Payroll And Vendor Payments Converge For SMBs

Of all of the back-office financial operations of a small business, payroll is one that is evolving perhaps the most dramatically, and quickly.

From managing ever-changing regulations related to taxes and employee protections, to keeping up with payments industry innovations that shift employers away from paper paychecks toward direct deposit, to market trends that demand new ways to compensate different types of workers when and how they want — payroll can be a strategic mechanism to attract and retain top talent, or a friction-filled headache.

In some respects, it depends on a small business’s ability to adjust its vantage point, and to view payroll more as an opportunity to promote growth. For Sam Vassa, chief executive officer of Canadian payroll and business payments company PaymentEvolution, the payroll industry itself must change its viewpoint, too.

“One of the things you traditionally see in the payroll industry is that it’s geared toward the employer, and not the employee,” he told PYMNTS in a recent interview. “The fact that you have an employee on a two-week payment cycle is really the consequence of an employer wanting to manage cash flow.”

While biweekly or monthly payroll cycles may promote cash flow predictability, failing to augment payroll offerings can put a strain on an employee’s cash flow and overall satisfaction with an employer. This understanding has opened the payroll industry to embrace innovations like faster and real-time payments that can support faster access to wages, or the introduction of on-demand payroll or employee financing programs — all of which can promote employee satisfaction and position a small business to be more competitive in a tight labor market.

But according to Vassa, some of the biggest opportunities to turn payroll into a strategic part of the enterprise exist in the ability to wield and integrate payroll data.

Augmenting Payroll

For PaymentEvolution, the most recent augmentation of the payroll function comes in the form of the company’s recent launch of a real-time quoting service, connecting small business owners to straightforward, fast quotes for employee benefits. Payroll data is crucial to accelerating what can often be a manual process of calling insurance providers, filling out documents and providing information to receive quotes on various services.

“When we talk to insurance carriers, they look at the data they get from payroll as being critical to their long-term success,” said Vassa. “It’s real-time data, and it’s in the small business’s best interest to keep that up-to-date.”

Previous research from PaymentEvolution found that the majority of small and medium-sized businesses (SMBs) in Canada don’t offer any type of benefits package to their employees, with many citing confusion around how to compare and obtain the best rates. Being able to more easily access insurance products further amplifies an SMB’s ability to compete to attract and retain top talent through benefits packages that are often attainable only to larger organizations, Vassa noted — particularly as insurance providers often struggle to market to smaller companies.

Data integration not only plays an important part in helping insurers match the best products to SMB clients, but also in ensuring small businesses remain tax compliant, and in aligning monetary compensation with additional benefits for their workers — again, to promote employee retention.

“By tying benefits to a pay cycle, the employee equates their experience with that company with an overall compensation story,” explained Vassa.

A Bigger Picture of Payroll Data

Considering the complexities of payroll, being able to integrate employee and payroll data into various systems — for instance, with an insurance provider or with a back-office accounting portal — offers an opportunity to streamline multiple processes at once.

For SMBs, payroll is essentially just a payment, an outflow of money. According to Vassa, there are even more opportunities for SMBs to strategically wield data integrations to make other money outflows — including contractor payments, gig worker payments and supplier payments — more efficient. For PaymentEvolution, that means wielding its accounting platform integrations to add business payments functionality to its payroll offering.

“In the SMB space especially, there is a reluctance to add on additional complexity,” he said. “Right now, having to go ahead and do an eTransfer for certain vendors, and write a paper check for others, and do direct deposit for employees — it’s a bunch of different mechanisms they need to master and stay on top of, from a cash flow perspective. By bringing these services together — the employee payments, contractor payments, gig worker payments — they’re able to now have a commanding view around how they make those payments happen.”

Consolidating cash outflows, whether it be to pay a supplier invoice or to compensate an employee, also means streamlined reconciliation and accounting, he added.

For small businesses, changes in the payroll landscape may be overwhelming, confusing and painful. But finding opportunities in data integration can turn that challenge into an opportunity for business growth, whether by streamlining access to employee benefits, supporting cash flow management through integration into accounting platforms, or viewing payroll as a form of business payment, allowing SMBs to boost efficiency of all kinds of money outflows.

Vassa pointed to the role of the API (application program interface) in enabling these opportunities for SMBs, and the mindset that the small business owner, not the FinTech, owns the data.

“That’s a fundamental shift in terms of where you typically see technology companies today in terms of ownership of data,” he said. “At the end of the day, it’s your data, and you should be using it to streamline your business, make things simpler, and make our organization more agile.”