Payroll integration involves connecting your payroll platform with HR management systems, time-tracking tools, accounting software, and other business applications.
This connection dramatically boosts efficiency by automating processes and fetching real-time data directly from the tools your business uses to manage employee information.
Without it, you’re likely dealing with disorganized systems and manual tasks that lead to costly payroll mistakes.
However, payroll integration requires a certain level of technical expertise and can pose data security risks if not done properly.
In this article, we’ll explore how payroll integration works and dive into its main pros and cons for your business.
How to integrate payroll systems
Modern HR and payroll software offers built-in integrations with different third-party business applications. You can also develop custom integrations using software APIs.
Connecting your payroll system with another application typically takes just a few minutes. Once integrated, software can exchange payroll information and access employee data depending on the integration’s scope and permissions.
Here's how you can effectively integrate systems for your small business, payroll software for enterprise, and everything in between.
Step 1: Identify your integration goals
You should have a clear goal for integrating your payroll system with any third-party software. Before an integration, ask yourself the following questions:
- What’s the business case for this integration?
- What are we trying to achieve?
- How does it improve our payroll process?
For example, a potential business case for integrating your payroll platform with time and attendance software can be to accurately calculate employee compensation based on their time spent on a specific project.
Step 2: List your data requirements
Based on your payroll integration goals, you’ll need to identify your data requirements from different software systems.
This step is crucial because software integration requires permission to access various data points. When you connect your payroll system with a third-party tool, it asks you for the specific data points you want to access. Without proper data access, your integration may not produce the desired results.
For example, to link payroll processing with employee attendance, you’ll need access to every employee's time-in and time-out data.
Step 3: Evaluate software compatibility
Based on your integration goals, evaluate your payroll system’s compatibility with your existing tool stack. Does it natively integrate with your business applications or will you need to develop custom integrations?
This step is crucial because your HR and payroll system may not be compatible with certain third-party tools.
In that case, you will require a custom integration or an integration platform that can connect your applications.
Step 4: Plan the integration’s impact
Before executing payroll integration, carefully plan its impact on your existing workflows and communicate this information to all the relevant stakeholders.
For example, if previously, your payroll teams had to manually collect information from the time tracking system, how would they access this information after the integration?
Step 5: Test the integration
Before fully deploying an integration, do a test run to ensure it works properly, can access the required information, and produces the desired results.
Step 6: Develop a monitoring mechanism
Define user access roles to monitor and manage your payroll integrations. This is critical because only a select group of users should be able to modify third-party software integrations when needed.
What services can be integrated with payroll?
You can link your organization’s payroll system with any business applications that contain data impacting how you run payroll in any way.
However, here are some of the most useful third-party payroll integrations.
Time and attendance management systems
Time tracking and attendance management systems record employee work hours, timesheets, overtime, absences, and arrival and departure times.
Studies show that 80% of timesheets manually submitted by employees contain errors.
Integrating your time management system with payroll software allows you to directly fetch data when calculating employee compensation for a specific pay period. This results in accurate and faster payroll processing, fewer errors, and improved compliance with labor laws related to employee overtime and working hours.
Human resource information systems
HR information systems (HRIS) contain employee profiles, documents, personal details, employment history, and other workforce management data like onboarding new hires, terminations, and resignations.
Integrating HRIS with payroll software ensures real-time payroll data updates in the HR systems. It provides you with more comprehensive employee reporting, improves data consistency across the organization, and gives your strategic decision-makers a better context when evaluating employee performance and developing long-term plans.
Accounting software
A Gartner study shows that 59% of accountants make multiple mistakes every month that could impact their employer's financial decisions.
Integrating payroll software with your accounting systems drastically improves financial reporting across the organization. It ensures correct payroll data including overtime, deductions, and other payroll-related expenses is recorded directly in the accounting systems.
This provides your decision-makers with accurate real-time payroll insights, simplifying strategic financial decisions.
Employee benefits administration
Employee benefits administration systems contain information about health insurance, retirement plans, financial wellness, and any position-specific perks in an organization.
By integrating benefits and payroll systems, you can automate benefit deductions and drastically improve the accuracy of paycheck calculations.
Employees using self-service portals can also get a clearer picture with real-time benefits data. This not only helps manage employee motivation but also provides up-to-date benefit records for legal compliance.
Enterprise Resource Planning (ERP) systems
ERP systems typically provide a single dashboard view of an organization's resources and operational expenses. By integrating your payroll system with an ERP, you can automate data flow between payroll and any other organizational function.
It gives you a 360-degree view of your company’s resources and simplifies decision-making.
Employee scheduling systems
Employee scheduling systems contain data about work shifts, overtime, vacations, and planned/unplanned absences.
Integrating it with a payroll system helps you process compensation more accurately and dramatically reduces conflicts.
For example, companies typically pay a higher rate for overtime or unplanned shifts. When payroll and employee scheduling systems are integrated, they automatically calculate overtime and additional shifts, along with regular salaries, using the correct rates.
Payroll integration advantages
Payroll integration offers numerous business advantages, including increased efficiency, reduced costs and data consistency.
Increased efficiency through automation
Integrating payroll systems with other business applications automates processes, reduces manual data entry, and increases efficiency. This results in more accurate payroll reporting and faster processing times.
Reduced operational costs
Payroll integration enables your company to automate repetitive processes and streamline data handling, reducing operational costs. Instead of needing dedicated teams to run unintegrated software for different functions, you can use a much smaller team to manage everything from a single dashboard.
Data consistency
One of the biggest advantages of payroll integration is that it brings consistency to your payroll data. When all your business applications are integrated with the payroll system, you can confidently access payroll data knowing it is updated in real-time. This empowers your organization’s key stakeholders with accurate insights, enabling them to make faster and more accurate decisions.
Payroll integration drawbacks
Payroll integration has some potential drawbacks as well, such as potential technical difficulties, data security issues and high initial set up costs.
Technically complex
Integrating multiple business applications with your payroll system is technically challenging. Each software product has unique integration requirements, and it can be daunting for large companies using dozens of applications to integrate everything with a central payroll solution.
Data security risks
Integrating your payroll system with third-party applications can pose data security risks. If an unauthorized user breaches the security of a third-party application integrated with your systems, they can potentially access your data as well. It is imperative to apply the highest security standards during payroll integration.
Initial setup costs
Payroll integration reduces operational costs through automation, but its initial setup cost can be high depending on the complexity of integrations in your company. Calculating these upfront costs and comparing them with your existing budgets is essential to deciding if it’s worth investing in payroll integrations.
Payroll integration best practices
If you want seamless payroll integration, follow these best practices.
Check for built-in integrations with your payroll provider
Many payroll software companies offer built-in integrations with mainstream business solutions. These integrations are usually easier to execute and manage. Consult with your payroll provider to identify the most suitable solutions before making any decisions.
Assign data ownership for different departments
Company-wide payroll integration can be challenging to manage. Assign one middle or senior management employee from each department to assist your technical teams in the integration process. These representatives can also share any department-specific requirements to improve their workflows.
Train your employees to manage change
Transitioning from manual and distributed work to an integrated and fully automated environment comes with several challenges. Manage this change by briefing your employees about the benefits and ensuring they have the right skills to use the integrated systems effectively.
Run a comprehensive data audit
Before integrating your payroll systems with other applications, conduct a comprehensive data audit. Remove inaccuracies, update records, and resolve any other data issues to ensure a smooth integration process.
Prioritize data security
Conduct the payroll integration process under the supervision of data security experts to ensure a smooth and secure transition. Any security lapses at this stage can cause significant long-term damages.
