Challenges & Solutions of Switching Payroll Providers in the Mid-Year

Challenges & Solutions of Switching Payroll Providers in the Mid-Year

When switching payroll providers, the most common and troubling question that arises is – the ideal time to switch. Most accounting professionals will advise on waiting till the financial year ends. However, this is a mentality that comes because of the old ways in which payroll was handled. Manual data entries and reports are not easy, and changing payroll providers in the mid-year only meant more work and harassment.

Nevertheless, currently, there are many AI and cloud-based software that is used in processing payroll. The industry has many payroll providers who are competing with each other, and in thoughts of getting more business, they are offering better services. Payroll providers will go out of the way to help your business switch from your old payroll providers even when it is mid-year.

The advanced software has made switching payroll providers lesser difficult than what the process used to be earlier. However, businesses face certain challenges when deciding to change their payroll provider in the middle of a financial year. Here are some challenges that a business may face when making a switch and their solutions.


Challenge 1: Data Transfer/Data Migration

The first thing that comes to your mind when trying to make a switch to a new payroll provider is data migration or data transfer. It is not an easy process and is quite time-consuming for an employer to complete the transition dedicatedly. This is why several employers hesitate to go about switching payroll providers in mid-year. Some of the expected losses that may happen in data migration include – data loss, compatibility issues, disorganization, and hardware challenges. 

Solution: Hire the Best Payroll Provider 

Don’t let the potential challenges mentioned above set you back from changing your payroll provider. There are many payroll providers in the industry, and they are in neck-to-neck competition with their competitors. Each one of them excels in the services they are providing. They are ready to go the extra mile when providing services or when being hired by a new client. Traditionally, it fell on the employers or the person in charge of the payroll to invest their time in making the data transition. However, these days payroll providers willingly make the transition for you. Having the experts take care of the data transfer is definitely a relief and reduces the chances of errors.

You must also check that the payroll provider you are seeking to make the switch with is equipped with the latest software. This will help in making the switch easier. Having recent software also minimizes data loss and data errors. Thus, you must:

      • Plan ahead
      • Cover all types of scenarios that you may encounter
      • Carry out live tests and verify that all the calculations are correct before transferring the data

Follow these steps to ensure that your data migration is done hassle-free.


Challenge 2: Erroneous Data

Encountering data errors in the payroll system is annoying, particularly when your business is ready to make the switch with a new payroll provider. Significantly, these errors are taken care of before the new provider can process their first payroll for your business.

For instance, say an employee was working in an office for you where he/she was paying the taxes to a particular state where your business is located. However, the pandemic caused the employee to work remotely from his home, which is in a different state. The payroll taxes need to be adjusted accordingly. The new payroll provider would require payments, tax filings, and other relevant data to ensure that the salary is processed correctly, considering the employee is working remotely and then taking care of the tax filings. In order to fix data errors such as these to ensure that the payroll is not affected negatively, here is what can be done to ensure a smooth transition.

Solution: Payment History and Previous Tax Filings

Switching a payroll provider in the mid-year may put you in thoughts about them making these mistakes. However, if they are provided with complete information about the payroll history and other relevant data about changes that have happened, then it can prevent any data errors. A payroll summary report usually comprises of every little detail, and they can be even be customized to reveal the specific information required. This report is available with the previous provider and can be obtained easily. Payroll assessment is usually done in three steps, as mentioned below:

a. Understanding Tax

The new payroll service provider checks the previous quarter’s tax history of your business to ensure that all taxes have been paid correctly and are up-to-date. Any errors should be looked into by them, and the tax compliance should be performed in accordance with the current rules.

b. Parallel Testing

This is an important step when switching your payroll provider. Payroll parallel testing involves comparing the net pay of old and new payroll providers. If the net pay is the same in both the payroll providers, then you can be sure that the calculations to be working exactly as you want.

c. History Verification

Every month when your payroll is processed, you create a record of employee’s salaries, taxes, and deductions. It also reviews the accuracy of pre-tax and post-tax deductions, taxes in multiple states, etc. Any errors that creep in can be discussed with the new payroll provider so they can correct them.


Challenge 3: Multiple Payment Frequencies

Another challenge that businesses may face when switching payroll providers is when you are paying the employees multiple times or in multiple frequencies. It is common for several business owners to pay their employees/teams/departments several times. Some common payment frequencies are:

a. Weekly  –

In this type of payment frequency, the employees are paid their wages every week. If you add the payment frequency, then the employees are paid 52 times in a year.

b. Bi-Weekly –

This type of payment requires the employer to pay their employees every alternate week. For instance, if you choose to pay them on a Monday, then they get paid every other Monday. If you add the frequency, then employees are paid 26 times in a year.

c. Semi-Monthly –

This payment frequency is where the employer pays the employees twice a month, usually on the dates – 15th and 30th. If you add the payment frequency, then the employees are paid 24 times in a year.

d. Monthly –

This payment frequency requires paying employees every month on a certain date. If you add the payment frequency, then the employees are paid 12 times in a year.

There are some payroll systems that don’t allow the usage of multiple frequencies when processing the payment. This inflexibility in the system can cause issues with your new payroll provider. 

Solution: Payroll System Flexibility

The solution to this challenge would be to select a payroll provider smartly. Payroll frequency payments are an important feature that employers miss asking the vendors, and this causes problems later on. You must clarify about the payment frequencies before switching payroll providers to ensure there are no problems in salary disbursement and tax payments in the mid-year.

Payroll providers must offer a system that enables the creation of various pay groups that allow different payment frequencies. A flexible payroll system ensures an efficient and easy transition from one provider to the other, even when it is the middle of the financial year.


Challenge 4: Complex Payroll Processing

Most businesses are hesitant switching payroll providers, especially in mid-year is because they consider their payroll process to be a complex one. The constant thought of having to undergo problems if considering a transition in the mid-year keeps the employers from changing their payroll provider.

Solution: Look for a Good Payroll Provider

Payroll processing indeed may be complex. This is especially since employers are not equipped with the knowledge of taxes, data, etc. Payroll processing requires certain special skills, and that is why there is a department or set of people who are appointed to perform this job.

There are several factors that make payroll complex – data accuracy, tax compliance, technology integration is considered to be the most significant components. However, payroll providers are meant to offer these services, and their systems have all these components as these are mandatory according to the government. Most payroll providers will easily take care of all these necessary payroll components, which the employers think to be complex.

However, as an employer, you must look for payroll providers who are adept at handling complex payroll systems. Some questions that you must consider asking them to ensure they are worth making the switch mid-year are:

      • Are you capable of handling multiple rates?
      • Will you be able to integrate with the business’s existing investments such as time-tracking systems, retirement plans, etc.?

Make sure the new payroll provider you have selected to switch to can export/import data from systems to easily use it in their payroll solutions. This is an important process and is crucial for successful payroll processing. It also ensures that all your data is accurate and your business does better with this new mid-year switch you made.


Challenge 5: Complex Payroll Taxes

Undoubtedly, payroll taxes can be complex. There are numerous things that a company HR department needs to take care of, including:

    • Fill and file various forms every quarter and year
    • Pay taxes for period/quarter/year
    • Stay aligned with laws and legislative orders
    • Maintain employee documents for compliance and more

These are important processes and very important for maintenance. It is likely that the employers feel to wait for the financial year to end before switching payroll providers so that the balance of things that are already in place is not upset. However, this should not be the reason to hold you back from changing your payroll provider.

Solution: Look for Payroll Providers Who are Tax Experts

There are some payroll providers who offer you services for tax compliance along with managing the payroll processing part. Partnering with an efficient payroll provider will ensure that your payroll and tax compliance efforts are in line with each other. Make sure to ask your new providers about having certified payroll tax experts in their team. Verify their authenticity, and then you can easily make a mid-year switch.


Hiring an Expert for Payroll Processing

Paysquare excels in providing payroll processing services to all business types and sizes. From generating salaries to tax compliances and from employee reimbursements to bookkeeping entries, we have you covered. We provide you with detailed reports for quick decision-making over crucial opinions.