How to switch payroll providers: A step-by-step guide

So, you want to switch payroll companies?  

Switching payroll companies is an exciting step for a growing business, but it can come with complications. The core of your business is tied up in your payroll provider, so untangling yourself from an existing system and starting fresh is no small task. Of course, a switch is made easier if you choose a new payroll software designed for easy implementation and onboarding. (If this sounds like something you’re looking for, get in touch with us.) 

Before diving into the transition, it’s important to take a step back and evaluate why you’re making a change. Identifying the signs you need to switch payroll providers will help you in your search for a new solution that better fits your needs. Making a list of issues with your current software, surveying your finance team for feedback, and solidifying your budget can make for a better partnership with your new provider. 

During the evaluation process, take careful note of the existence and absence of features you need. Attend a live demo to decide if the tool is easy to use and if you want to get more detail, request a consultation with a prospective vendor’s implementation or success team. Sales conversations are a critical time to make your non-negotiable needs clear, so you get the best solution for your business. 

Questions to ask when changing payroll providers

What’s the cost?

Payroll pricing is notoriously difficult to understand. Often, providers are unable to provide clear pricing, because services like off-cycle payroll runs and tax filings include additional fees. You may also not know if you are paying per pay run or per month. While this is a frustratingly common practice, there are new payroll providers that clearly state their pricing on a per employee, per month basis without hidden fees. And yes, we said per month! Annual or multi-year contracts create trouble when companies need to switch payroll due to growth or needed functionality. A long-term contract may be a sign the vendor isn’t confident in the experience they provide and hope to keep you locked in.

What features are included? 

The functionality that’s critical to your business will be the driving force behind selecting a new payroll provider. Ask about the capabilities of a potential provider’s reporting, tax filing, accuracy guarantees, security, mobile functionality, flexible pay, time tracking, scheduling, geotagging, integrations and other human resource features that are specific to your business. Additionally, ask about how the company is prioritizing future features. You’ll want to make sure your potential provider is investing in their product, exploring new technology and committed to adding value vs. stuck in the past relying on old systems built years (or decades) ago).

Also check for extra costs associated with using these features. Your final price may or may not include all the functionality you need, so request an itemized list of feature fees.

When can I switch? 

It’s usually best to switch payroll providers at quarter or year end. But this isn’t always possible, so choose a payroll provider that isn’t rigid about your transition timeline. Your timing will depend heavily on your ability to end the relationship with your existing provider, gather the needed year-to-date tax information (if switching before January 1) and plan your implementation and onboarding process. If you’re looking at legacy payroll companies, keep in mind that many are unable to provide implementation under 6 months. 

Making the payroll provider transition

With your needs clearly defined and a new payroll provider selected, it’s time to officially transition from your current payroll provider to your new one. These 10 steps will guide you as you take on this significant change in your business. 

Step 1: Download payroll reports, quarterly tax filings year to date, and employee census information

Before you officially give notice to your existing payroll provider, download copies of your payroll quarterly report for each completed quarter for the current year, quarterly tax returns for the current year and your employee census data. 

Obtaining this information now ensures that you won’t lose important data necessary for tax filings when you give notice to your existing provider. In an ideal world, your provider will be helpful as you transition to a better solution for your business. However, this isn’t guaranteed, so it’s best to download your reports and filings before giving notice. 

Step 2: End or negotiate an exit from your current contract

Ending your contract can be uncomfortable, but it’s even more difficult when you don’t fully understand the terms of your agreement. If your contract is not up for renewal, you may be entering a negotiation phase to terminate your contract early. Early termination sometimes includes penalties, so factor this into your cost considerations. After reviewing the termination clause of your contract, take the necessary steps to inform your current provider that you intend to find a new vendor and will be fully transitioned to the new service by a specified date. 

Step 3: Map out the employee experience 

Many companies overlook how their workers will experience the change of payroll providers. Workers are understandably concerned that a transition will impact their pay or benefits, so a communication plan and a clear onboarding process are critical parts of making your switch painless for all involved. 

You’ll need to determine if the employee setup will be self-serve or manually provisioned by your administrator. If it’s the latter, your admin will have to input personal information, banking details, allowance preferences and more for each of your workers. While manual onboarding is standard operating procedure in older payroll systems, we recommend going the self-serve route where workers can be set up in your new system in a matter of minutes. 

Unfortunately, many providers neglect the look and feel of the onboarding experience, even though it’s an important introduction to your entire company. If you’ve selected a provider that prides itself on ease of use, the onboarding experience should be a reflection of that promise. When looking at new providers, ask if the onboarding process is contained within the app, offers self-serve options, uses e-sign functionality and is an overall seamless experience for workers and admins alike.  

Step 4: Communicate the switch to your workforce

To avoid causing unnecessary stress for workers, a change in payroll providers should be announced publicly with clear next steps for workers to implement, such as confirming their accounts via email. 

At Everee, we provide templated emails to send to your team, so the migration process is straightforward for everyone. If you’re sending your own communications, your updates should cover:

  • The name of the new payroll provider and worker login page URL
  • Steps for setting up an account with the new provider 
  • Any documentation that needs to be completed by the worker and deadlines
  • Clear information about workers will be paid and instructions for setting up payment
  • How to clock in and clock out (if workers are hourly)
  • How to view pay stubs 
  • How to download the mobile app of the payroll provider

Step 5: Collect updated documents from all workers 

Switching payroll providers is a great time to get updated information like addresses, W-4s, etc. from workers. As you prepare to roll out the onboarding process, communicate the types of forms your workers will need to submit in order to complete their new accounts. Some providers also make it possible for workers to electronically sign documents within their software, so employee policies, driver’s license verification and more can be updated during the onboarding process.  

Step 6: Get 100% of your workforce onboarded

In our experience, 75% of your workers will complete the onboarding process to your new system within 24 hours. The remaining 25% will take additional time to complete either because their information is incorrect, they’re on vacation or sabbatical, or they’re previously terminated workers who may need to be manually onboarded. 

In creating your transition timeline, plan for 1-2 weeks of onboarding triage for the remaining 25% of your workforce. You can prepare for this triage period by writing nudging techniques to be sent via email, text message or chat. 

Step 7: Import historical data to your new provider 

Remember when we downloaded the payroll register reports, quarterly tax filings and employee census information in the first step? With all employees (current and terminated) successfully onboarded, now it’s time to import this data into your new system. 

It’s important to note that not every payroll provider will assist in uploading your historical data. If they don’t, you’ll receive W-2s from your previous provider as well as your new one. At Everee, we have an accuracy guarantee in uploading your historical data and matching your tax filings to your payroll data. This means that you should have no mismatched information when it comes to your tax data, benefit information, 401k contributions, reimbursements and any and all payroll historical data. 

Step 8: Integrate your benefits system with your payroll software

Employee benefits data needs to be accounted for in your new system. Benefit selections for medical, dental and vision and contributed amounts by employers are generally not a part of the historical data you’ve already downloaded, so this is an additional exercise in data gathering. 

If you’re using a benefits administration platform like Employee Navigator, check to make sure your tools are working seamlessly together. This may require a call to customer support or a success manager, but it’s worth the extra effort to double check that your integrations are functioning properly.

Step 9: Connect your time clock  

With benefits squared away, check your time tracking tools. Whether you updated your time clock system or not in getting a new payroll provider, connecting your payroll and time clock tools is a necessary task to ensure there are no surprises when you run payroll for the first time. 

Not using an integrated time tracking system? A payroll and time clock integration avoids constantly having to import new data and it’s a major productivity boost for your finance team, managers and workers. With less paperwork, admins can see errors sooner and improve accuracy of payroll overall. Managers can view and approve time entries in one place, and workers can rest assured their punches are being recorded and their paychecks will be accurate. 

Whether your time tracking system is fully integrated or not, it’s critical that on day 1 of using your new payroll provider, your time clock system is working properly with your new solution.

Step 10: Prepare a mock payroll run, so the real thing is pain-free 

Practice makes perfect—and that’s true for running payroll before you finalize your migration and pay your team via your new provider. In your transition process, leave yourself a few days to run a mock payroll and look into variances. This is where you’ll get into the nitty gritty details of your worker pay, benefits selections and tax filings, so that the real pay run is error-free. (We know admins are busy people, so we handle mock pay runs for all Everee customers.) 

To ensure accuracy:

  • Double check your tax documents: Your W3 summary should match the total of your quarterly filings
  • Review your employee list: Deactivate employee accounts who no longer work at your company, so they don’t get paid in your real payroll run
  • For the future, confirm with your previous provider about who is responsible for the end of year filings

You’re ready: Run payroll!

If your mock payroll run is accurate compared to your previous runs, you’re all set to run the real thing. You may encounter hiccups along the way, but the first few pay runs are the perfect time to get in touch with your new provider to answer any outstanding questions and address issues. Once you have a few real pay runs under your belt, you’ll be able to settle in for long-term success with your new provider. Finally, may we suggest some PTO for your payroll admin? They deserve it. 

If making a switch on your radar, get in touch with our team today. 

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