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When is the Best Time to Switch Your Payroll Service?

Two employees looking at payroll, “When is the Best Time to Switch Your Payroll Service?”

As a small business owner, quarterly tax filings give you a chance to assess your current payroll provider to make sure you’re getting everything you need out of the relationship. And, if you’ve already been toying with the idea of finding someone new, then maybe it’s time to switch. Before you decide, it’s important to think through the transition, tasks and timing – especially if this is your first time switching and/or you’re moving from a more traditional payroll model to one that’s online.

The Basics

On the surface, it may be easy to say that you are ready to change service providers, but this decision should not be taken lightly. First things first, examine your reasons and focus on details such as:

  • What is it about your current payroll service that causes you dissatisfaction?
  • What are the areas in which your current provider has excelled?
  • What are the “must haves” for running payroll?

You may find several things about your payroll company that are pointing you towards a change. Here’s a handy list of things to look for to help you make an informed and confident decision regarding your future payroll:

  • Process is fast and easy   
  • Product is reasonably priced
  • Data is safe and secure
  • You get answers quickly
  • Tax filings guaranteed
  • Quality checks in place to limit errors
  • Easy-to-navigate interface
  • World-class customer support
  • Tax updates are regular
  • Seamless integration with accounting software
  • Workers able to access payroll information
  • Pay workers via direct deposit or print checks
  • Add-on options for growing businesses

When’s the best time to switch?

Generally speaking, the end of a quarter is typically cited as the best time to change payroll service providers. While there is nothing wrong with waiting for a quarter to end, this isn’t something you have to do. With an online payroll service, it’s much easier to make the switch at any time. So, while you have the option to wait until the end of a quarter, you don’t have to put this off if you’re ready to move forward now.

Twenty years ago changing payroll providers at any time was a big hassle. At that time, most of the data was manually inputted. For this reason, changing providers meant transferring each piece of information, one character at a time. Not only did this require a lot of manpower, but it also left the door open for mistakes.

That’s not the case today as advanced technology and cloud-based computing has changed the process for the better.  And, with many payroll companies fighting to win your business, most are more than willing to do whatever it takes to provide a high level of assistance. This typically means completing all data entry tasks, as well as anything else required to ensure a smooth transition.

Tip:  As you compare new payroll companies, ask what type of assistance they provide during the transition process. This one detail may tip the scales in favor of a particular provider.

Quarter and Year-end Payroll Starts

Although you can switch payroll providers at any time, there are two ideal time frames for doing so:

  • The start of a quarter.
  • The beginning of a new year.

In a perfect world, you’d make a change at the beginning of the year. By doing so, your new payroll company can hit the ground running with a fresh slate. There’s no historical data for the year, making it much easier to complete the transition in an efficient manner. The start of a quarter is similar in many ways to the beginning of a new year. This makes it much easier to complete the transition with as little confusion as possible. As a general rule of thumb, try to change companies as early in the calendar year as possible. This will make life easier on all parties involved, as there’s less historical data to migrate from your old system to your new one.

Note: even if your new payroll company is doing all the data entry for you, it’s still your responsibility to gather and share all the required information.

What if you have no choice but to make a change at another time? This isn’t the end of the world. It simply means you will have more information to transfer and additional challenges in ensuring the accuracy of employee data and payment details during the transition.

Note: it’s worth mentioning again that advanced technology used by today’s online payroll providers allows for a more efficient transition at any time of the year.

Compare and Contrast Providers

Once you come to the conclusion that you’re going to switch your payroll service, it’s time to take the first step in finding a new provider. Since you don’t want to make the same mistake in the future, it’s essential to compare and contrast your current company to those that are vying for your business. You can break this down into three steps:

1. Pinpoint Your Current Issues:  As noted above, you’re looking to change payroll service companies for a reason. Now is the time to list out these reasons, in great detail, to ensure that your next company provides a better experience in these key areas.

2. Make a List of Must Have Features:  Let’s face it: even though the payroll process is similar for all companies, each and every organization is searching for a particular type of experience. This all begins with the features. Some things to think about include:

  • Ability to pay both W-2 employees and 1099 independent contractors.
  • Desktop and mobile accessibility.
  • Option to print important documents.
  • Customer support from payroll experts.
  • Email reminders.

These are just a few of the many features to consider when comparing payroll providers.

Ask the Right Questions

You can learn a lot about a payroll company by reviewing their website, reading online reviews, and speaking with companies that have firsthand experience with the provider. Even so, there is no replacement for personally speaking with a company representative. By doing so, you can learn more about how the company operates and what they have to offer somebody in your position. As you speak with potential payroll providers, you have the opportunity to ask questions. While these questions differ from one person and company to the next, here are 10 that you could ask:

  • How long has your company been in business?
  • Do you have experience providing payroll services to companies of our size and industry?
  • Can you provide references and/or testimonials?
  • What type of customer service do you provide? How many customer service agents do you have? What do they offer in terms of experience and knowledge? What is their availability?
  • Can you provide a demo of your online system?
  • What systems do you have in place to prevent costly payroll mistakes?
  • What type of guarantee do you have regarding processing payroll correctly and on time?
  • What type of assistance can you provide during the transition period?
  • What are the key features that set your company apart from the many others in the industry?
  • Can you provide a breakdown of how your pricing structure works?

As you ask these questions, don’t be surprised if others come to mind.

Making the Move

At some point, you need to take action based on all your findings. This means making the move to a new payroll provider.  Although every business and payroll service is unique, there are some basic steps you can take to make the transition as easy and stress free as possible:

  • Review your contract with your current payroll company. Are there any restrictions that outline when you can make a change? If there’s something you don’t understand, reach out to your provider for clarification.
  • Choose a new payroll provider. Furthermore, ask the company what they need from you and how they can assist with the transition.
  • Cancel the contract with your current payroll company.
  • Sign up with your new payroll company.
  • Provide the new company with all the necessary information (more on this below).
  • Double check your new account for accuracy.

By following these basic steps, you’re in position to successfully transition from one payroll provider to another.

Tip: your new payroll company will do whatever they can to make the process as simple as possible. You’re a new customer, and they want to prove from the start that they can help you with all of your needs.

Payroll Checklist

The transition to your new payroll company is not complete until you provide all the required information. Until you do this, your provider won’t be able to pay your employees and withhold the proper amount of taxes. Once again, you can expect your new company to request all the necessary information. This will include the following:

1. Business Identification Numbers

  • Employer Identification Number (EIN)
  • State withholding tax ID number
  • State unemployment insurance account number

2. Employee Forms

You should have previously collected the following forms from all employees:

  • W-4
  • State withholding tax form

3. Worker Classification

You will need to classify workers as one of the following:

  • A W-2 employee
  • A 1099 independent contractor

4. Payroll Schedule              

You can use the same payroll schedule as before, or make a change. The most popular options are listed below but it will be important to ensure compliance with state pay frequency laws:

  • Weekly
  • Bi-weekly
  • Semi-monthly
  • Monthly

5. Payment Method

How will you pay your employees?

  • Direct deposit
  • Paper check

6. Running Payroll

Once your payroll company has the above information, they can begin to run payroll on your behalf. 

At that point, you still have some responsibilities. Most importantly, you want to regularly check for accuracy regarding the following deductions from employee paychecks:

  • Federal income tax
  • State tax
  • Local tax
  • Medicare and Social Security taxes
  • Other deductions, such as those for retirement plans and insurance.

You should also regularly review the following employer taxes:

  • FICA
  • State Unemployment Insurance
  • Federal Unemployment Tax Act taxes

With the help of your payroll company, you’re also required to make the following federal and state tax deposits and filings:

  • Form 8109 (Federal)
  • Form 940 (Federal)
  • Form 941 (Federal)
  • Form 944 (Federal)
  • State forms (depending on your state)

Lastly, here are some of the year-end documents that come into play:

  • 1099
  • 1096
  • W-2
  • W-3

If you’re dissatisfied with your payroll provider, making a change could be in your best interest. With online technology and intense industry competition, you no longer have to wait until a certain time of the year to make the switch. By choosing the right payroll provider this time around, you can be confident in the service you’ll receive in the future.

Learn what’s right for your business

Visit SunTrust’s Small Business Best Practices Guide for a straightforward checklist of best practices in six important areas of financial management, including controlling cash flow.

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