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Payroll platforms can use paycheck optimization to solve for financial wellness
Payroll & HR
6 minutes
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Americans are continuously exploring ways to have more money in their pockets, whether by cutting out certain luxuries  — like the cost of their least favorite streaming platform — or increasing their income by taking on a new side hustle. While both tactics help, one thing that often gets overlooked is how they optimize their paycheck by having the right amount of taxes withheld on their W-4 form. With a proper paycheck optimization strategy, Americans can keep more money in their paychecks throughout the year. The problem is that most people set their tax withholdings when they are first hired and never adjust them throughout the course of their job. 


Fortunately, april’s Optimizer presents a significant advancement in employee tools and overall financial wellness for American employees. Tools like this help give people more control over their paychecks without having to deal with a complex tax form and mitigate the risk of tax-related surprises when they file their taxes for the year. By integrating this employee tool into payroll and benefits platforms, companies can position themselves as comprehensive providers of employee benefits that enhance their employees' financial wellness.


For payroll and benefits platforms it's not just about keeping up with industry competition; it's about offering something that makes life easier for employees by giving them a way to fine-tune their paychecks to fit their financial lives. Year-round paycheck withholding optimization is opening new financial avenues for different types of income earners, and by embracing these tools, payroll and benefits platforms aren’t just processing paychecks; they’re helping shape happier, more financially savvy workplaces.


How paycheck withholding optimization aids financial wellbeing 

The impact of paycheck withholding optimization as an employee benefit varies between W-2 salaried workers and hourly workers with fluctuating incomes. However, considering that 60% of surveyed Americans live paycheck to paycheck — according to research by Pymnts and LendingClub — the value of having more money in each paycheck is appreciated by most Americans as a crucial aspect of financial wellness.


For W-2 salaried workers: Life's unpredictability makes paycheck optimization an essential tool. Whether welcoming a new family member, taking on a second job, or starting a side gig with a 1099 income — each can significantly impact a salaried worker's financial situation. With paycheck optimization, they can adjust their withholdings in response to these changes. They can get strategic about where their money's going, whether into a rainy-day fund, investments, or chipping away at debts. 


For hourly workers: Income can be unpredictable, and adjusting withholdings in line with income fluctuations could be a lifesaver. It's all about ensuring they're paying only a little in taxes, which is crucial for staying financially balanced. Being able to fine-tune withholdings helps smooth out those financial peaks and valleys, making the money management for the hourly worker a bit less of a rollercoaster.


Let’s take a look at two scenarios to give us a better idea of how this works.



Scenario #1: Salaried workers welcoming a new family member

Emma, a software developer, and her partner are thrilled to be welcoming a baby. With a fixed monthly income, she's considering optimizing her finances to manage impending expenses like healthcare, baby essentials, and childcare.


How the employee benefits from paycheck withholding optimization

  • Adjusting withholdings for dependents: Emma can modify her withholdings to account for an additional dependent, adjusting the tax deductions and increasing her take-home pay to better cater to her expanding family's needs.
  • Maternity leave planning: By adjusting her withholdings Emma ensures that her income during her leave properly accounts for her new dependent.
  • Strategic planning for future expenses: The additional funds could be strategically saved for future child-related expenses like daycare.


Scenario #2: Hourly worker with fluctuating work hours

Carlos, a Registered Nurse, experiences variability in his monthly income due to the hourly nature of his work. Some months, he's swamped with overtime, while others he works his Ωregular hours.


How the employee benefits from paycheck withholding optimization

  • Aligning withholding with earnings: During a heavy work month, Carlos can adjust his withholdings to ensure he's not overpaying taxes on his elevated income, thus having more immediate access to his earnings to set aside for leaner times.
  • Buffering for light months: During a light work month, Carlos can reduce his withholdings, providing him with slightly higher paychecks to navigate through periods of reduced income.
  • Tax liability management: By optimizing his withholding, Carlos ensures he's paying enough taxes, avoiding an unforeseen tax bill or unnecessarily lending money to the government by overpaying his taxes.


The role of payroll providers in employee financial wellness

Employees rank financial stress as one of their top five wellbeing issues, with many citing an inability to manage their day-to-day finances and pay bills as common sources of stress. By offering tools that help employees manage their finances better, payroll companies directly contribute to their financial confidence and become the modern payroll and benefits company that improves financial wellbeing and satisfaction. Incorporating an employee tool like april's Paycheck Optimizer positions payroll companies as one-stop solutions for payroll and benefits management, which can help their customers with their Employee NPS scores. 


Employee Net Promoter Scores (NPS) have become a measure of assessing workforce satisfaction and loyalty. Payroll and benefits companies with paycheck withholding optimization as one of their services are uniquely positioned to influence these scores positively. Employees who feel their employer is actively involved in their financial well-being will likely recommend their employer as a great workplace. This leads to higher Employee NPS scores and a culture of trust and support that would recommend the payroll provider to other companies.


The april Optimizer helps payroll and benefits companies become a clear differentiator in a market where businesses often seek providers that can offer more than just payroll processing.The financial landscape constantly evolves, and businesses expect their payroll and benefits providers to keep pace. By integrating advanced employee tools like the april Optimizer, payroll companies demonstrate their commitment to innovation and continuous improvement, essential for attracting and retaining clients.


Conclusion

Everyone has times in their financial life that demand some financial readjustment, regardless of income type. With a tool that facilitates real-time, year-round optimization, Americans can navigate through these financial ebbs and flows more easily. It's not just about feeling financially secure; it's about having the freedom to handle their money in a way that fits their personal goals and dreams. april's embedded tax solutions make paycheck optimization easy. Salaried workers benefit from predictable planning, hourly workers can buffer for lean times and manage taxes effectively, and payroll providers boost client retention while helping build a generation of financially confident Americans.


This content is provided for informational purposes only and should not be construed as tax, legal, financial, or other professional advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need specific advice. Any data shared is subject to applicable law and consent.


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Posted by:
Christina
Vice President of Tax Development and Delivery
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