Payroll API – What it is & how Embedded Payroll is different

Behind the Paycheck

A brief introduction to Payroll APIs

A payroll API (application programming interface) is a set of protocols and tools that allows different software applications to connect and interact with payroll processing services. This interface enables the seamless integration of payroll data or functionality into other software applications or platforms for automated payroll management and visibility.

There are two primary types of payroll APIs:

Payroll data sync and API aggregators: API aggregators usually offer read-only access to payroll data and are designed to pull data from multiple payroll providers in a standardized format. This type of API is typically used when payroll data are an input to another algorithm, e.x., credit underwriting, or when seeking to provide a user with visibility into payroll and withholding.

Embedded payroll APIs: These APIs go further by allowing SaaS developers to offer end-to-end payroll functionality within their applications. This means bringing gross & net pay calculations, tax filing, benefit deductions, and direct deposit of paychecks into a single platform from the user’s perspective. Embedded payroll APIs, such as those offered by Gusto Embedded, power the payroll-specific functionality on the backend. This integration simplifies the payroll process and enriches the software’s value proposition by providing an all-encompassing, streamlined, and user-friendly payroll experience.

Growing importance of payroll APIs in the digital era

“That’s what gets us so excited about additional tools like embedded payroll, it’s a further investment in the needs of our power users inside of our customers’ stores… When we look at the impact [of increased usage], we see it in so many different ways. And it’s the most meaningful metric to track.” – Alexander Jekowsky, CEO of Cents 

While businesses have shifted more and more of their workflow to digital tools over time, 2020 saw a significant surge in businesses transitioning online. Government programs like the PPP further emphasized the importance of efficient and integrated software solutions. Payroll, an essential component for any business, wasn’t left behind. Modern-day small and medium businesses (SMBs) want fit-for-purpose yet user-friendly payroll solutions. Given the varying regulatory landscapes across regions, payroll APIs are pivotal in addressing these demands by offering customization, efficiency, and visibility.

For instance, by selecting Gusto as their embedded payroll partner, Chase Payment Solutions aims to “decrease the time to offer a leading payroll service while increasing the value we’re able to deliver to our customers,” according to Jessica Young, Managing Director and Head of Product. 

How SaaS companies using embedded solutions like Gusto Embedded are driving innovation

Embedded payroll solutions are changing the way SMBs approach payroll. By offering software developers the ability to incorporate payroll directly into their platforms, they’re simplifying the payroll process and adding valuable new functionality to their software offerings. 

Embedded payroll platforms allow a wide range of digital products to take advantage of the payroll provider’s specialized (and, in Gusto’s case, extensive) experience in the domain to provide an array of features, from tax filing to employee benefits, all under one roof. The purpose of these integrations extends beyond compliance to improving the overall experience for both employees and employers.

Payroll APIs 101: Integration vs. Embedded Solutions

Understanding the distinction between integrating a payroll API and utilizing an embedded payroll solution is crucial for digital platforms considering building payroll and HR functionality for their end customers. 

Payroll integration

API integration in the context of payroll typically refers to the process of linking a standalone payroll software (like Gusto) with other business systems, such as time & attendance and accounting software (more examples here). This integration is akin to connecting two independent pieces of software — each with its own functionality and user interface — so they can share data. The integration capabilities are limited to exchanging data, and from the user’s perspective, payroll processing still occurs in the dedicated payroll system. API aggregators aim to provide these benefits with an ‘integrate once’ approach that provides access to data from multiple payroll providers.

Embedded payroll solutions

Embedded payroll solutions, on the other hand, go a step further. Rather than just linking two systems, embedded payroll directly incorporates the entire payroll functionality into another software platform. This approach means that users can manage payroll processes natively within the primary business application they are using without the need to switch between different systems. It’s similar to having messaging capabilities directly integrated into your phone’s operating system, allowing for a more seamless and integrated user experience. See the Gusto Embedded API docs here.

Use cases for API integration

  • Data synchronization: For businesses using separate systems for time tracking, HR, and payroll, a simple payroll API integration allows for the automatic synchronization of employee hours and salary data, reducing manual data entry and potential errors.
  • Reporting and analytics: Businesses can leverage API integration to pull payroll data into their business intelligence tools, facilitating more comprehensive financial reporting and analytics.

 Use cases for embedded payroll solutions

  • All-in-one platform: For businesses, especially small and medium-sized businesses (SMBs) seeking a more cohesive user experience, embedded payroll solutions like Gusto Embedded offer a complete payroll service within a platform they use regularly. This all-in-one approach can significantly streamline operations.
  • Customizable user experience: Companies that build in-app payroll via embedded payroll can tailor the user experience to meet the unique needs of their customers, such as incorporating specific payroll features relevant to their industry or workforce.
  • Favorable economics: While at times API integrations include referral fees or revenue share agreements, they are often just a feature of digital platforms that users demand. Embedded payroll, on the other hand, offers a path to grow revenue by charging for the service.

By understanding the differences and specific applications of simple API integrations versus embedded payroll solutions, product and engineering leaders building digital platforms can make more informed decisions about which payroll technology best fits their operational needs and strategic goals.

“In 2023, due to the macro environment, I think anyone who doesn’t own a cohesive customer experience end-to-end will end up falling behind.” – Herman Man, Chief Product Officer at Bluevine

The Role of API Aggregators in Payroll Management

API aggregators function as intermediaries that provide access to multiple services through a single API. In the context of payroll, an aggregator might connect to several payroll providers, offering businesses the capability to tap into multiple services with a single integration. This “integrate once, connect to many” model simplifies the initial setup process, allowing for rapid deployment and immediate access to a suite of services.

Embedded payroll vs. API aggregation solutions

For product needs that rely only on payroll data vs. actually processing payroll, the API aggregator model offers convenience, though it may include limitations in terms of the data or granularity available from different payroll providers when compared to building direct API integrations. 

As Doron Friedman, Founder and Chief Innovation Officer of SpotOn, says, understanding your customers’ needs is vital. For instance, SpotOn recognized the need for a seamless user experience, leading them to embed payroll directly within their Teamwork platform rather than merely integrating with a third-party provider.

“First and foremost, you have to make sure your partner, the API embedded solution provider, really understands your use case and your pain points.” Aram Muradyan, Vice President of Strategy at SQUIRE

Like many embedded fintech products, user convenience drives much of the innovation among digital platforms building on payroll APIs. Experience has identified several limitations of this approach compared to embedded payroll:

Sync issues: As Doron Friedman points out in his example with SpotOn, synchronization issues can arise even with the best efforts to create seamless integration. This can lead to discrepancies in data, causing operational headaches and potentially leading to costly mistakes.

User experience disparities: Traditional API integrations that sync data between different systems can still result in a disjointed user experience. Users might have to navigate different interfaces, maintain multiple logins, and may be unsure of who to turn to when issues arise.

Limited customization: API integrations often offer less scope for customization. Businesses might find themselves restricted by the capabilities of the third-party software they’ve integrated with, hampering their ability to cater to specific customer needs.

Operational inefficiencies: Integrated systems can lead to duplicate data entry, redundant processes, and a lack of real-time updates. In SpotOn’s case, they found that in spite of a well-built integration, customers still wanted a more integrated offering.

Embedded Payroll: Offering More Than Just Integration

Embedded payroll systems represent a paradigm shift in how businesses manage payroll and related functions. This approach goes beyond the traditional framework of data exchange with an external service and instead weaves valuable functionality seamlessly into the fabric of different business applications.

“As we think about embedded payroll, our experience, our expertise, and our ability to bring that closer to the customer in a more integrated solution is one of the big value props. We can take something that’s very complex, then integrate it and meet the customer where they are. – JP Durrios, CEO of Bench Accounting

Payroll as an intrinsic part of business solutions

Beyond the bolt-on: Embedded payroll transcends the idea of payroll being an external or additional module tacked onto existing business systems. It envisions payroll as an integral, native element within a business application’s ecosystem. Think of it not as a plug-in appliance in a smart home but as part of the home’s original wiring — inherently present and fully integrated.

Enhanced efficiency and cohesion: Embedding payroll functions directly within business software eliminates the need for separate systems to manage different aspects of employee remuneration. This approach results in a more streamlined process as all payroll-related tasks, from hours tracking to salary disbursement and tax filing, are conducted within a single, unified system. The immediate benefits include reduced errors due to data misalignment, lower administrative overhead, and a more straightforward user experience.

Real-world benefits for small businesses

  • Efficiency: Streamlined, unified data handling cuts down on payroll processing time.
  • Accuracy: Reduced errors in payroll calculations and tax filings.
  • Compliance: Continuous updates help alleviate the owners’ need to track evolving tax laws.
  • Scalability: As businesses expand, systems like Gusto’s adapt seamlessly.

User-centric approach

Gusto’s embedded payroll solution is designed with the end-user in mind, focusing on usability and access. This approach aligns with the modern workforce’s expectations for technology: intuitive, responsive, and seamlessly integrated into their daily workflows.

By offering more than just integration, embedded payroll solutions like Gusto are not just changing how businesses handle payroll; they’re redefining the relationship between employers, employees, and the very nature of workforce management. This integration is a cornerstone in building more resilient, efficient, and employee-centric organizations.

Integrating with a payroll API: The user experience

Integrating Gusto’s payroll API ushers in an unparalleled user experience, making payroll management less of a chore and more intuitive.

Simplification of tasks: Users can effortlessly manage payroll and other HR functions upon interacting with such interfaces. For instance, Archy’s integration with Gusto transformed the user journey, making intricate payroll processes straightforward and user-centric.

Real-time updates: With instantaneous data synchronization, payroll decisions become more informed. As decisions are rooted in the latest data, accuracy is significantly boosted, eliminating costly mistakes.

Accessibility and convenience: With embedded payroll solutions, payroll management is no longer restricted by location or time. Modern businesses, especially in the era of remote work, can attest to the benefits of such a feature. For instance, Archy allows for managing payroll anytime, which aligns perfectly with today’s flexible working hours.

User testimonials:

  • Jon Rat, CEO of Archy, says their move to integrate Gusto wasn’t merely innovative but a testament to their commitment to providing time-efficient solutions. This sentiment reflects the satisfaction derived from a cohesive system.
  • Delving into the construction realm, busybusy’s integration with Gusto exemplifies the real-world benefits of such a setup. As Derrik Shakespear, Chief Revenue Officer, says, their aim wasn’t just about incorporating any payroll system but one that genuinely addressed the pain points, and Gusto fitted the bill perfectly.

Beyond Payroll: From Embedded Payroll to Embedded Benefits and HR

The landscape of payroll management is undergoing a transformation driven by the emergence of embedded payroll. The embedded partners who have launched in-app payroll are not just changing how SMBs process payroll; they’re redefining the definition of HR tech.

Embedded payroll platforms offer more than payroll processing. They help partners create holistic platforms that integrate various aspects of HR management — from benefits administration and workers’ compensation to financial wellness programs. This comprehensive approach helps businesses manage their workforce more effectively and provides employees a better experience

“If we help our customers, whether it’s payroll, benefits or otherwise, then Gusto and our customers will both be successful. We are not just a payroll company, we’re a small business survival. Our job is to basically do everything we can to help these businesses survive.” – Edward Kim Co-Founder and CTO, Gusto

Listen to the full episode here.

What To Know Before You Start Working With a Payroll API

  • Step 1: Assess your needs

Before integrating a payroll API, assess your specific payroll and HR requirements. Consider factors like company size, payroll complexity, and the need for scalability.

  • Step 2: Choose the right provider

Select a payroll API provider that aligns with your business needs. Look for providers like Gusto, which offers robust features, compliance assurance, and a strong track record of reliability and customer support.

  • Step 3: Plan for integration

Work with your IT and HR teams to plan the integration. This process includes mapping out data flows, understanding how the payroll API will interact with your existing systems, and preparing for any necessary changes in business processes.

  • Step 4: Test and implement

Run a pilot test of the integration in a controlled environment to identify potential issues. Once you’re confident, proceed with a full-scale implementation. Ensure ongoing support and training for your team to maximize the new system’s benefits.

  • Step 5: Monitor and optimize

After integration, continuously monitor the system to ensure it operates smoothly. Gather feedback from users and make adjustments as needed. Stay alert to any updates from your payroll API provider and adjust your systems to leverage new features and improvements.

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Updated: January 2, 2024

Brian Busch Brian is currently Head of Marketing at Gusto Embedded; the only payroll API with 10 years of experience and actionable data behind it. Before joining Gusto, Brian held leadership positions at Cloud Elements, Kapost, and Captricity. He holds a BS in finance and a BA in philosophy from Boston College and an MBA from the Cal Berkeley Haas School of Business.
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