Selecting a New Payroll Provider
Before you can say goodbye to your old payroll provider, you need to pick a new one. If you haven’t already done this, here’s how in a nutshell.First, make a list of all the payroll features you need, such as filing taxes and administering direct deposits of employees’ paychecks. Then, make another list of benefits you may want to add as your firm grows, such as vacation leave and retirement plans. Look for payroll providers that can meet all your current needs and allow you to add more services as needed.
Next, size up their software. Is it easy to use? Intuitive? Complete? Are the reporting features up to snuff? Take your time with demos and ask lots of questions. And don’t fall in love with the first system you try; you’ll never know what’s best without hands-on comparisons. As you narrow your choices, ask the finalists for references from clients similar to your organization.
Finally, consider the cost. When you’re quoted a figure, be sure to ask whether there are any extra charges. An appealing base price can end up costing more than you expect. Still, if you only shop for the lowest price you may later regret it. A payroll provider who offers a great product and outstanding customer service can be worth the higher price tag.
When you sign a contract with your new payroll provider, make sure it specifies which services they will provide so both you and your provider agree on what’s expected of them.
How to Switch Payroll Companies
With a new payroll provider ready and waiting, you’re ready to make the switch. Here are the steps most U.S. organizations need to follow:
Talk to your current payroll service. Tell them you will be switching payroll providers. Find out what it takes to terminate your service, but don’t cancel it yet. Ask how much notice is required, whether it has to be in writing, and whether there are any fees or additional requirements.
Talk to your new provider. Choose a start date together (more on that below), allowing plenty of time for the transition so payrolls will continue without interruption. Your new provider can tell you how long the transition should take. Make sure both old and new providers are clear on the timeline.
Get your info into the right hands. Your new payroll service will need quite a bit of information to get your account up and running. Ask them for a list. You may be able to download most of what’s needed from your current payroll provider account, or you may need to ask the current provider for help.
The required info may include:
- Your organization’s legal name, type of business, and address
- Federal EIN (Employer Identification Number)
- State and local tax ID numbers
- State unemployment insurance number
- Payroll schedule
- Payroll information and reports, including salary and hourly wage figures and payroll history
- Bank account number and routing number
- Employee and contractor mailing addresses, Social Security numbers, email addresses, and tax withholding information (include former employees and contractors who worked at any point during the current year)
- Employee direct deposit bank account information
- Copies of the previous quarter’s tax forms
- Documents authorizing the new provider to perform the services that are specified in your contract, such as filing and paying taxes and writing payroll checks
Requirements vary from one provider to another and between different states and cities.
Say Goodbye. Once your new provider has everything they need from your old provider, you can close your old account. Be sure to cancel all authorizations your old provider was given to act on your behalf. Also, make sure it’s clear whether the old provider or the new one will issue W-2s at the end of the year.
Get ready to run a perfect payroll. To make sure all of your payroll information has been entered correctly, check it against your current data before you run your first payroll with the new provider.
When Is the Right Time to Switch Payroll Companies?
While you can certainly switch payroll companies mid-year, the best time is at the end of the year and the reason is simple taxes.
Your tax accountant needs historical payroll data to file the proper tax forms on time (typically on a quarterly basis). If your payroll data comes from two different payroll companies over the course of a quarter, then it takes more time and effort to get all the records transferred, imported, and filed by the IRS deadline.
While it’s simpler to switch payroll providers at the beginning of the fiscal year—when you have less historical payroll data to deal with, switching payroll companies mid-year is definitely doable. Today’s online payroll services make the migration process much simpler than the manual processes required by older systems. Data entry was slow, painstaking, and error-prone work, but in many cases today, payroll companies will even do the data entry for you.
Choosing to switch at the beginning of a year or quarter can make your financial records easier to follow, but the bottom line is, in most cases, you can switch payroll providers almost anytime. Your new payroll provider should accommodate whatever date is best for you.
Improving Your Payroll Pays Off
An efficient, reliable payroll system is one of the most important components of any successful organization. It’s more than just a way to meet financial obligations and prevent legal problems. A sound payroll system backs the compensation strategy that cements the bond between employers and employees, cultivating greater employee satisfaction and performance.