What are payroll integrations? Here's what you need to know

Payroll data includes a wealth of invaluable information for your internal systems and your product.

Accessing payroll data and using it successfully, however, isn’t straightforward.

We’ll help by breaking down several payroll integration use cases—both internal and customer-facing—and by sharing a few different ways to integrate with payroll systems. 

But first, let’s align on the definition of payroll integration.

What is payroll integration?

It’s any integration that’s built between an application that collects payroll data and another type of application. The integration is typically built using APIs and can be between your internal systems or your product and your customers’ payroll providers.

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Note: It’s worth noting that payroll integration differs from “180 payroll integration” and “360 payroll integration”. A 180 payroll integration is a one-way sync that’s built between a payroll system and a 401k platform where the data only flows from the former to the latter; while a 360 payroll integration allows you to sync data bidirectionally between a payroll system and a 401k solution.

Related: What is accounting integration?

Examples of payroll integration

To help bring our definition to life, let’s break down several payroll integration examples. We’ll start with internal use cases and then move on to customer-facing scenarios.

Sync your payroll application to your ERP system to improve financial analysis

As your finance team sets out to analyze the company’s financials, they’ll need to access accurate, up-to-date costs to perform their analysis successfully.

You can help them access at least some of this data with ease by integrating your payroll provider with your ERP system and then syncing compensation data, including wages, equity, and benefits.

Connect your payroll application to your performance management system to make better compensation decisions

To help you better understand whether an employee is paid fairly or needs a comp adjustment—either during a performance review or at any other point in time—you’ll need to have accurate compensation data in your performance management system.

You can enable just that by integrating your payroll application with your performance management system and syncing employees' compensation information from the former with the latter.

Related: Examples of ERP integration

Integrate your payroll application with your ATS to streamline employee onboarding

Once a candidate signs their offer letter, you’ll need to add their compensation data to your payroll system quickly to ensure they’re paid on time from the get-go. 

To help facilitate this, you can integrate your ATS with your payroll system and build a flow where once a new hire is marked as hired in the ATS, their profile will get created and populated in the payroll system, which includes their compensation data.

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Integrate your payroll provider with your ERP system to process expenses quickly

Say your organization uses your payroll solution to submit, review, and approve expenses. 

To ensure that finance—the final reviewer—approves any quickly and processes the associated payment on time, you can integrate your payroll solution with your ERP system and implement the following flow: Once an expense is approved by the requester’s manager in your payroll system, the expense can get created in the ERP system (where it’ll include details like the expense amount, the requester, the type of expense, etc.). 

Someone in finance can then decide whether to approve or reject the expense and, assuming they do the former, can begin the process of reimbursing the requestor.

Sync payroll data to your product to help users analyze compensation and identify areas of improvement

Say you offer a compensation management platform that helps users analyze compensation across segments of employees (e.g., gender) and at the individual level. This lets your customers not only make the appropriate adjustments over time but also ensure that certain groups aren’t paid more or less than their peers.

To enable this, you can integrate your product with customers’ payroll systems and sync compensation data on a frequent cadence (e.g., every 3 hours).

Assemble, a real-world compensation management platform, uses Merge for this very use case. They sync fields like employees’ full names, job titles, salaries, and equity packages from customers’ HRIS solutions to their product every 2 hours, giving users an accurate and complete picture of their employees’ compensation.

Related: How Assemble uses Merge to add HRIS and ATS integrations in a matter of minutes

Use customers' payroll data to power your product’s AI features

Imagine you offer a product that, among other things, uses AI to help users decide on the best compensation package for a given role you’re hiring for.

To help your AI feature offer high quality and personalized recommendations, you can integrate with the customers’ payroll systems to feed the underlying LLM data on employees’ salaries, equity packages, and benefits across departments, regions, and levels.

Related: Top use cases for retrieval-augmented generation (RAG)

Sync payroll data with your financial planning platform to help customers build financial models quickly

Say you provide a platform that helps customers perform budgeting, headcount planning, and more through financial models.

To help customers build these models quickly, comprehensively, and accurately, you can integrate with customers’ payroll systems and sync their employees’ compensation data at set intervals.

Benefits of payroll integration

Here are just a few of the top benefits from offering internal and customer-facing payroll integrations.

Benefits of internal payroll integrations

Here’s a look at the benefits from internal integrations.

Minimizes human errors

The process of adding payroll data into applications manually is ripe for human errors. And while it depends on the context, many of these errors can have significant downstream effects on your business. For instance, incorrect salaries can get copied into your payroll system, leading to over or under payments.

Payroll integrations help you avoid issues in your payroll data, as they let you sync this data without human intervention.

Improves the employee experience

Your employees likely don’t enjoy the tedium of copying and pasting payroll data between systems. 

By streamlining this type of task, they can not only avoid doing it but also focus more of their efforts on the work they’re more likely to enjoy.

Lifts employee productivity

Helping employees focus less on data entry-related tasks not only lends itself to a better employee experience but also empowers employees to be more productive; they get to focus on work that’s more critical to the business and that they’re uniquely equipped to tackle.

Enables your team to analyze data more effectively

By integrating payroll data with your analytics and/or business intelligence solutions, your team can pair it with additional types of data to uncover more actionable insights.

Your team can, for example, determine the relationship between compensation and job performance; how compensation costs are growing alongside other business expenses; if, and to what extent, compensation influences employee retention; whether certain groups of employees (e.g., females) are paid less than their counterparts, etc.

Lets you keep payroll data secure

Failing to protect payroll data effectively can not only lead to significant reputation damages to your organization but also cause you to become non-compliant with key data privacy regulations, acts, and laws, such as the General Data Protection Regulation (GDPR) and the Health Insurance Portability and Accountability Act (HIPAA). 

Since API-based integrations are highly secure—they authenticate and authorize every user, encrypt data in transit and at rest, use rate limits to prevent denial-of-service attacks, etc.—they can help keep your payroll data safe over time.

Benefits of customer-facing payroll integrations

Here’s a look at the top benefits for customer-facing payroll integrations.

Increases your close rate

Depending on the type of product you offer, your prospects may want you to integrate with their payroll systems. In many cases, they may even place payroll integrations high up on their list of priorities when evaluating different vendors.

Being able to integrate with the payroll systems prospects use can, as a result, help you win more business.

Elevates customer retention

As our examples showed, once customers adopt your payroll integrations, they can see more value from your platform.

This enhanced customer experience should, in turn, lead to higher customer retention over time.

Helps you expand to new markets

As prospects in target markets evaluate your product over rivals, they’ll likely consider the integrations you provide relative to competitors.

If you can integrate with the payroll systems they use, you can—all else equal—have an easier time winning their business.

Related: A guide to payroll APIs

Payroll integration challenges

Regardless of whether you’re building internal or customer-facing payroll integrations, you’re likely to run up against several issues.

Difficult to secure a sandbox environment

API sandboxes can play a critical role in helping you test integrations and fix any issues before they have a material impact.

However, the process of obtaining them from payroll providers may involve entering into a formal partnership. And this, in and of itself, poses several issues:

• The partner program can cost tens of thousands of dollars per year to be part of

• You may not get accepted into the partnership program for seemingly arbitrary reasons (e.g., the vendor falsely perceives your employer to be a competitor)

• The process of getting accepted to their program and receiving the sandbox environment can take months, leading the issues associated with not having the integration built to persist

Hard to accommodate all of the payroll providers your customers use

The payroll software landscape is extremely fragmented. There are countless vendors and they can vary dramatically as you look at what organizations in different regions, industries, and of different sizes use.

This likely means that as you look to support customer-facing payroll integrations, you’ll receive a significant number of requests over time.

Accommodating these demands successfully at scale may prove difficult, as our next challenge explains.

Implementation and maintenance can be resource and time intensive

Every payroll provider’s API is inherently unique, whether it’s their approach to authenticating to their endpoints, paginating responses, implementing rate limits, and so on. As a result, each payroll API requires its own implementation cycle—from scoping to testing. 

In addition, every integration can and will break for reasons that are impossible to account for proactively. And every time this happens, your engineers will need to move off of their current projects and work on diagnosing, troubleshooting, and, ultimately, resolving the issue as soon as possible.

Given all the work that’s required to support a payroll integration throughout its lifecycle, each can require hundreds of engineering hours every year. Moreover, the process of building each can take weeks, if not months, which will likely frustrate and disappoint key stakeholders.

Approaches to implementing payroll integrations

Before breaking down the specific types of tools you can use to build payroll integrations, let’s cover the specific methods in which payroll data can be synced across systems.

API-based integrations

This method is generally considered to be the most secure, performant, and reliable.

It only allows clients that go through the proper authentication and authorization processes to access and sync payroll data; it allows you to sync payroll data in near real-time (or at other predefined time or event-based intervals); and it isn’t vulnerable to breaking based on simple actions like a UI-level change in an application.

File-based integrations

Exporting a file with payroll data and importing it into another system has its pros and cons.

For example, this option is always available for a potential payroll integration, while other approaches, like API integrations, aren’t (e.g., an endpoint isn’t available). However, file-based integrations don’t sync data frequently, which prevents your other systems, your product, or your customers’ non-payroll systems from accessing newly-added or modified payroll data.

Assisted integrations

This approach, coined by Finch, a unified API solution, basically tasks a 3rd-party (the integration vendor) with getting login credentials to your customers’ payroll systems, logging into these systems, copying certain fields, and then pasting this data into their platform. From there, the data can be normalized and then added to your product.

This approach takes several days, if not weeks, to be carried out, and, even more important, it creates significant security risks for your customers.

Payroll integration tools

Once you decide to implement payroll integrations, you’ll need to pick a platform to build and maintain them.

Your options largely depend on whether you’re looking to build internal and customer-facing integrations, so let’s review the tools in each category.

Payroll integration tools for internal use cases

You’ll likely choose between an integration platform as a service (iPaaS) and a robotic process automation (RPA) software.

An advantage of using an iPaaS is that they likely offer pre-built connectors for and automation templates with payroll systems, helping you build integrations and automations faster. The platform also supports API-based integrations, which are generally reliable and performant.

An RPA software, on the other hand, lets you connect to payroll systems at the UI level. This makes the platform more accessible than an iPaaS (as not every platform provides APIs or the specific endpoints you need). However, UI integrations can often be brittle, as a simple change in a platform’s UI can be all it takes to break the integration.

Related: How to implement financial integrations

Payroll integration tools for customer-facing use cases

You’ll likely decide between a unified API platform and an embedded iPaaS.

An embedded iPaaS is generally ineffective at supporting customer-facing integrations, as the platform forces you to build one integration at a time and requires technical expertise to use. Taken together, it’s generally difficult to scale your integration builds through the platform. 

A unified API solution neatly addresses this by letting you add hundreds of integrations (including potentially dozens of payroll integrations) to your product through a single integration build.

Moreover, through Merge, the leading unified API platform, you’ll get access to a suite of integration Observability tooling to manage your integrations, advanced features to sync custom objects and fields, webhooks to sync data in real-time, and more.

Learn more about Merge by scheduling a demo with one of our integration experts.