A guide on how to switch payroll providers

Payroll processing is one of the top burdens small business owners face. Between keeping up with changing tax laws and withholdings for taxes, payroll is time-consuming and complex. This, coupled with the substantial fines that come with any misstep, leads many businesses to hire a third-party payroll provider. Better safe than sorry.

But, what do you do if your payroll provider is no longer living up to your expectations? Switching providers sounds daunting, doesn’t it?

Fortunately, changing payroll providers doesn’t have to be stressful. It’s important to remember why you’ve outsourced to a third party in the first place. If your provider is no longer living up to your expectations, it might be time to switch. But, how do you go about doing so? And how much work will it take?

Is it hard to switch payroll companies?

Many small business owners resist switching payroll companies out of fear of the unknown. They assume it will be too time-consuming or demanding.

While it will require some effort on your part, it doesn’t have to be a grueling process. Organizations make the change every day, and so can yours. Before we get into the “hows,” it’s important that we understand the “whys.”

Why do companies switch payroll services?

Even if you’re having problems with your current provider, sticking with what you already know may seem like the path of least resistance. The truth is, staying with a provider that isn’t meeting your needs can cost time and result in hefty fines from the IRS.

If you’re on the fence about making the switch, ask yourself the following questions:

  • Is your current provider’s customer service lacking?
  • Does your staff waste time on redundant tasks?
  • Do your current processes lead to errors?
  • Is payroll done in more than one batch?
  • Are you concerned about tax compliance issues?
  • Does the provider’s software solution feel cumbersome and counterintuitive?

If you answered yes, it might be time for a change. It’s important that you partner with a payroll provider who can evolve with your changing needs. If things are difficult now, they will only get more difficult as your business grows.

Best time to switch payroll providers

The best time to switch providers is at the end-of-year or the beginning of a new quarter. This helps streamline the process and ensures your business remains tax compliant.

However, a good payroll provider can help you make the switch at any time. If you’re facing serious challenges with your current provider, changing mid-year might be the best move for your company.

What are the challenges of changing payroll providers?

At Homebase, we believe that knowledge is power. Knowing the roadblocks you might face ahead of time will help set you up for success.

Let’s look at some challenges other companies have encountered during the transition:

Antiquated software 

In today’s landscape, software becomes outdated shortly after its introduction. Your new provider must recognize this, providing ongoing support and updates for aging operating systems.

Data migration errors 

While uncommon, data migrations can result in duplications or errors. Your new company should have a process in place to identify and fix these disparities.

Varying pay frequencies 

Do some employees get paid monthly, while others get paid bi-weekly? If so, partner with a provider who can handle more than one pay frequency.

Importing non-wage integrations 

Payroll processing isn’t just about issuing paychecks. Your new provider should have the ability to import and process all your payroll needs. This includes time-tracking, wage garnishments, and union dues.

Lack of support 

As with everything in life, you will run into issues from time to time. Select a company with a reputation for providing strong customer service support.

Selecting a new payroll provider

When choosing a new company to partner with, you’ll want to do some research. Read third-party reviews and partner with an organization with a great reputation. Let’s take a look at the factors you should consider when choosing a new provider.

First, identify your company’s unique payroll needs, such as filing taxes and issuing direct deposits. Do you need HR support for storing employee information and onboarding?

Next, consider how your needs will change as the company grows. Do you plan to offer employee bonuses and retirement plans in the future? Partner with a provider who has the capability to meet your current and future needs.

Analyzing the provider’s software is your next step. Is it intuitive? Does it integrate with your business tools? Can both you and your workforce access it via mobile app or are you limited to a desktop solution? Before you sign a contract, request a demo. Ask lots of questions and take note of features they gloss over or skip.

While cost should be a factor, you should never make a decision based solely on the price. When you’re provided with a quote, ask the provider if this is the final price. An attractive base price could come with hefty extra charges that put you over budget.

How to switch payroll providers

Now that you’ve selected a new payroll company, it’s time to start migrating your data to their system. Here’s what that process looks like:

Step 1: Notify your current provider

Review your current contract for any cancellation requirements. How much notice do they require? Do you have to cancel in writing? Are there any other special requirements you’ll need to meet? Many providers require 30-days notice.

Step 2: Talk to your new provider

In any relationship, communication is key. Work with your new provider to decide on a start date. Find out what information you’ll need to provide them with and how long the transition process takes. This will help prevent any costly interruptions in payroll.

Step 3: Gather information

Request a list of all information your new service provider needs to get your account set up. These requirements vary depending upon your provider, state, and county. You can access much of this from your current account.

The information you’ll need to gather might include:

  • Business information, including the legal business name, address, business structure, and EIN
  • State and local payroll tax information, including the unemployment insurance number
  • Payroll schedule
  • Employee information, including personal information, salary and wages, withholding elections, deductions, and direct deposit information
  • Payroll history for all employees and independent contractors
  • Previous tax returns and quarterly tax deposit information
  • Business bank account details

Before your new provider can set anything up, you’ll also need to sign paperwork authorizing them to perform these services on your behalf.

Step 4: Set up your new account

Congratulations, you’ve made it to the migration phase! Some payroll providers handle the data migration for you, while others will require you to manually enter the data yourself. Before you sign a contract, find out who handles the data migration. This will help ensure a seamless transition.

Step 5: Say goodbye to your current service

Once you’ve verified your new provider has everything they need, you can close your current account. Don’t forget to:

  • Cancel authorizations with the current provider
  • Confirm in writing which service provider will handle issuing the current year’s W-2s

Step 6: Verify data

Before running your first payroll with the new company, verify that all information is correct. To avoid confusion, it’s also a good idea to notify your employees of this recent change.

Transitioning to a new payroll provider can take several days to a few weeks. While the process may seem daunting, partnering with a reputable company will give you the peace of mind you’ve been looking for. When you sign up with Homebase, you can rest assured both your business and employee payroll needs are met.

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