Payroll providers help organizations manage their payroll. It’s not only about paying employees, it’s about paying them accurately while staying compliant with applicable local, federal, and state laws.
So, what should you do when you want to switch payroll providers? Read along to find out why organizations consider switching payroll providers, and how to choose the right one.
Reasons To Switch Payroll Providers
Here are some of the reasons an organization considers switching payroll providers.
Inability to Run Global Payroll
If your payroll provider only supports local payroll, it might be a problem if you have or plan to hire employees globally.
Most employers consider using only one platform for payments to local and international employees, so if a payroll provider cannot run multi-country payroll, employers might consider replacing it.
Outdated Technology
In today’s world, almost all tasks have become more efficient and less complicated with the help of modern tools and technologies, and payroll is no exception. With automation, payroll processing has become significantly faster.
If your current system lacks automation, your employees are likely spending unnecessary time on manual calculations and administrative tasks instead of contributing to more strategic tasks and company growth.
Inadequate Customer Support
When using any tool or technology, getting used to it takes time and constant learning. If you use a payroll provider but their customer service is not very responsive and takes time to resolve your matter, it can create problems and possibly delay payroll. Timely and responsive support is crucial to keep employees happy and avoid payroll disruptions.
Compliance Risks
Payroll not only pays employee wages but also includes accurate tax deductions and benefits contributions. It is crucial for payroll providers to provide compliance support so accurate returns can be filed with the state departments and the correct amounts can be deducted. Having inadequate compliance support puts you at risk of potential fines and penalties, which should be considered a reason for switching.
Inability to Scale
Not all payroll providers can support businesses of all sizes. If you started as a small business and use a payroll provider that only supports small and medium-sized businesses, once you grow into a large organization, your payroll provider will be unable to cater to your growing payroll needs. This will lead to a change in providers and a big transition plan.
Inadequate Reporting
Only running payroll within a system is not enough. Your employees need to access payroll data for various reasons, such as audits, compliance, budgeting, and human capital planning. Not being able to pull these reports automatically from your payroll system can lead to tons of added manual work and frustration.
When Should You Consider Switching Payroll Providers
Timing can make or break your smooth transition from one payroll provider to another. If you are considering changing your payroll providers, here are some recommended times of year to avoid adding unnecessary burdens.
End of Fiscal Year
Changing payroll providers at the end of the fiscal year ensures you can wrap up your annual tax filings with your current payroll provider and start afresh with the new one.
Beginning of Calendar Year
Changing payroll providers at the beginning of a calendar year means you would not have to transfer year-to-date (YTD) data and leave history from the previous system to the new one. This can help employers minimize errors associated with leave balances and payroll history.
New Quarter
Starting with a new payroll provider from a new quarter means seamless quarterly reports from both old and new providers. This ensures that data for the same quarter is not in two systems, but only in the one the employer used within that quarter.
Steps To Switch Payroll Providers
How do you go about switching payroll providers? Here is a step-by-step guide to help you navigate this change.
1
Analyze Current Provider
When changing payroll providers, knowing the “why” of your decision is essential. Once you know why you want to change your payroll provider, you can look closer at your current system and analyze whether you can solve your issues using what you have.
Analyzing your needs and what additional support is required helps you focus on payroll providers that can solve your specific pain points.
2
Research New Providers
Once you have figured out what additional features you require in your new payroll provider, you can search for systems that specifically focus on your areas of need. For example, if your current payroll provider does not support paying global contractors, you would be looking for solutions offering local and global payroll support.
3
Compare Multiple Options
When changing payroll providers, it is crucial that you compare multiple options before finalizing and signing agreements. Here are some factors to consider when comparing options.
- Cost: Every payroll provider charges differently. Some have a flat fee per employee per month, while others charge a fixed payroll percentage each pay cycle. Based on the number of employees you have and how many you anticipate hiring, you need to carefully assess the cost of multiple vendors and decide what works best for you.
- Scalability: Is the payroll provider able to support businesses of all sizes? You want to consider payroll providers that can grow and scale with you. Look for the size of businesses they usually support, and if they have a maximum number of employees they can accommodate, to see if it is a right fit for you.
- Customer Support: Look at the payroll provider’s customer service responsiveness. Would they provide you with a dedicated account manager who can help you with any issues you may encounter? Do they have chat support and a helpline you can call? Is there an implementation team to help you get set up initially? Knowing you will be supported on time for seamless payroll and compliance operations is essential.
- Compliance Support: Paying employees on time is not enough; you need to deduct and contribute for each employee every pay cycle accurately. Based on accurate payroll, you are required to file returns with the government to stay compliant. It’s essential to check what kind of compliance support your payroll provider will provide; will they file quarterly returns for you and help with compliance? Otherwise, you would have to hire people and pay more to complete the same work.
- Integrations: Transferring data from one payroll provider to another is difficult and requires gathering a lot of information. But if your new payroll provider can sync with your existing systems, the data transfer becomes easier. It’s also important for your different HR-related systems, such as your applicant tracking system and benefits system, to work together with your payroll system.
- Data Protection: Payroll and employee data are very sensitive, and you should always protect them. It is important to check if the payroll provider has strong data protection in place to avoid risks of data leakage. Look for certifications for data protection, like SOC 2 Type II & ISO/IEC 27001.
4
Contract Negotiations
Once you have compared options and finalized the payroll vendor you want to move ahead with, it’s time to start contract negotiations and sign agreements. Whenever you sign with a new vendor, always discuss the possibility of a starting discount, additional services, and complimentary add-ons. These discussions ensure that you get the best value for your money.
5
Gathering Required Information
Once you’ve signed with your new payroll provider, it is time to gather all the required information, which includes the following:
| Category | Details |
|---|---|
| Employee Personal Details | This includes employee personal details such as their legal full names, address, social security number, and direct deposit details for accurate payroll processing. |
| Tax Data | This includes details on federal, state, and local tax withholdings, including employees’ W-4 forms and any applicable tax credits or exemptions. The tax data enables the new payroll provider to calculate and remit taxes on your employees’ behalf accurately. |
| Payroll History | Details such as employee earnings, bonuses, commissions, and deductions are essential for the new provider to calculate employee year-to-date and complete tax filing accurately. |
| Benefits Information | How each employee has chosen their benefits, whether they have dependents or not, and how much they contribute towards retirement benefits are essential to ensure employee deductions and contributions are calculated accurately on every payroll. |
| Leave History and Balances | Every organization has a separate leave policy; some offer front-load, while others have accrued time that can or cannot be carried forward. Providing accurate information about leave rules, history, and balances is important to ensure employee leaves are managed correctly. |
6
Communication Rollout
Now that you have all the required information, it is time to roll out the communication to your employees and prepare them for the transition. Plan the communication at least 1 week in advance and let the employees know what will be needed from them.
Every employee will have to be onboarded into the system so they can track their time and set up their profiles. Provide tutorials and training manuals to help employees understand how to onboard and use the new system. Set up optional one-on-one meetings with employees to educate them on the new system.
7
Payroll Testing
Before fully transitioning to a new payroll provider, it is recommended that you run multiple test payrolls for small amounts to ensure the debit and credit are functioning correctly to avoid any future payroll disruptions.
8
Final Transition
Now that you have prepared your employees for onboarding and have done payroll testing, it is time to transfer all the gathered information to your new vendor, send out employee onboarding invites, and start running payroll with the new provider.
Following the above steps, you can transition smoothly to your new payroll provider. But here we have listed some potential risks you should be aware of associated with changing payroll providers and how to navigate through.
Data Migration Errors
If any part of the data is incorrect or there is an incomplete transfer of information, it will likely result in incorrect tax and wage calculations. It could lead to payroll errors and tax penalties. It is recommended that you verify all the collected information before transferring it to the new payroll system. Once the data is transferred to the new system, you should check again if all the information was imported correctly to avoid errors and wrong calculations.
Compliance Risk
If you have multi-state and multi-country employees, it is crucial to confirm from your payroll provider that they understand compliance for all the employee locations. For example, wages, taxes, and statutory benefits differ from one country to the next, and if you have employees in multiple regions, your payroll provider should be able to help you navigate the correct deductions, contributions, and applicable taxes based on where the employee is located. Incorrect compliance can lead to tax penalties and potential lawsuits.
Lack of User Training
Even if you have the best payroll provider and system, it will likely fail if you and your employees do not understand how to use it to its full potential. This is why it is of utmost importance that the payroll providers provide training to you and your employees and manuals to set up and use the system accurately.
Author: Charlotte Evans
Charlotte is an Human Resources Information Systems and Martech expect, Charlotte has worked for major brands in the industry including FactorialHR and Tooltester. Originally from Manchester, UK, with a Bachelor's degree from the Manchester Metropolitan University, Charlotte currently lives in Barcelona, Spain.
