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Updated: June 14, 2024

Why making a midyear payroll software switch makes sense

Published By:

Jon Davis

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Switching payroll software can seem like a heavy lift, but keeping some basics in mind makes this a straightforward process — no matter what time of year you decide to move.

Many organizations use midyear to evaluate the vendors they work with, and if any fall short of expectations, they may decide the time is right to move on. For example, some businesses use the midyear point to determine whether the payroll software they use to pay employees is meeting all of their needs. Though switching payroll providers is a move you can make at any time of the year, we’ve found that the midyear months of May and June can be popular with business owners.

Why do some employers switch payroll software mid-year?

The reasons for a company’s payroll migration in the middle of the year are varied. They may range from a provider making errors that affect a company’s daily operations to when a company begins to budget for new purchases. Here are some other considerations that may have organizations thinking it’s time for a new vendor:

 

  • Their current provider is making too many mistakes
  • Integrations don’t meet their current needs, or they start using a new tool in the middle of the year that the current software doesn’t integrate with
  • The current software platform does not include HR functionality to handle back-office tasks such as PTO requests
  • In some cases, the employees do have access to a self-service system for perks such as PTO, but find it difficult to use
  • Some companies begin their fiscal year in the summer. If they are migrating to a different payroll software, they have a timeline in which they will research tools in March or April and budget for spending in May or June.
  • Customer service is lacking — emails go unanswered, or it takes too long to troubleshoot issues

 

Swift switch

64% of small businesses only research one to two payroll software providers before making their choice

Source: OnPay 2024 Small Business Observations and Outlook

Things to keep in mind before your midyear move

  • Many businesses pay their employees at different intervals and with different pay schedules. Will the new vendor be able to support various departments, pay groups, or pay frequencies that your organization uses? It can be beneficial to confirm if any necessary specializations are in their wheelhouse.
  • Make sure that the new provider has access to all the correct historical information about your company, or that they have the ability to pull the necessary data from your previous provider.
  • Do you have a lot of employees? Perhaps you might be adding a number of new hires as the midyear point approaches? It can be a good idea to have the employee’s information ready to go 30 to 60 days before you’re ready to move.
  • Payroll taxes are such an important part of the equation, and Uncle Sam expects his share. It pays to double- and triple-check that your new provider can help to insure that all taxes are accounted for and can be administered correctly. Most should be able to review any previous taxes from past quarters, so that all information is accurate when migrating.
  • When moving, you’ll still need to make sure tax filings from early in the year are handled by the provider you were using at that time. Don’t just count on it — better to be safe than sorry.
  • Can the vendor handle your specific industry needs? For example, if you’re in the agriculture or farming business, there are going to be payroll software companies that are unable to file Form 943. OnPay does, but keep in mind that not all providers do.
  • Will you need a window of time between your old provider and new vendor to run payroll to make sure that employees get paid? In other words, will you need the previous platform to still be running to pay employees one last time with the previous service, so that there’s no downtime when you switch?
  • See if the new vendor has an employee self-service portal where day or night workers can view pay stubs, update personal information, and access tax documents. Most modern platforms should have this available.

51% of small businesses

Read through positive reviews and testimonials to guide their payroll software choice

Source: 2024 Small Business Outlook and Observations

There’s a lot to consider when searching for a tool to pay employees. To see how the vendors stack up we have a resource that makes it easy to compare payroll services with a few clicks.

Get data ready to be migrated

Making sure information gets from point A to point B properly — and securely — is one of the most important parts of moving to a new payroll software company. That’s because whoever you choose to work with is going to need employee data and year-to-date (YTD) payroll. YTD payroll is the amount of money your company has spent on payroll since the start of the calendar or fiscal year. This will be important so that tax forms, other documents, and records are accounted for as year-end approaches. Below is a table with information that’s likely to be a big part of this transition process.

 

Information needed to switch payroll providers

Pro tip: Get this ready around 30 days before moving to your new vendor.

  • Staff list with Social Security numbers and mailing addresses for all employees. This will be critical when tax time comes around and W-2s or 1099s need to be prepared.
  • W-4s for all employees — these were likely completed during the onboarding process when new employees were hired.
  • Any employee garnishments and supporting documents
  • Any employee deductions should be accounted for in the new system
  • Current year copies of Form 941 payroll filings — the current vendor should be able to share these with you.
  • Bank account information for your company
  • Direct deposit information for workers, if you’re paying employees this way
  • Company tax identification (tax ID numbers)
  • State unemployment rates for all states that you report to
  • Year-to-date payroll summary by employee and by quarter
  • Accrual policy and balances
  • Special or additional compensations, like different pay rates, tipped wages, clergy housing, shareholder insurance
2024_Q2_SMB_Simplify Growth_Banner_970x250_A

Questions that should be asked and answered

When considering a new payroll provider, ask the following questions to ensure a smooth transition for your business during a midyear switch.

 

  • Will the new provider own the actual process of importing your employees’ historical payroll data into the new system? Remember, this likely isn’t going to happen through an API or synchronization between the current system and the new vendor. In other words, there’s probably no one-click magic button that moves everything over — it is very much a manual process.
  • Does the new provider offer integrations with other systems you use, and can they confirm with you before making any changes?
  • Does the new provider provide training so that you can see how everything works?
  • Will you have a dedicated account team that is easy to reach?
  • What type of support do they offer?
    • For example, will you mostly communicate via email?
    • If you prefer speaking with a customer service rep, do they offer phone support?
    • Or live chat if you prefer to get answers this way?
    • If they are not available, will they have a help center where you can get most of your questions answered?
  • Does the new provider offer additional resources for you to make sure that you are getting the most out of your investment?
  • Does the new provider have an all-in-one system for all payroll services?
  • Who will be processing your files?
  • Do you want your new provider to process your files?

 

These last two questions have much to do with the implications of when you start processing payroll. Knowing what taxes have been submitted to the agencies — and what’s left — is an important consideration.

 

  • Beginning of the quarter. There’s usually less to worry about because you start fresh with all your tax filings.
  • Mid-quarter Is more of a half-and-half scenario. In other words, your current provider will collect some taxes and submit them to the appropriate tax agencies. At the same time, your new provider will also collect and handle some.

Did you know?

Almost 40% of business owners look for payroll software that includes HR, benefits, and other features.

Source: OnPay Small Business Market Survey

Pay stubs should be top-of-mind

Another task that you’ll want to take care of when making a payroll software swap in the middle of the year is getting all of your employees’ previous pay stubs and tax documents organized. The new provider is going to need these, and there’s not really a way to automatically sync the current account with the new vendor.

 

In addition to pay stubs, the company you are moving to will also be without access to W-2s, W-4s, or 1099s processed through your former provider. Your employees will often need these for their own tax filings or additional recordkeeping. Collect all of these documents from your previous provider or set up a clear line of communication with them to allow employees to access them as payroll data providers. If you plan on moving on in the middle of the year, be sure to outline the distinction between the two providers to your employees so that they understand where to find their relevant paperwork.

What to keep in mind when switching

Communication is key 

It can be a good idea to give employees advance notice before making a change, as it may take them some time to get used to the idea of a new system. For instance, the process for requesting paid time off might work differently, and workers will  need to find their earnings information in a new place. To communicate the change, you can share the news through a company-wide email or instant messaging system (if you use one). Better yet, consider a “town hall” style meeting where an HR team member or payroll administrator shares their computer screen so that employees can see what the new platform looks like, and always leave time for questions.

 

Dive into the data

Give yourself time to review data in your employees’ profiles, such as prior wages, and be sure to look at SUI rates for your state. Once you review all the pay items and deductions and something seems off, at that point we can immediately help you with changes or corrections. It’s much harder to do this type of “data snapshot” once you start running payroll, so don’t let this fall by the wayside.

 

Get past this mishap 

Don’t forget to send a “missing” payroll to the new provider you’re working with. In other words, you’ll want to share any last payroll you have run with the previous provider. Think of this as the “in-between” time: A small gap between closing out your old service, and moving to the new one.

 

Why do we point this out? It’s to make sure that all the previous payrolls are accounted for. In our experience, you want to ensure that the new provider has this information. When they start processing live payrolls, everything picks up at the right “taxation point,” so all the numbers sync up. Moving forward, this helps to make sure taxes are in the right quarters, and all Social Security maximums are correct. Remember, you don’t know what you don’t know (and neither will the new provider). Share as much information as possible to keep disconnects at a minimum.

Support should be standard

Almost 50% of small businesses say customer service is a must-have whether by phone, email, or chat, when picking a payroll software provider

Source: OnPay Small Business Market Survey

Bring up employee benefits

Are you thinking about setting up benefits like a retirement plan or health insurance, or are you just unsure about your state’s compliance requirements? See if the new provider will be able to provide proper guidance. For example, almost every state requires businesses to have a workers’ compensation policy in place. Furthermore, more than a dozen states require employers to provide their employees with a way to save for retirement — or have laws in the works to do so. It could be worthwhile to see if they set up retirement savings plans like a 401(k). Also, if providing health insurance has been on your mind, but your current vendor isn’t able to help, this could be your chance to get that squared away. The takeaway is that using your midyear move to get a benefits program together can make sense.

 

Special taxation is a reason to switch

Another reason why organizations use the middle of the year to switch is because there are tax considerations that their current provider is unable to assist with. For example, shareholder insurance is taxed differently than W-2 wages. Clergy housing is not taxable, but must be reported on W-2s, and not every payroll company can properly account for this. Is it easy to mark clergy members as exempt from Social Security and Medicare taxes (FICA) when running payroll? Is your company FUTA or SUTA exempt, and is your current provider able to handle the calculations? Depending on your needs, it could be time for a company to switch because they have a more sophisticated setup that their current provider is unable to address.

 

Keep an eye out 

Be on the lookout for emails, calls, and follow-ups after you sign up with your new vendor and move all the information from point A to point B. During the switch, there’s going to be an onboarding team and specialists making sure that everything is set up correctly so you can hit the ground running. If they are calling or reaching out, there’s likely a reason they need to speak with you (or may need additional information).

No matter when you want to switch — we’re here to help

Though moving to a new payroll provider can seem overwhelming, a little preparation can go a long way. No matter when you decide that the time is right to migrate to a different vendor, our team can help you every step of the way. Good luck as you research different options — our team is excited to help and make this transition as smooth as possible.

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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.