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Why You Should Integrate 401k with Your Payroll

May 2nd, 2022 | 3 min. read

By Gia Rolen

For years, it's been common for small and midsized businesses to forego providing a 401k retirement plan for the following reasons:

  • Complex implementations and integrations
  • Costly and complicated administration and management
  • Compliance concerns

Integrating a 401(k) plan with your payroll enables you to reap the rewards of economies with lower fees, no annual audits, minimized liability, and virtually no administrative burden.

  • It enhances your employer brand, which
  • Attracts and retains top employees, so that
  • You save time and money and build a better back office

What is a 401(k)?

A 401(k) is a retirement savings plan where a percentage of the employee's paycheck is put into an investment account, and the employer decides to match part of all of it. Tax advantages are available to both participants.

When an employee decides to participate in your retirement plan, they make an election, aka, they decide what percentage of their paycheck should go towards their retirement fund.

Most employers are going to give them the ability to contribute to those plans on a per pay period process, and it's typically a strict dollar amount or a percentage of their gross pay.

For example, let's say your employee elects 1%. Her gross pay per paycheck is $1500, so $150 would go into her 401(k) every pay period. If she is paid semi-monthly, that would average $300/month.

If you, the employer, decide to match it, she would average $600/monthly into the account, which is $7200/year.

Because each pay period contributes to this 401k plan, a payroll integration will help you with the deductions and contributions. It withholds the gross pay from the employee's check. It also ensures that payroll taxes are not coming out of it since it's tax-deferred.

Intuitive payroll platforms automate these processes and catch elections on both the employee and the employer side.

Example: At the beginning of the year, your employee receives an annual raise. He's contributing 7% of his paycheck but he wants to do 10%. The payroll provider will ensure that this election is processed correctly.

If the 10% isn't withheld, you face a missed balance, and payroll gets extremely complicated when minor changes are made.

A payroll provider automates these contributions, adjusts changes, and builds benefit reconciliation reports.

Can my current payroll partner offer these benefits?

Yes, but it depends on the company.

At Whirks, we have a trusted partner who handles your 401k plan. Our job is to:

  1. Log the deductions into your payroll journal each pay period.
  2. Keep records of employee and employer contributions.
  3. Calculate and deposit employee contributions.
  4. Enroll employees and track their eligibility.

You can buy your retirement and medical plans directly through bigger payroll companies, like ADP or Paychex. If you are in a PEO, be aware that multiple people are servicing your account, which can potentially lead to miscommunication.

Several employers struggle with their information not being transferred correctly to the respective departments, a common issue with a larger company that offers 401k plans.

You've probably heard of the expression, "there are too many cooks in the kitchen." You may have a 401k plan with your provider, but they didn't file a Form 5500 or didn't realize that there may be third-party compliance testing.

At Whirks, we prefer to be experts in what we do and leave 401ks and insurance to our vendors, who we love. Our job is to tie those pieces into our technology and automate the process, so it's less work for you and your team.

How does offering a 401(k) help me attract top talent?

Offering a 401(k) plan to your employees enables you to attract and retain top talent and enhance your employees' experience.

  • 75% of new hires at a company offering a 401(k) say the retirement plan provides a compelling reason to stay (Source).
  • According to Glassdoor, 90% of workers 18 to 34 years old say they would prefer benefits over pay.
  • The same study showed that nearly 80% of workers would prefer new or additional benefits to a pay increase.
  • 92% of American workers with 401k plans have reported that having a pay-roll deduction helps them save (AmericanBenefitsCouncil, 2019)

Right now, hiring is hard for many business owners, regardless of their size or industry. Our post-pandemic world has challenged millions of people to rethink their careers and their benefits at a company.

In order to compete in today's job market, you have to evaluate your employer brand, your culture, and your hiring process. Why would someone want to come work for you?

Offering a 401(k) means literally investing in your employees and their financial future, which shows applicants that you care about them and appreciate their hard work.