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Best Practices for Changing Payroll Providers

There are many reasons why a business might decide it’s time to bid farewell to its current payroll provider and start looking for a new one, such as frequent handling or reporting errors, increased service fees, and low payroll accuracy. However, switching payroll companies can be a challenging decision.

Many businesses hesitate to switch to a new service provider because they fear potential interruptions in the payroll process, leading to delayed payments and employee frustration. Another reason businesses often delay changing payroll services is the concern that the transition might be too difficult to manage and consume too much time.

Changing payroll providers is not an impossible task. Read on to learn:

How to switch payroll providers,
The best timing for changing payroll companies,
What questions to ask before making the switch, and
What techniques can help ensure a smooth transition.
Reasons for Changing Payroll Providers

There can be various reasons why a business terminates its business relationship with its payroll service provider. These reasons include:

Repeated failure to meet agreed-upon payroll SLAs,
Limited scalability of the payroll solutions provided by the provider,
Changes in the pricing structure of the provider,
Inadequate customer support,
Slow and inefficient processes on the provider’s end,
Mergers and acquisitions affecting payroll,
Frequent payroll errors and compliance issues, and
Low accuracy in payroll reporting.
When is the Right Time to Change Payroll Providers?

Changing payroll providers is primarily a matter of timing. It is generally advised not to overlap the provider switch with other major transformation projects or initiatives within the organization.

The end of the (tax) year is typically considered the best time to transition payroll services. This is because it simplifies year-end tax reporting and reduces the complexity of payroll compliance.

On the other hand, changing payroll providers mid-year often introduces additional complexities, such as the need to transfer all tax-related data and information for the current year from the old provider to the new one.

How to Change Payroll Providers: Step-by-Step Process

Changing payroll providers is a decision that should not be taken lightly. To avoid disruptions, businesses need to carefully plan the timing of the switch. Here’s an overview of the different steps to follow:

Obtain approval from all stakeholders to change payroll providers.
Consider what aspects you wish to improve by switching payroll providers.
List the requirements for the new payroll service.
Review your current service agreement to understand when and how to terminate the contract.
Select the timing for the change.
Create a payroll migration checklist.
Notify your old provider of your intention to terminate the contract.
Create a shortlist of prospective service providers.
Send a payroll RFP to shortlisted payroll service agencies.
Select the new payroll provider and establish a new service contract (including new and improved payroll SLAs).
Transfer all necessary data and information to your new payroll provider for setup.
Organize parallel payroll processing to ensure a smooth transition.
Make necessary adjustments and provide feedback.
Questions to Ask When Changing Payroll Providers

Organizations should ask many different questions when changing payroll providers. Asking as many questions as possible can help businesses assess the current situation to ensure that changing the provider is indeed the right choice. Questions to ask in this regard include:

Is the issue really with the service provider or internal issues?
Have attempts been made to address the issues identified?
Are there any unique advantages of the current payroll service that will be lost after changing providers?
Additionally, there is a long list of questions to ask about the services provided by the new provider. Most of these questions are already included in the proposal requests sent to payroll companies, but there’s no harm in asking certain questions twice for thorough examination.

Here are some key questions to ask when evaluating a new payroll service:

What are the payroll security measures implemented by the provider?
What support will be provided during onboarding and implementation?
How automated is the provider’s payroll processing?
Is there a dedicated account manager to handle queries and urgent issues?
What is the deadline for payroll changes?
Will additional support be provided to employees?
Tips for Changing Payroll Providers

Strictly speaking, changing payroll providers is not difficult. However, businesses can maximize their chances of success by adopting the following techniques:

Scrutinize your data: Changing payroll providers involves transferring a large amount of sensitive data from the old provider to the new one. To avoid data duplication and prevent data loss, the first step should involve carefully collecting and validating all payroll and employee data required for payroll processing.

Consider operational hurdles: Minor details such as using different payment periods and frequencies can hinder the implementation process of the new provider. Ensure that any factors potentially causing delays in the setup phase are taken into account and clear questions are raised about overcoming these obstacles.

Choose a good time: Payroll is crucial for any organization, and disruptions to payroll must be avoided at all costs. When deciding to switch payroll providers, be sure to choose an appropriate time. Avoid busy periods or overlap with other major transformation projects.

Coordinate tax filings: Calculating, paying, and reporting payroll taxes are essential for ensuring payroll compliance. When changing payroll providers, ensure proper management of any transfer of tax-related information and carefully coordinate the transition with any significant tax filing deadlines.

Appoint a project lead: Changing payroll providers may not be complex, but it requires time and effort to ensure a smooth transition. This is why having a dedicated project lead to manage the transition is crucial.

Allow your team time to adjust: Each payroll provider uses different payroll systems and has unique workflows and processes. Therefore, you should give your internal payroll team time to familiarize themselves with the new system and processes. Provide training if necessary.

Inform your employees: Payroll directly affects employees, which is why any changes to payroll should be communicated to the entire team. Let your employees know that you’re changing payroll providers and assure them that these changes will not affect the timeliness of payroll payments.

Changing Payroll Providers: Business Checklist

Here’s a quick checklist you can use to ensure you’ve covered all bases:

The new payroll provider offers all the services and features you need.
The timing does not disrupt other major projects within the organization.
All stakeholders have approved the change in payroll providers.
Terms of the current payroll service contract have been reviewed.
Detailed payroll migration agreements have been created and shared with both the old and new providers.
Payroll data and related information have been reviewed and cleansed.
Clear instructions regarding tax filings and reporting have been provided to the new provider.
Employees have been informed of relevant changes.
By following these best practices and tips, businesses can navigate the process of changing payroll providers more effectively, minimizing disruptions and ensuring a smooth transition.

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