The best tips for switching payroll providers

Frequent processing or reporting errors, increasing service fees, low payroll accuracy… There are many reasons for businesses to decide that the time has come to say good-bye to their current payroll provider and start looking for a new one. Yet switching payroll companies can be a tough decision to make.

Many businesses are hesitant to change to a new service provider because they are worried about possible disruptions in their payroll processes that could lead to delayed salary payments and angry employees. Another reason why businesses often hold off changing payroll services is that they are afraid that the switch will be too difficult to manage and that it will take up too much time.

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

• How to switch payroll providers,

• When the best time is for changing payroll companies,

• What questions you should ask before making the switch, and

• What tips can help you ensure a smooth transition.

There can be many different reasons for businesses to end the business relationship with their payroll service provider. These reasons include:

• Repeated failure to meet the agreed payroll SLAs,

• Limited scalability of the payroll solution offered by the provider,

• Changes in the provider’s pricing structure,

• Insufficient customer support,

• Slow, inefficient processes on the provider’s side,

• Mergers & acquisition activities that affect payroll,

• Frequent payroll errors and compliance issues, and

• Low level of accuracy in payroll reporting.

Switching payroll providers is, above anything, a question of timing. The general recommendation is to not let the provider switch overlap with other major transformation projects or initiatives that take place in the organization.

The end of the (tax) year is generally considered the best time to switch payroll services. That’s because it simplifies year-end tax reporting and reduces complexities regarding payroll compliance.

Changing payroll providers mid-year, on the other hand, often comes with additional complications, such as the need to transfer all the tax-related data and information for the ongoing year from the old provider to the new one.

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Switching payroll providers is a decision that should not be taken light-heartedly. In order to avoid disruptions, businesses need to plan the timing of the switch carefully. Here is an overview of the different steps to follow:

• Get approval from all stakeholders to switch payroll providers.

• Reflect on what you want to improve by changing payroll providers.

• Make a list of requirements for your new payroll service.

• Check your current service agreement to find out when and how you can end the contract.

• Choose a time for the change.

• Create a payroll migration checklist.

• Notify your old provider that you want to end the contractual relationship.

• Create a shortlist of promising service providers.

• Send out payroll RFPs to shortlisted payroll services.

• Choose a new payroll provider and set up a new service contract (including new and improved payroll SLAs).

• Send all the necessary data and information to your new payroll provider to set things up.

• Organize a parallel payroll run to make sure everything runs smoothly.

• Make the necessary adjustments and give feedback.

There are many different questions organizations should ask when changing payroll providers. Asking as many questions as possible helps businesses assess their current situation to ensure that replacing their current provider really is the right choice. Questions to ask in this context include:

• Is the problem really about the service provider or is it rather an internal problem?

• Have there been attempts to resolve the identified issues?

• Are there any exclusive advantages of the current payroll service that would be missed after changing providers?

Additionally, there is a long list of questions that need to be asked with regard to the services offered by the new provider. Most of these questions will already be included in the request for proposal that is sent out to the payroll company, but it doesn’t hurt to ask some of the questions twice to double-check.

Here are some crucial questions to raise when assessing a new payroll service:

• What do the provider’s payroll security measures look like?

• What support will be available during the onboarding and implementation phase?

• What is the level of automation leveraged by the provider to process payroll?

• Will there be a dedicated account manager for queries and urgent issues?

• What is the cut-off date for payroll changes?

• Will there be additional support for employees?

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Strictly speaking, switching payroll providers is not that hard. However, businesses can maximize their chances of success by taking the following tips.

• Carefully check your data: Changing payroll providers involves transferring large sets of sensitive data from the old provider to the new one. To avoid duplication of data and prevent data sets from going missing, the first step should consist in carefully collecting and verifying all the payroll and employee data needed for payroll.

• Think about possible operational hurdles: It’s small things like working with different pay periods and pay frequencies that can cause hold-ups in the implementation process with the new provider. Make sure to think about anything that could cause delays in the set-up phase and ask clear questions on how these hurdles can be overcome.

• Choose a good moment: Payroll is crucial for any organization and disruptions in payroll need to be avoided at all costs. When you decide to change payroll providers, make sure to choose a good time. Avoid busy periods or overlap with other major transformation projects.

• Coordinate tax filings: Calculating, paying, and reporting payroll taxes is crucial for ensuring payroll compliance. When switching payroll providers, make sure to properly manage the transfer of any tax-related information and carefully coordinate the switch with any important tax filing deadlines.

• Appoint a project lead: Changing payroll providers may not be complicated, but it takes time and effort to ensure the transition goes smoothly. That’s why it’s important to have a dedicated project lead who manages the transition.

• Give your team time to adjust: Every payroll provider works with a different payroll system and has unique workflows and processes. Therefore, you should give your internal payroll team time to familiarize themselves with the new system and processes. If necessary, provide training.

• Notify employees: Payroll has a direct impact on employees, which is why any changes to payroll should be communicated to the entire team. Let your staff know that you are changing payroll providers and assure them that the changes won’t affect the timeliness of wage and salary payments.

Here is a quick checklist you can use to make sure you’ve got everything covered:

• New payroll provider offers all the services and features you require.

• Timing doesn’t interfere with other major projects in the organization.

• Approval has been granted from all stakeholders to switch payroll companies.

• Terms of the current payroll service contract have been reviewed.

• Detailed payroll migration protocol has been created and shared with both the old and the new provider.

• Payroll data and payroll-related information has been reviewed and cleaned up.

• Clear instructions have been given to the new provider regarding tax filing and reporting.

• Employees have been notified of the changes.

There is one major risk involved in switching payroll providers, and that is changing from a bad service provider to one that is even worse. Assessing and comparing payroll services is a time-intensive, tedious process. That’s why many businesses are hesitant to really make the transition—especially when they need a new payroll provider in an overseas market.

With Lano’s global payroll services, time-consuming payroll provider assessments are a thing of the past. Simply choose a new service provider from our global network of vetted payroll partners and enjoy a seamless onboarding and set-up process for your local payroll. Book a demo with one of our experts to learn more.