Payroll providers have treated consumer-directed benefits like FSAs, HRAs, HSAs, and LSAs as necessary but unprofitable add-ons. Many refer these benefits out to third-party vendors, while others take on the burden of administering them in-house – neither option maximizes profitability.

That perspective is no longer true in 2025. With modern technology and new strategies, payroll companies can offer consumer-directed benefits to employers as a product that increases their bottom line while minimizing the risk of managing these benefits.

The traditional two paths

Let's discuss how we got here. Payroll companies process employers' payroll and help with their tax compliance needs. Employers also want consumer-directed benefits, like an FSA or HSA, and prefer not to deal with another vendor. Payroll companies say "Sure" and then take one of two routes:

• Partner with a legacy tech platform, so they can hopefully integrate directly into their user interface and own the user experience.
• Refer consumer-directed benefits to third party vendors, so they don't have to deal with operational & compliance headaches.

Here’s why both of those paths have been frustrating.

Legacy tech create new problems

Technology should solve problems, not create new ones. Unfortunately, legacy tech vendors may create more problems for the partners and customers they serve. This looks like:

• ‍Lack of brand control. Most “white-label” solutions are just a logo slapped on a generic third-party portal. The colors, fonts, and layouts don’t match the payroll provider’s brand, and users are redirected to a vendor’s domain name to log in. Confused users don’t know where to go for help, and the payroll provider brand’s perceived value is weakened.‍
• Long admin ticket queues. Most vendor admin features depend on emails and admin workarounds. Need to set up a new employer? Send a ticket request. An enrollment report? Email client support. Need to adjudicate a claim and manage contributions? Open two screens and two tools. When the vendor controls the core functionality, payroll teams are limited in their ability to serve their clients.‍
• High operational costs. Most platforms require payroll in-house support teams to handle claims, servicing, and benefits compliance on their own. FSAs and HSAs are often new territories for payroll teams, and they do require customer support resources (even with the most modern technology). Without support vendor resources, most payroll organizations are unable to scale to meet the new demands and struggle with the additional operational burden and cost.

Referral partnerships leave money on the table

Because of the legacy tech problems mentioned above, most payroll providers refer HSAs, FSAs, and other consumer-directed benefits to third-party vendors. This results in the following:

• The vendor captures the majority of the revenue (e.g., administration fees, HSA deposit interest, card swipe interchange)
• The payroll provider only gets a small referral fee – if anything.
• The customer experience is fragmented, with users sent to third-party portals for support.

Impact on revenue

Referral partnerships provide payroll companies with very little upside. If payroll companies offered consumer-directed benefits directly instead, they could see the following returns.

• Direct ownership of consumer-directed benefits can lead to more than 3x the revenue compared to referral partnerships.
• New benefit offerings can drive up to 10% more revenue compared to referral models.

Missed opportunity

It’s understandable why most payroll companies have depended on referral partnerships for consumer-directed benefits, but this traditional route provides little upside. Referral partnerships limit their ability to leverage FSAs, HSAs, and other consumer-directed benefits as a profit center, and fragment their product offering. With modern technology, consumer-directed benefits can both add to the bottom line and help payroll companies differentiate their offering.

The new way: Modern tech and support resources

Instead of outsourcing revenue or taking on costly administration by themselves, payroll providers need a modern, embedded solution that enables them to:

• Own the consumer-directed benefit experience (not a third party).
• Deliver high-margin revenue without operational burden.
• Eliminate the need for legacy integrations.

Payroll providers need embedded technology complemented by support resources.

Tech tools to own the user experience

Infrastructure technology solutions should match the client’s needs. If the payroll team wants APIs, they need production-ready APIs for every platform event to enable real-time system integration. And if payroll organizations need a white-label solution, they need a true re-branding solution that goes beyond logo swapping.

Comprehensive white-label solution

A fully re-branded CDB solution goes beyond simply adding a logo—it creates a seamless, recognizable experience that strengthens customer relationships and reinforces brand trust.

• ‍Emails and notifications should come from the payroll provider’s domain, with dynamic data (e.g., handlebars, personalized senders) ensuring consistency across marketing and transactional messages.‍
• User logins should direct members to a payroll provider-branded domain, avoiding confusion caused by third-party portals.‍
• Physical benefit cards should carry the payroll provider’s branding, maintaining a cohesive experience across all touchpoints.

With a truly white-labeled solution, payroll providers can own the customer experience while keeping their brand front and center.

APIs for embedded solutions

Traditional systems rely on file-based exchanges (e.g., SFTP uploads), where updates are processed in bulk, often overnight. This creates delays, data inconsistencies, and manual intervention when things go wrong.

An API solution can be a game changer. A robust API infrastructure allows payroll platforms to embed consumer-directed benefits directly on their platform, eliminating outdated batch processing and manual work.

An API-powered solution for consumer-directed benefits means:

• ‍Instant feedback. Instead of waiting for batch jobs to complete, partners get immediate HTTP responses confirming whether an operation was successful. That means employees can be enrolled and issued a virtual benefits card in real time without waiting for file uploads or overnight processing.‍
• Fewer errors. No more emailing support to check on file processing or manually fixing mismatched data. Payroll and benefits data stay in sync without manual reconciliation.

Self-service tools for administration

Instead of relying on manual requests and long admin queues, payroll teams need intuitive dashboards and automated workflows that put them in control.

• ‍Benefit Setup & Configuration. Instantly create and manage benefit plans without vendor intervention with pre-built templates for consumer-directed benefits.‍
• Real-Time Reporting & Data Access. Have on-demand access to enrollment, claims, and transaction reports.

Technology vendor checklist

Here’s what we recommend when looking for a technology vendor for FSAs,  HSAs, and other consumer-directed benefits.

Tiered models to design your support approach

Many payroll providers don’t offer consumer-directed benefits on their own platform because they fear the support burden. Their administration team isn’t familiar with consumer-directed benefits, and the potential need to quickly scale to meet customer needs can be intimidating.

Modern technology vendors with consumer-directed benefit support resources can mitigate this worry by offering tiered models for employer servicing and benefits administration. This includes front-line support for member inquiries and administration support for adjudicating claims and employer needs.

White-labeled support

A modern tech vendor will offer white-label support options for consumer-directed benefits, so customers can receive contact support under the payroll organization brand.

First Dollar Support Solution

First Dollar’s tiered support model lets payroll providers choose how much (or how little) they want to handle.

Consumer-directed benefits as a profit center

Employer demand for consumer-directed benefits continues to grow. The 2024 Midyear Devenir HSA Research Report found $137 billion in HSA assets were held in almost 38 million accounts, a year-over-year increase of 18% for assets and 5% for accounts. The US. Bureau of Labor Statistics reports that in 2024, 72% of state and local government and 47% of private industry workers had access to health care flexible spending accounts, and 66% of state and local government and 43% of private industry workers had access to dependent care flexible spending accounts.

By offering a modern solution for FSA, HSA, and other consumer-directed benefits payroll providers will not only enhance their operational efficiency and improve their margins, but they’ll also position themselves to capitalize on the growing demand for integrated consumer-directed benefits.

The right model

For too long, payroll providers have faced a difficult choice: refer consumer-directed benefits away and lose revenue, or take on the operational burden of managing them in-house. With the right model, that’s no longer the case.  

By leveraging modern infrastructure, embedded technology, and flexible support models, payroll providers can:

• ‍Transform consumer-directed benefits into a revenue driver instead of an operational cost.
• ‍Expand employer offerings to stay competitive and win more deals (e.g., new benefits like LSAs, ICHRAs, or HRAs).‍
• Eliminate the inefficiencies of legacy tech and outdated administration. The demand for integrated consumer-directed benefits is only increasing—and payroll providers that move now will position themselves to own the experience and capture the upside.

Payroll platforms don’t have to choose between complexity and lost revenue. The right partner makes it simple.