Is it time to change your payroll company? With a little research and preparation, you can find your better match and smoothly transition with minimal disruption to employees or your payroll department. The key to switching payroll providers successfully is to know what you need vs want and have a good understanding of the issue(s) that’s forcing you to leave your current service.
While we don’t recommend making a permanent switch to the first payroll service you run across, we do suggest that you add Gusto to your evaluation list. If you have less than 100 employees, need automated payroll and tax management, along with quality customer service, it may be a good fit. It’s one of the more affordable options, $45 monthly for one employee, and comes with some HR support. It also allows you to try it free for 30 days. Sign up to see how it works.
1. Evaluate Your Current Payroll Provider
Before you embark on your quest to find a new payroll software or service, take a good, hard look at your current provider. Why are you dissatisfied with it? What do you hope to achieve with a new provider? Some questions you should ask include:
- What does it do well?
- What are your favorite features and why?
- What does it not do well?
- What doesn’t it do at all that you need or want?
- What’s your chief complaint?
- Why do you want to change providers?
Once you have answered these questions and come up with a list of your own needs, ask yourself one more question: Is it worth switching? Sometimes, changing a plan, negotiating for an extra feature, or even switching your customer success representative may resolve your issues and save you the trouble of changing payroll providers.
If you decide to switch, convert your answers to the sample questions above into a set of requirements in terms of must-haves and nice-to-haves. Add any other features you’d like, and decide which items are deal-breakers. This will aid you in your research for the best payroll software for your business.
2. Do Side-by-Side Comparisons of Potential Payroll Companies vs Your Current One
The services and options that different payroll providers offer vary widely, and so should your research. Get a holistic view of how your options stack up against the payroll service you’re using now. After all, you don’t want to inadvertently give up a valuable feature you need, like payroll tax filing, just to save money. Nor do you want to be distracted by a service that looks impressive but is too complex for your needs.
In addition to the checklist of must-have and would-like features you’ve compiled, also consider the following:
- Services provided: This covers your needs and wants list. How well do you know how to do payroll? Do you need a service that does it all for you or just a little help to make your efforts more efficient?
- Additional services: Many payroll providers offer human resources, time-tracking, sales and commission tracking, and other functions. This could save you money spent on third-party software, but it will require moving those systems as well.
- Special considerations: Do you need international payroll? Out-of-cycle payments? Unusual wage calculations (by mile, for example)? If the competitor does not provide that, is there a work-around, and how hard is it to manage?
- Growth potential: Can the service meet your future needs as you grow in size or requirements? This may include add-ons or larger plans. Consider the prices: Is there a huge jump when adding features? Do they have an a la carte app menu? Do you need to negotiate for extra services?
- Customer service: In addition to checking the help features available online and in-app, ask about a dedicated customer service rep (and their qualifications). Also, read user reviews sites.
- Employee interface: What data can employees access? Do they offer a mobile app as well as an online portal?
- Integrations: Don’t forget this one! Make sure the software integrates with your current accounting, time-tracking, HR, point-of-sale, or other software that feeds information into payroll. Otherwise, consider the cost and work of changing those systems too.
- Security: Nearly all payroll services include bank-level security, backups, and password protection, but check that new services meet or exceed those of your current one.
When researching, go beyond looking at their website or asking a colleague. Consider the plans and pricing, talk to the sales department, look at review sites like ours in addition to others like Capterra. Watch demos, and be sure to ask which features shown are included with the plan you are interested in. If it offers a free trial, try it out with a sample of your employee base.
Tip: You can check out our reviews on the top payroll software providers of 2020. If you are interested in comparing two specific payroll software services, type the names into our search bar and see if we’ve already done a comparison. It’s a good way to get a head start.
Be Sure You Understand Pricing
Many payroll services offer deals and discounts to new members. Be sure to ask if the quoted price is discounted and if so, when that discount will end and what the new price will be. Ask about average annual increases, if any. Also check for “hidden fees” like customer service consultations, add-ons, integration fees, transfer fees, out-of-schedule pay runs, or one-time charges. Also ask if these are negotiable, because you may need to renegotiate prices and plans each year.
3. Choose a Payroll Service & Decide When to Switch
Once you’ve finished comparing different payroll companies, you’ll need to decide which payroll provider is best for you.
After finalizing your decision, you may want to jump right in, but that’s not the best idea. You’ll want some time to get all the information transferred and checked, get your employees up to speed, and to make sure data is correct and integrations in place before officially moving over.
What’s the Best Time to Switch to a New Payroll Provider?
Switching a payroll provider involves transferring a lot of historical and employee information. With the advent of cloud technology, this is much easier, so if you are moving from a cloud-based system to a cloud-based system, you can switch at any time. However, in general, the best times to change are at the end of the year or the end of the quarter.
By changing at the end of the year, you make it easy for the new payroll provider to track taxes and other government paperwork for the new year. Plan for your first paycheck of the year to come from the new provider, even if it includes work done in December.
The next easiest is the end of the quarter, with the first payroll by the new provider being run at the beginning of the new quarter.
Regardless of when you switch, factor in some time to get everything in place, so that you don’t miss a payroll.
How Much Lead-time Should You Give Before a New Payroll Provider?
This is something you should discuss with your new provider before setting a switch date. It will depend on how much work you do vs having them do, what information they need, the size of your company, and other factors like integrations. Providers like Gusto that cater to small businesses will have you paying your workers in a few days, whereas services like ADP that serve a range of customers from small to large may require a few weeks.
How Much Notice Should You Give Your Current Payroll Provider?
You’ll need to work with your current payroll provider to get the information you need transferred and deal with any legal or software issues resulting from the transfer. In general, 30 days’ notice is sufficient, although your new provider can give you a more accurate estimate. However, check the details of any existing contracts you have with your current payroll provider. Be sure you are not incurring fees for ending your service early.
Telling Your Current Provider You’re Switching Payroll Services
It can be uncomfortable telling a provider that you are switching, especially if you’ve had a long-term relationship with them. However, resist the temptation to tell them you no longer need payroll. Your rep may assume you are closing your business and contact the IRS to close accounts. A better course of action is to be honest about why you’re leaving. No payroll company is perfect, and they depend on customer feedback to know what they need to improve.
4. Arrange Setup With Your New Payroll Service
Some payroll services will help you set up the system or do it for you. If they do it, ask if or how much they charge. Assigning an employee or employees to serve as the point person keeps the information flow consistent and ensures you don’t have to be involved in every detail yourself.
Access System Through the Cloud or Download
It may be possible to give your new provider permissions to access your data through the cloud. This makes transferring easier. However, if you need to download, check with them about the format and organization that makes it easiest for uploading into their own software.
Pro Tip: Regardless of how you transfer the data, do an internal audit to make sure it transferred without errors or to fix any errors that were already in the old system.
Send Documents & Other Payroll Information
Your new provider will let you know exactly what information is needed to get started. You may be able to authorize your old payroll service to send the information directly to your new one. These are the most common items needed:
- EIN and other basic business information like legal business name.
- Tax forms: Past returns, payroll tax deposit dates and amounts, payroll tax account numbers.
- Payroll registration information: For federal, state, and local tax authorities.
- Bank account info: A voided check for your payroll or tax account.
- Current employee list and information: Names, Social Security numbers, addresses, earnings, withholdings, deductions, garnishments, and other information needed for payroll.
- Payroll information: Pay stubs, payroll journal for staff, and any historical information needed to pay taxes if you are not starting at the beginning of the calendar year.
- Terminated employee information: You need to keep this information by law for a certain number of years, even if your old service gives former employees lifetime access to their files.
- Third-party authorizations: Any additional authorizations needed for the new provider to pay taxes or make transfers on your behalf, including Form 8655s and state or local authorizations.
- Other documents: Some countries have additional paperwork when changing payroll. Canada, for example, requires a Record of Employment, which may also need to be sent to employees. If you are including HR features, you may have other documents to transfer.
Prep Other Software to Sync With New System
Transferring information is not the only task involved in changing payroll providers. Make a complete list of your integrated software and apps. If there are any tasks covered by your new software, you may want to transfer the information and cancel those accounts. For the rest, work with your new provider for integrations or APIs to make sure that when you switch over, you have a smooth flow of information between programs.
Give Clear Instructions Regarding Year-End Tax Filing
Make it clear to your providers who will be supplying the W2s for the year. If you don’t clarify, they may both file, which means you’ll have to file amended W2s and may face an audit.
5. Notify Employees About New Payroll Service
Even if changing a payroll software is essentially transparent to employees, you should notify them of the change. If nothing else, they should expect mailings or communications from the new provider.
Depending on the differences, you may want to inform or even train your people on the following:
- New employee interface or mobile app
- Pay card program pros and cons
- New benefits sign-ups
- New employee accounts
This is also a good time for them to review and make any changes in their information, such as withholdings.
Employees should get some form of written notice or email but also consider announcements via chat, posters, or video conference. Some payroll services offer employee training live or through recordings.
6. Officially Cut Ties With Your Old Payroll Provider
Once you have made all the proper transfers and have alerted your employees, you can cut ties with your old provider. Send them a written notice by mail or email. Specify whether they are responsible for the year’s W2s. (You should have already arranged this, but a reminder does not hurt here.) If you’ve not already done so, be sure to:
- Ask whether you and/or your employees will have lifetime access to their accounts
- Request copies of records like pay registers, employee documents, tax filings, and receipts
- Check whether you still have any pending transactions and if they need to be canceled or go through
- Ensure that you are no longer being charged for the service
- Ensure you’ve canceled all authorizations your previous provider was given
7. Do a Final Check
Once your data is in place and your payroll is ready to go, it’s always a good idea to work with your new provider to ensure that everything is correct. This not only includes employee data but also:
- Integrations
- Compliance with state and local regulations that apply to your business
- Overtime, tips, and special pay
- Garnishments, levies, and child support
- Pay schedules and planned out-of-schedule payrolls
Bottom Line
There are many reasons to change payroll software, and with cloud technology and batch transfers, it’s easier than ever. However, it’s still an investment of time and effort that deserves thorough consideration. Understanding why you want to change your provider and what you expect from the new one will help you select a service that can satisfy your requirements now and in the future. Having a sound plan will make the transition easier and prevent errors that could get costly.
What tips have you found useful when changing payroll providers? Let us know in the comments.
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