Switching Payroll Providers: An In-Depth Guide
Whether that is because of frequent errors, unfortunate clashes or an outdated payroll system, changing payroll providers is often a step charged with apprehension, even when you are convinced that the change is for the better. As you may know by now, nothing that is related to payroll is ever straightforward or simple. So, while there is nothing to be scared of when it comes to switching payroll partners, there is much to prepare for – which is what we will be helping you with in this article.
Review your payroll provider contract
Before making any announcements or taking any decisions, you will need to consider the agreement between you and your current payroll provider. Some payroll companies require a notice period – typically a period of 30 days, while others may require you to pay a cancellation fee if you are switching to another provider in the middle of the year of during some other “inconvenient” time. These kinds of clauses will surely shape your decision and are worth spending time on.
Consider your timeline
Now this may be the most significant choice you will have to make aside from picking a new payroll provider. Choosing when to begin the transition to a new payroll system is important not just because of potential cancellation fees – but also because of tax filings and other time-sensitive payroll tasks.
- New Year
Typically considered the easiest period to make such a switch, the New Year comes with very little in the way of baggage such as Year-to-Date data (i.e. your payroll data from the beginning of the year up until the day the transition begins). You will not be disrupting any tax filing cycles that way and your new payroll provider can start fresh – although this does not mean that they will not require historic data. They will, but it’s simply that this data will not be required to file any current tax returns.
Pros of a New Year Start:
- Easier transition
- Rarely any additional/cancellation fees for this time period
Cons of a New Year Start:
- May need to wait a long time before switching providers
- New Year is typically a busy period for businesses
- New Quarter Start
Because many taxes are filed and remitted each quarter (although this also depends on which country you are in), companies often choose to make the switch at the beginning of a new quarter. Doing this can potentially help companies limit the tricky situation of splitting too many tasks between their old and new payroll providers, since many tax-related tasks will already have been done by then.
Pros of a new quarter start:
- Typically no clashes between payroll providers in terms of tax filings
Cons of a new quarter start:
- May need to wait a long time before switching providers
- Mid-year/Mid-quarter
While there is nothing wrong with switching payroll providers at any given time, changing providers mid-year or mid-quarter is an option typically reserved for companies that desperately need a change in payroll systems. For companies not motivated by a pressing need for change, the cancellation fees, transition management and splitting of tasks between payroll providers prove to be too high of a cost to pay to switch to a new payroll partner.
If the tasks of switching providers and managing the transition seem daunting, that is probably because they are. Managing such a transition is no walk in the park and your team will likely feel the weight of it on their workload as they strive to manage the changes brought on by the transition.
Pros of a mid-year/mid-quarter start:
- No need to wait long to switch to a new payroll system
Cons of a mid-year/mid-quarter start:
- May need to pay cancellation fees
- Transition management will impact workload
- May need to split tasks between 2 providers while paying both of them during transition period
Africa HR Solutions is aware of how burdensome transition management can be – which is why we shoulder that burden for you. No need to coordinate efforts yourself or liaise with your providers back and forth. You need only focus on your core business, while we take care of the switch for you. Find out more about our integrated payroll solutions.
Talk to your current payroll provider
Once you have considered timelines and contracts, it’s time to talk to your soon-to-be old payroll provider and discuss the practical terms of your contract. You will then know which exact responsibilities your old provider will take on and can manage accordingly. Besides, this is an occasion to communicate with your old payroll provider to make the transition go as smoothly as possible.
Set a target date and inform your employees
Once you’ve talked to your provider, you will be able to set a target date for the new system/collabouration and communicate it to your workers. In this way, employees will be able to take precautionary measures such as printing out their old payslips. Besides, should there ever be any issue with your new payroll system, employees will be able to understand why and report the problem more easily.
Talk to your new provider
What did you like about your old payroll provider? What would you like not to see again in terms of payroll systems or partnerships? How have your needs changed since you first collaborated with your old payroll provider? Why are you switching to a new payroll provider?
Having the answers to these questions will help you build a better rapport with your new payroll provider and set expectations for your collaboration. After all, a new provider can’t fix problems they don’t know of, and part of the success of a new collaboration relies on good communication, as you may have noticed by now.
Besides, this is a good time to confirm that your new provider meets your expectations and requirements for a new system – such as being able to integrate your payroll system and providing modern twists on payroll such as automations.
Transfer old data
Even with a fresh New Year start date, you will still need to transfer historic data to your new payroll system. Data transfer is among those tasks that you will already have discussed with your payroll providers at this point – but it is usually at this stage that data transfer happens.
Switch to a new payroll provider
Expectations are set, data has been transferred and employees have been warned – now all that is left to do is for the carefully planned-for switch to begin. During that time, you may find that your new provider will ask you for even more historic data or even access to your old payroll system. This is normal as a payroll provider requires a lot of data to make calculations and to ensure compliance with local legislation.
Do a parallel payroll run
While this is not something you will be personally responsible for, you will notice that after the new payroll system has been set up, your new payroll provider will run what is known as a “parallel payroll”. This simply means that the new system will run alongside the old one (hence the term “parallel”) to see if they produce the same results. Typically, this type of test payroll will use old data exported from the previous payroll system. This will help your payroll provider spot any errors or inconsistencies before processing its first payroll cycle.