Payroll is complex because it involves countless county, state, and federal rules. There are also filings and documentation requirements. All of these tasks can be time-consuming, leading to mistakes and fines. Embedded payroll, also known as integrated payroll, is a payroll processing system that is seamlessly integrated into a company’s broader human resources and accounting software or platform. This approach offers several advantages for business owners, as it streamlines payroll processes and reduces administrative overhead.
For company owners, integrating a payroll solution into their platform, like those provided by firms like ADP, makes sense since it saves time and lowers the cost of managing employee taxes and compliance.
In addition, it eliminates the need to transfer data from one system to another, which can be cumbersome and expensive. It also makes payments to vendors and suppliers promptly, making cash flow consistent.
A platform-embedded payroll solution can help businesses improve their workflow by offering early wage access to employees and reducing the burden of late or inaccurate paychecks. It can also automate processes like creating purchase orders and scheduling vendor payments based on sales or inventory data. This can help improve the overall productivity of a business, especially for small businesses with limited resources.
An embedded payroll solution costs relatively low compared to building and maintaining a dedicated platform. In addition, it is easier to implement than traditional payroll solutions. Additionally, it can support a wider range of payment methods and tax types.
Many staffing platforms today are interested in embedded Payroll because it can help them scale.
Embedded Payroll enables partners to easily add Payroll to their product suite, offering customers time savings and other value. It also enables contextual offers for workers’ compensation or other insurance products based on customer data or activity. Adding Payroll to a platform is one of the fastest and most cost-effective ways to grow revenue. It can also increase new user retention and lower churn. Some platform focuses on serving small businesses that want to replace their spreadsheets or pen and paper with an in-app solution. It also supports time and attendance, compliance with FLSA, state and federal laws, and benefits management.
A similar model is gaining traction with vertical market SaaS businesses that see Payroll as a natural product progression but need more tax and banking relationships to build a full-featured product. For example, a construction management software business could save its users 20 hours per week if integrated with a payroll company
While market fragmentation makes it hard for a single payroll provider to serve a large swath of the SMB sector, tech-forward companies can make it easier for their customers to find what they need by adding payroll capabilities. By doing so, they can increase their new user growth and retention rates and reduce the churn of those who choose not to use the feature.
For example, a staffing software platform that allows clients to manage their field projects can include an embedded payroll option that helps employees pay themselves and submit tax documents. This eliminates the need for workers to log into a separate payroll provider’s website or call customer support to handle these tasks, reducing the risk of them forgetting their login details and needing help accessing their W-2s.
Embedded payroll providers work on a B2B2B model, providing a white-labeled platform allowing partners to incorporate payroll functionality into their existing products. An accounting or HR management software product can have a payroll system added by a partner that bills customers for the service and divides the income. With this strategy, the partner may compete with established competitors in the vertical SaaS market without spending as much money developing its payroll system.
Embedded payroll allows fintech partners to build payroll into their products, increasing adoption and revenue growth. However, choosing the right product requires thoroughly analyzing customer needs and expectations. During the evaluation process, surveys can reveal customer priorities and help you prioritize product features. A survey can highlight optional versus must-have fintech services, stickiness factors, and data advantages.
A good embedded payroll system should support time and labor, workers’ compensation, and business intelligence features. It should also be able to integrate with other core business systems and provide a robust reporting interface. It should also be easy to configure without coding or IT support. Look for a solution that offers best practices and recommended formulas and guides non-technical staff through simple configuration steps.
In addition to basic payroll, an embedded payroll system should meet compliance requirements for taxation and money movement. Moreover, it should offer multiple payment methods, including ACH and manual website upload. It should enable small businesses to track and report employee hours.
Embedded payroll has become an increasingly important part of the SMB landscape, as it eliminates the need to buy separate payroll software. As a result, it has become easier for new players to enter the market and compete with direct payroll providers. These vertical SaaS companies are gaining ground with customers who previously relied on direct payroll providers.