Payroll integration is the process of integrating payroll systems with other types of business software, such as time and attendance, benefits management, and financial planning and budgeting applications. This type of integration can help businesses ensure that they’re paying their employees in a timely and accurate manner, as well as manage their workforce more effectively and improve compliance with tax and other regulations.

What Is Payroll Integration?

Payroll integration refers to the process of connecting payroll software with other systems that companies use to manage their workforces, as well as with financial systems or systems of record. These integrations improve efficiency by reducing the need to manually transfer data from one system to another and help with tax and overall regulatory compliance. Now business leaders can run analytics against complete data sets so they can make better decisions about staffing, work schedules, and compensation.

Key Takeaways

  • Integrating payroll with other HR and financial systems can help organizations have a clearer view of their payroll-related expenses and help them comply with relevant tax regulations.
  • Integrating payroll applications with other business systems helps reduce errors stemming from repetitive manual tasks, thus enhancing reporting accuracy.
  • Cloud-based application suites can be integrated with niche applications such as time and attendance software to help streamline business processes.

Payroll Integration Explained

Managing payroll may seem simple, but peek behind the curtains and you’ll find a number of complexities, including different tax regimes for employees in different geographies, differing commission levels, and varying benefits packages.

Payment systems need to be integrated with time and attendance software to ensure that hourly workers are paid properly for overtime, as well as for breaks they haven’t taken but have earned. Payments to consultants and other contractors have to be handled differently (i.e., no tax withholding), but they still get processed through the payroll system and then reflected in financial statements. Employee benefit selections are recorded in employee records, and have to be reflected accurately by the payroll system as well. Accrued PTO (paid time off) recorded in payroll systems needs to be accurately reflected in financial statements.

Payroll integration helps organizations reduce this complexity by letting businesses manage salaries, tax withholdings, and benefits through a single system that allows them to withhold taxes for local, state and federal governments. This also helps manage remittances to cover those expenses and record them accurately in financial statements.

Why is Payroll Integration Important?

Payroll integration provides business leaders with a single source of information they can use to manage labor expenses, comply with tax regimes, and reconcile financial statements. It’s important for a number of reasons.

  • Time and cost savings: Integrating payroll with other business systems helps avoid repetitive and error-prone manual data entries. This not only helps save the time required to check and double check manual entries, but it also helps ensure that errors that aren’t caught the first time are corrected following an audit. It also reduces soft costs such as paper and printer toner used to print multiple drafts of the same reports or entries.
  • Enhanced accuracy: Integrating payroll with other business applications helps reduce mistakes that occur when data has to be copied manually from one application to another. For example, integrating a time-and-attendance application with payroll and other systems helps ensure that employees are paid the right amount for their overtime.
  • Better productivity: HR staff can use the time they once spent manually transposing and then checking payroll information on more productive activities, such as recruitment, talent development, and succession planning.
  • Better compliance and audit trails: Integration of cloud-based payroll systems with other systems helps ensure that organizations adhere to the various tax regulations to which they’re subject, given that such software can be updated frequently to reflect changing regulations. It also provides a clear and unambiguous audit trail by recording each transaction and storing transaction histories.
  • Improved employee experience: When payroll systems are integrated with financial and other HR systems, staff no longer have to do the mind-numbing work of copying the data from one application to another, reducing employees’ stress levels and allowing them to focus on more intellectually rewarding work.

Types of Payroll Integrations

Integrating payroll systems with other applications helps businesses better manage payroll data, reduce errors, and help ensure compliance with relevant regulations. Those other applications include:

  1. Time and attendance systems. Integrating this software allows data that determines compensation, such as how many days and hours someone worked and how much overtime they earned, to flow right into payroll systems.
  2. Human resources management systems (HRMSs). Time and attendance applications are typically a subset of HRMS software suites, which also include recruitment, performance management, benefits, training, talent management, and other HR applications. Integration of those applications ensures that performance review, benefits, and other employee data related to compensation can flow directly into the payroll system, and that all HR data can be smoothly integrated with financial systems (more on those below).
  3. Financial management systems. This type of integration helps ensure that payroll data is accurately reflected, when needed, in cash management, general ledger, accounting, expense reporting, and other financial systems.
  4. Project management and other specialized systems. These track things such as billable hours from consultants who also need to be paid using payroll software.

Challenges of Payroll Integrations

The main challenges organizations face are integrating modern cloud applications with legacy software, the cost of hiring systems integrators, and the possibility of unauthorized access to sensitive data. Those challenges are described in a bit more detail below:

  • Connecting complex systems.

    Many applications, especially legacy on-premises ones, weren’t designed to work with other applications, making integration difficult. Best case scenario, integration of those applications requires APIs (application programming interfaces); in other cases, the data has to be moved from one application to another, a process that’s error-prone.

  • High costs.

    Such complex integrations can be costly, to the extent they require expensive consultants and additional software licenses or subscription fees.

  • Security risks.

    Connecting payroll and other applications that aren’t part of an already integrated suite can expose highly sensitive, personal data, especially if it isn’t encrypted while in motion.

Best Practices for Payroll Integrations

  1. Select systems that are modern and compatible. Whenever possible, select cloud-based payroll and complementary systems that are integrated by design as part of a suite of applications.
  2. Pay special attention to compliance and security. Organizations need to be especially mindful of the sensitive nature of the data being handled. Shore up data security, construct role-based access privileges so that the only people who can access data are so entitled, and insist that all data be encrypted at rest and while in motion.
  3. Empower users with comprehensive training. Integrating different systems often requires process changes and new user interfaces to learn. Successful integration projects include extensive training on the integrated systems, as well as clear communications on why changes are being made and their benefits to system users and the organization.
  4. Carefully document system changes. In the case of complex integrations, retaining technical documentation (including data mapping) can help make future enhancements smoother, without breaking any of the existing integrations. Pre-integrated suites present the advantage of not requiring post-implementation integrations.

Consolidate Your HR and Other Systems with NetSuite

NetSuite’s SuitePeople HRMS is a suite of applications for managing a range of HR (including payroll) and financial processes. It enables organizations to eliminate third-party integrations and improve data accuracy, while giving business leaders a holistic view into the costs and performance of their organization.

Payroll Integration FAQs

What is payroll and financial system integration?

Such integration allows payroll data to automatically flow into an organization’s cash management, general ledger, accounting, expense management, and other applications—and vice versa as needed.

What is 360-degree payroll integration?

360-degree payroll integration allows data to flow back and forth between payroll and other systems. Payroll data can thus flow into a financial management system, while data from, say, employee scheduling software can flow directly into the payroll system.

How do you automate payroll processing?

Payroll processing can be automated, in part, by integrating payroll systems with other HR and financial management applications, so that the software can perform many of the processes, such as copying and pasting timesheet data from scheduling software into payroll, previously done manually.