax jurisdiction, and so on — it must be recorded. Keeping track of these changes across multiple software systems can quickly become difficult if the platforms can’t communicate. Without integrated systems, the employer must update this information manually across each platform, increasing the likelihood of outdated information and data entry errors. 

Recordkeeping

Maintaining accurate records and reporting is critical (and, in some cases, mandatory), but can be difficult to maintain. Payroll teams may find that they are pulling data from multiple systems to compile records, or have to update records to address an error. 

Technology issues

Every product that doesn’t integrate with a company’s payroll system can lead to inefficiencies and errors. If two systems can’t integrate (or don’t integrate well), companies may have to manually prepare reporting to fully comply with laws or spend time compiling multiple reports. 

Data silos make it much harder to maintain records and often require cross-referencing or double-checking to ensure accuracy. In some cases, technology integration with the company’s payroll system may be the deciding factor when selecting a new benefits provider. Without integration, an employer may decide that the product isn’t worth the administrative burden and compliance risks. 

How APIs simplify payroll compliance reporting

While payroll integrations are a must-have for employers, not all integrations are created equal. If an integration is limited, clunky, or unreliable, it may not be very helpful.

Payroll APIs provide seamless data integration between systems, making them the preferred choice for modern technology vendors. With real-time data sharing and standardized communication between products, employers can rely on their payroll system as a centralized source of truth for employee pay data, making it far easier to pull all of the necessary information for payroll compliance reports.

Payroll APIs allow benefits administration platforms to exchange critical data, like enrollment details or deductions changes, with the employer’s payroll provider. This way, employers don’t have to manually move data from one system to another because the information is automatically updated across all platforms. In addition to accurate payroll, this information exchange enables streamlined reporting and automated tax filing.

To take things a step further, payroll integrations can be leveraged by companies that offer tax and compliance services to easily pull an employer’s payroll data to compile compliance reports. Rather than asking the employer to export and share all of the necessary documentation and data, these providers can use an API payroll integration to connect their platform to their customers’ payroll system to get secure, reliable access to the employer’s payroll database.

While any integration will create a more efficient process, APIs provide the most robust experience for employers. Their flexibility and real-time integration keep APIs compliant with ever-changing laws that change the data exchange between two products. 

Features of payroll APIs that make your product more valuable to customers

Data integration between a benefits product and a payroll system is the bare minimum a vendor can offer. APIs take the integration a step further and provide added value to your customers, including:

• Enhanced security: APIs use encryption during data transmission, and have strong requirements for authentication and authorization to verify user identity and access controls.
• Data validation: APIs can perform compliance checks through the data exchange, such as social security number validation, to ensure accuracy. APIs can also enforce regulatory compliance, such as limitations around benefits enrollment.
• Self-serve portals: With data synchronization, employees can access and manage their own benefits through your product, removing the burden from payroll teams. It also gives employees more control over their benefits management, since they can easily make changes (as allowed by law and the benefits plan). 

Using APIs for payroll compliance reporting: Expanding your coverage

APIs provide standardized integration, but each payroll system provider will have its own API requirements. Your team would need to build an API integration to each payroll system, and there are more than 600 payroll software systems in the U.S. alone. Some of the biggest payroll providers, such as Quickbooks, ADP Run, and Paychex, cover a significant number of employers in the U.S., but building payroll integrations to only those providers will still limit your overall customer base and growth.

The more payroll integrations you build, the more customers you can serve. However, this requires significant development resources. And while APIs are easier to maintain compared to other types of integrations, you’ll still need to make routine updates to each connection to maintain compliance with legal and regulatory changes.

If you want to support integrations to as many payroll systems as possible, Finch’s integration platform offers a solution. You only need to build a single integration to Finch’s unified API to unlock access to hundreds of HRIS and payroll systems.

Example: Finch in action

401(k) provider 401GO knew payroll integrations were critical to the company’s success. 401(k) administration has a lot of components, including employee elections, employer matches, compliance with contribution limits, and compliance reporting. The company relies heavily on reliable, automatic access to employee data in an employer’s payroll system. 

Originally, 401GO relied on secure file transfer protocols (SFTP) for integration, but it was far from ideal. SFTPs can have a lot of issues, such as data that’s not formatted correctly or errors. They’re also tricky to update and can’t impose compliance checks like an API can, such as validating the contribution limits against IRS requirements. 

401GO turned to Finch and was able to build an API to support its integration with Gusto. When 401GO began offering its Finch-powered integration to Quickbooks, it could automatically collect and process data for 3x the number of customers. 

“Having an aggregator like Finch is amazing, because we can connect into any one system that Finch is connected to,” says Jared Porter, co-founder and COO of 401GO. “The fact that data from payroll is being moved in real-time into our platform so the plan is in compliance — that’s really valuable.”

Scalability in payroll compliance reporting and APIs

HR teams often feel the strain as their companies grow and they try to manage a growing number of employees and benefits. Especially when it comes to payroll compliance reporting, collecting all of the necessary data can be a monumental challenge if it’s scattered across multiple systems, like retirement recordkeeping tools and benefits administration platforms.

The same is true for your company as it supports more customers and maintains compliance with payroll laws. Integrations shouldn’t be the primary focus of your development resources. Instead, it should be a supplement — albeit a critical one — to the products and services you provide to payroll teams. 

With Finch, you can focus on a single API that provides immense value to your customers. You can sell them not only on the value of your product, but on data accuracy, payroll compliance, and compliance reporting.

You can sign up to try Finch today or talk to sales to learn more.