When Is the Best Time to Switch to a New Payroll Provider?

October 20, 2022

If you already work with a payroll provider, but have started to notice issues with customer support, paycheck errors, poor HCM/HR integration, or pricing that is an unsustainable expense, it might be time to switch to a new payroll provider. Similarly, if your business’ current in-house payroll practices have led to errors or excess time spent outside of core business operations, you could save time, money, and unnecessary stress by enrolling with a new payroll provider.

Although switching to a new payroll provider (or shedding in-house payroll practices) requires some initial legwork, it can measurably improve employee satisfaction, employee retention, company reputation, and legal compliance. 

In this article, we’ll help you determine the best time to switch to a new payroll provider and outline which factors you should consider before making your decision.

Reasons to Choose a New Payroll Provider

Research from the Workforce Institute demonstrates the primary issues that accompany poorly managed payroll. First, 74% of businesses surveyed revealed that they are not using high “technology and automation” in their payroll processes, which has led to more than 50% of the US workforce (82 million workers) experiencing underpayment or overpayment at least once. With underpayment (especially if it occurs more than once), employees feel justifiably short-changed and disrespected. In fact, research shows that nearly 50% of employees who experience two or more payroll errors will start seeking new employment as a result of the issues. 

Overpayment, though less common, can lead to payroll tax and cash flow issues that are a direct result of entry errors, calculation errors, or PTO payout inaccuracies. Regardless of the root cause of each individual error, your business is forced to spend valuable work hours rectifying each error while negotiating federal and state laws to reclaim wage overpayments in the process.

Issues with payroll errors can also impact your business’ general reputation, negatively influencing recruitment, hiring, and retention. This can lead to inaccurate perceptions of your business as disorganized, antiquated, or “a step behind” competitors in terms of key HR practices that matter to employees and potential new hires. If you’ve already experienced payroll issues with your current provider or in-house payroll arrangement, it’s definitely time to switch. Of course, if you’re equally interested in integrating (and automating) your payroll with other key HR processes, including time & attendance, benefits administration, and more, it’s more possible than ever to find a lasting solution.

The Ideal Time to Switch Payroll Providers

Generally speaking, it’s best to switch payroll providers at the end of the year to coincide with a host of other “restarts” (including any new tax laws) that begin in January of the New Year. Of course, the primary advantage of this approach is that you bypass the tedious process of wrangling together quarter-to-date and/or yearly payroll records to integrate into your new provider’s software. Since January is also a high-volume hiring month, this is a great way to onboard new hires and train them using the new payroll solution as opposed to retraining them later in the year. 

Although it’s possible to switch payroll at a different time of year (mid-year, for instance), you will need to complete all of the following steps to do so, which are avoidable by switching at the end of the year:

  • Request and organize all payroll and tax data from former provider 
  • Contact former provider to initiate refund for any quarterly taxes already collected that will not be submitted due to the switch
  • Provide your new payroll provider thorough year to date (YTD) payments to employees and contractors
  • Provide your new payroll provider with copies of every quarterly state and federal payroll tax filing, including payroll reports

How to Prepare to Switch to a New Payroll Provider

Although switching payroll providers at the end of the year is a much more streamlined and simplified process, there are still some basic steps you can take to prepare for the transition. In addition to organizing your employee forms (W-4s, state withholding tax forms), business identification numbers (EIN and otherwise), you should also revisit your employee classifications to ensure they are accurate and up to date. Additionally, if you have the desire to alter your current payment method and frequency – from paper checks to direct deposit, or monthly to biweekly – be sure to decide in advance and communicate this to your new provider.

Lastly, remember that payroll is most effective when it is integrated and automated with other HR processes. Aim to locate a provider that can offer a single integrated platform with the software solutions, customer support, and reliability your business deserves.

Optimize Payroll with Payday

If you’re interested in revamping your payroll practices to start the New Year with a clean slate, Payday offers reliable and personalized customer service paired with integrated payroll solutions that complement your time & attendance, scheduling, benefits administration, and more. We make switching to our platform easy and hassle-free, helping your business boost employee satisfaction and ensure legal compliance in the process. Contact us today to start our collaboration.


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