Switching Payroll Providers: Why, When, and How to Do It - Netchex

Every business needs payroll to function smoothly. Even when problems arise over and over again, some companies are reluctant to consider new technology providers. Switching payroll providers can sound intimidating at first, given the amount of research, paperwork, implementation, training, and more. 

Outdated HR technology leads to preventable errors, never-ending delays, and unhappy employees. Payroll mistakes can drive away top talent and even expose the company to liability. Fortunately, the process of switching payroll providers is easier than you might expect. 

The importance of improving your payroll process

You can’t afford to settle for “good enough” with payroll. Even minor mistakes and inefficiencies add up. Here are just a few reasons to keep improving:

Save money

Costs vary from one payroll provider to the next. If you haven’t shopped around recently, then your current payroll provider may charge more than the competition. You can’t always trust advice from animated reptiles, but those car insurance commercials make a good point: shopping around can save money. 

Save time and effort

The right HR software improves efficiency across the board. Automation requires fewer human work hours and allows HR staff to focus on providing more people-centric HR services. Look for a provider that handles connected processes like scheduling and benefits administration, and you won’t need staff to manually transfer information.

Ensure accuracy

Human errors are expensive and preventable. Integrated software offers fewer opportunities for innocent mistakes and deliberate fraud. Payroll software should automatically calculate deductions for taxes, benefits, and wage garnishments.

Last year, Ernst & Young (EY) found that each payroll error costs $291 on average, and 20% of all payrolls contain errors. 

Improve the employee experience

Workers depend on timely, accurate payroll to cover their household expenses and benefits. In 2023, 58% of Americans live paycheck to paycheck. Employees and their families suffer whenever checks bounce or payroll is delayed. Advanced HR software includes employee portals for self-service. Portals empower workers with access to check their hours and update personal information. 

READ: The Benefits and Must-Have Features of Employee Self-Service Portals

Signs that it’s time to switch payroll providers

Nobody questions the importance of payroll, but too many companies settle for mediocre service. Any of these six signs can mean that it’s time to shop around for an upgrade:

Errors and issues

Don’t ignore system malfunctions with a process as vital as payroll. A pattern of payroll errors will frustrate staff and might even expose the company to liability. On a practical level, payroll errors are expensive and preventable.

Available system features

The “bells and whistles” of payroll software might include automatic deductions and other integrations. Many employees prefer to use self-service features instead of relaying minor requests through HR personnel.

Fees, upcharges, and overall cost

Don’t let your company get tricked by the complicated billing of some payroll providers. After an initial setup cost, many providers have monthly fees and charges for additional services. Could you get all the same services for a lower cost elsewhere? How many work hours are you currently spending on HR tasks that could be automated with better software?

Software integrations

Many HR processes have different options for software, but you’re not getting the full benefit if staff need to manually transfer data between systems. Over the years, your company may have acquired a patchwork of software from different scheduling and benefits providers, but you can save time and money by putting everything under the same umbrella.

Limited growth and potential

As they grow, small and medium-sized businesses continue to need more from their providers. The payroll software that met your needs a couple years ago might not keep up with the complications of your growing workforce. Look for a payroll provider with easily scalable technology, not just meeting your current needs but ready to expand with your future growth.

Security concerns

Outdated technology fails to protect the sensitive information of workers and clients. HR data security should protect sensitive payroll details, even when they need to be relayed to third parties.

Today’s leading HR solutions provide efficient automation while boosting cyber security. At Netchex, we provide a variety of secure communication options, like Electronic Data Interchange (EDI) for benefits administration.

Bad relationship and service

Workers expect to be paid accurately and on-time. Your payroll needs to accurately compensate employees for their hours and overtime. Mistakes can have big consequences for employees, like miscalculations on child support payments and lapsed insurance coverage.

Your payroll provider should be responsive and accessible, quickly troubleshooting problems with your company. If your HR staff is having trouble communicating with your payroll service provider, then it’s probably time to shop around.

Payroll migration: Is it hard to switch payroll providers?

Nope! Any payroll provider “worth their salt” will make the migration process as simple as possible. (Historical note: Roman soldiers were paid a ‘salarium’ in salt, eventually leading to the English word “salary.”)

After comparing options, work with your chosen provider to collect the necessary resources. A hands on implementation team will provide you with an accurate timeline with easy to follow steps along the way. 

When is the best time to switch payroll providers?

It’s never a bad time to start the conversation about switching payroll providers. For making the actual transition, the timing can affect the number of complications and timeline.

If your current provider has major problems, then you may need to make the change ASAP. Employees will benefit from new services and accurate payroll whenever an upgrade happens.

New calendar or fiscal years

The easiest time to switch payroll providers is with the new year. Your old provider should have tax records for a complete year, and your new provider can start with a clean slate. Check your contracts with your old provider for cancellation policies.

Mid-year and quarterly switches

It is certainly possible to switch providers at the end of a fiscal quarter or even in the middle of the year. Business owners may have to hustle to submit federal tax return data, importing data from previous pay periods. Mid-year transitions require clear recordkeeping for the current year and additional paperwork, but improved payroll service can make a big difference for HR staff and employees.

Switching requires planning, but is almost always worth it. Make sure that your new provider is well prepared before “breaking up” with your current payroll provider. Your new provider can make sure you have everything you need.

For more information about switching payroll providers, please read the next blog in this series: Breaking up with Your Current Payroll Provider

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