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

Towards the end of each calendar year, employers are busy formulating strategies to streamline future business operations, improve employee experience, and optimize hiring, onboarding, and retention in the new year. Fortunately, switching to a new payroll provider can provide these and many other benefits while eliminating far-too-common issues with paycheck errors, poor HCM integration, subpar customer support, or employee dissatisfaction.

In this article, we’ll explore how switching to a new payroll provider at the right time of year can strengthen employee retention, legal compliance, company reputation and successfully synthesize your HCM practices. Whether you’re already working with a payroll provider or ready to transition from in-house payroll practices towards a more comprehensive platform, we’ve gathered everything you need to make a timely and cost-effective switch to a new provider.

Is It Time to Switch to a New Provider?

Approximately 50% of employees will begin searching for new employment once they’ve experienced two or more payroll errors with their current employer. This is sobering data when you consider that, according to research from the Workforce Institute, more than 50% of the US workforce has already experienced underpayment or overpayment at least once. Payroll issues are especially unacceptable for employees who rely on each paycheck to cover monthly or weekly expenses. A single inaccurate paycheck could lead to late payments on multiple personal bills and create a sense of distrust in the employer’s investment in the well-being of its employees.

Meanwhile, an overpayment is a burden for employers, especially as many employees report that they would not report an employer error in overpayment unless it exceeded at least several hundred dollars. Issues with overpayment are usually a result of entry or calculation errors, or even inaccurate PTO management, all of which can lead to future cash flow or payroll tax complications. Especially if your business handles payroll in-house, a small series of errors can lead to hours spent by HR staff rectifying avoidable issues that an integrated, automated platform could have readily identified for correction.

Payroll errors can also make your business appear indifferent to the essential financial and personal needs of employees, which impacts not only your business’ market reputation but also its ability to recruit, hire, and retain employees successfully. Additionally, suppose these errors are caused by a cumbersome in-house strategy or partnership with a provider that uses outdated tools. In that case, it can make your business seem antiquated in its HCM practices and in the broader hiring market.

Optimal Time of Year to Change Payroll Providers

As we explore in our related article, most CPAs and HR/HCM experts suggest that it’s ideal to switch payroll providers at the end of the calendar year. This allows your business to adopt a new payroll system (and potentially new policies) beginning at the start of the New Year. Since so many other processes initiate in January – from new labor laws to peak hiring times – this ensures a fresh, coordinated start, especially for the onboarding-stage training of new employees. 

Of course, the biggest reason to switch at the end of the year is that it allows you to skip the time-consuming and potentially expensive process of gathering yearly payroll records, quarter-to-date records, squaring up on refunds from your current provider, and migrating a wide array of employee and employer data.

To demonstrate this point, if you choose to switch mid-year or in the summer versus at the end of the year, you will need to complete all of the following (avoidable) steps:

• Request refund initiation from current provider to account for any quarterly taxes previously collected that will no longer be submitted due to the mid-year switch to a new provider
• Submit request for all tax and payroll data from former provider
• Organize and forward copies of every quarterly state and federal payroll tax filing and payroll report to your new provider
• Organize and forward comprehensive year-to-date (YTD) payments to contractors, employees, etc.

Preparing for a Year-End Switch to a New Provider

Switching payroll providers at the end of the year is markedly easier than a mid-year switch and makes a “fresh start” in January much more achievable. Still, you’ll need to complete a few simple steps to collaborate with your new provider for a smooth transition.

Once you’ve organized and shared employee and business information (W-4s, state withholding tax forms, EIN, and any other baseline information your new provider requests), double-check your employee classifications to ensure they still apply and are up-to-date. Your new provider should be able to help you with this process and with other aspects of the transition, especially since employee classifications and salary thresholds are often in flux based on local, state, or federal regulations.

Remember that another upside of switching to a new provider is that you can update your payroll policies for the new year. This means if you’ve received employee feedback that demonstrates a desire for direct deposits or more frequent payments (biweekly rather than monthly, for instance), you can request that your new provider prepares to launch these features through your new platform in January.

In the end, your goal should be to find a provider with the capacity to integrate your payroll with other key HR and HCM processes. The platform should be automated, mobile-friendly for employees, and offer a combination of security, reliable customer support, and investment in labor law compliance that keeps your business protected and its daily operations streamlined.

A Comprehensive and Integrated Payroll Platform

At CAVU HCM, we aim to help you simplify your payroll process to eliminate errors, improve employee experience, and pay your employees accurately and on time. We emphasize customer service, legal compliance, and best-in-class technology that keeps your business at the forefront of its industry. We leverage our expertise and HCM tools to help you integrate payroll with HR management, talent management, workforce management, and all of the tools you need to keep your business optimized and your employees engaged and satisfied.

It's time to enjoy a stress-free payroll process and start the new year with a clear plan for success. Contact us today to start our collaboration, and let us know how we can support you.