TPC Blog

Ready to switch payroll companies? As a business owner, you’re probably wondering when the best time is to make it happen. The answer is – anytime. Although you can switch payroll company providers whenever you wish, there are different strategies to consider depending on the time of year. In general, there are two schools of thought. Some people prefer switching payroll providers at the end of the year, while others prefer changing payroll providers mid-year. Regardless of the timing, there are pros and cons to both options.

First, determine why you’re switching payroll companies. Have they made too many errors? Are they too expensive? Is the system outdated? Too hard to navigate? Is there an issue with your taxes? Before switching to another company, find out what pain points must be addressed in using someone new or you may experience the same problems.

End of Calendar Year Switch

Switching payroll companies at the end of the year allows the new company to begin with a clean slate. You provide them with the information they need on your employees, wages, benefits, and deductions, and there is no year-to-date or historical data rollover from the previous provider.

While this seems effortless, managing the transition between providers over the holiday season can be challenging for some companies. In many industries, this is the busiest time of the year, and making changes can be difficult. However, other companies welcome this change, making a clean break as of January 1. This is more commonly accepted and is a widely used practice.

Mid-Year Switch

In contrast, a mid-year change may be easier for some companies because they can better navigate a transition when business is slow. They may choose to select a time when things aren’t that hectic and take their time focusing on the switch. A mid-year change requires more details from the existing payroll company, but this should be easy to accomplish. Also, consider your tax filings. You must provide copies of your quarterly federal and state payroll tax filings and the quarter-ending payroll report that supports the documentation so your new provider can be aligned with what’s already been reported.

You Can Switch Anytime

While there is no perfect science on when to switch payroll company providers, it may be more beneficial to switch at the end of the calendar year or mid-year. You must be sure to have all the year-to-date numbers from the current provider, and you should get reimbursed for any quarterly fees they collected in advance.

If your company doesn’t use a calendar year, you can make changes at the end of your fiscal year. This gives you the benefits of changing to a clean slate and making the transition during slower times of the year. Payroll companies have a lot of changes going on at the end of the year, so you may be able to get a few incentives if you change during a mid-year switch instead of when everyone else may be rushing to do it. If the right information is not in place, it may cause problems for the new provider, hindering them from filing reports promptly. If this happens, your company is liable for the penalties. The payroll provider will not be at fault. Additionally, if there are any errors, you may be subject to additional penalties.

Your new payroll company should provide you with a list of the information they need to begin services, but it’s up to your team to ensure they have it and everything is in place.

Here are additional tips that can help guide the transition:

• Make sure you have all your files in order. Regardless of when you choose to make the switch, it’s important to make sure all your employee profiles and business information are up to date. You should also have copies of all your quarterly reports, tax returns, and all your previous payroll reports. While you transition, it’s always a good idea to compare the last report with the new one.

• Review your policies. Before making the switch, take some time and review your current policies and processes. What parts of the payroll system do you want to remain and what didn’t you like about the last one? Check your information to make sure it’s not outdated. Additionally, figure out what you want to track and report. You may want to add new incentives to your benefits that may change payments to employees or add additional payment methods to your account.

• Speak to your current provider. You don’t want to blindside your current provider because you need to make sure you receive all your records in a timely manner. Advise them of your end date with the company and find out what needs to be done before your contract ends. Keeping them in the loop on timelines and information will prevent errors down the line. You should also be speaking to your new payroll provider during this time to make sure they get what they need. All information should be gathered and ready well before the new payroll company’s start date to ensure none of your information is lost.

• Communicate with employees. Every payroll provider has systems in place to assist employees in retrieving their information. All employees should be notified that you are switching payroll providers and have a short training on how the new system is used. It’s important to make sure all employees have the resources they need to navigate the new system. Pamphlets, login instructions, and all policies and procedures should be a part of the overall training.

It is very possible to switch payroll companies whenever you wish, but make sure the new company addresses all your issues and offers the benefits and services that you want and need. For more information on aligning with the right payroll provider for you, contact a team member at The Payroll Company today.