Why now is the best time to switch payroll providers

Switching payroll providers is a complex process that many businesses try to avoid if possible. However, if the service delivered by the payroll vendor is not up to standard, organizations have no choice but to end their current service contract and start looking for a new payroll service provider.

One of the questions that are often raised in the run-up to the provider switch is when to make the change. When is the best time to switch payroll providers? What are the advantages of changing to a different payroll service at the end of the year? Can you switch payroll providers mid-year? Read the answers here.

Despite your best efforts to choose a payroll provider that suits your business needs, it’s always possible that you make the wrong choice. While there is always a certain risk for payroll errors and compliance issues when outsourcing payroll, it’s important for businesses to know where to draw the line. Here are some signs that it’s time to switch to a different payroll provider:

• Your business is growing and your payroll provider cannot scale their solution to meet your changed business needs.

• Your service provider repeatedly fails to meet the agreed payroll SLAs.

• The payroll vendor provided wrongful information when filling out the payroll RFP you used for selecting the best solution for your business.

• The customer support is not up to standard and takes too long to answer payroll-related queries and solve urgent payroll issues.

• You need payroll services for additional geographies due to your business expanding into new countries and want to change to a global payroll solution instead of having to manage multiple local payroll vendors.

• Your current payroll provider has changed their pricing structure and the changes put you at a financial disadvantage.

• The payroll reporting you receive from your provider is faulty, lacks standardization, and doesn’t provide the level of detail you require.

• Your provider’s processes take too long and are not efficient enough.

• The level of payroll accuracy is below standard and you waste a lot of time checking for errors in your payroll.

If you are unsure about how to evaluate the quality of the service you get from your payroll vendor, you can use a payroll service satisfaction checklist to get a clearer picture of how good your payroll service is.

There is no such thing as “the best time to switch payroll providers”, since there are many factors that can influence which time of the year is a good moment for a business to change to a different payroll vendor.

However, many businesses opt for switching providers at the end of the year. Reasons why year-end is a popular time for changing payroll services include:

• In cases where your business’s fiscal year corresponds to the calendar year, waiting until the end of the year to switch payroll providers simplifies year-end tax reporting and reduces complexities regarding payroll compliance.

• Switching providers at the end of the tax year means less items on your year-end payroll checklist.

• No need to transfer tax-related data and information from the ending tax year, which reduces the risk for errors.

• New tax laws and regulations often enter into force at the beginning of a new year, which means that you can start working with your new payroll provider in the knowledge that all the necessary changes are implemented.

• You don’t have to coordinate the distribution of tasks between your current and your new provider to ensure everything is taken care of.

• Salary increases and other changes related to employee compensation typically come into effect at the beginning of the new year, which means that changing to a different provider at the same time saves you time and work because you don’t need to enter employee salary data from the previous year.

Changing payroll providers on the first of January might be the most popular option among businesses, but this doesn’t mean that the change has to happen at the beginning of the year. In fact, you can change your payroll vendor whenever you want, which can be a big advantage depending on your individual circumstances.

In some cases, waiting until the end of the year to switch to a different provider simply isn’t an option. For instance, if your payroll service contract is coming to an end in July or August, waiting until January to start a new contract would leave you providerless for nearly half a year.

Another situation where switching providers is a matter of urgency is when you are so dissatisfied with the performance of your payroll provider that you don’t want to wait any longer. Poor payroll performance can have severe negative repercussions on your business’s reputation as an employer and the overall employee experience in your company.

Switching payroll providers mid-year is likely to cause your business more work because you need to transfer tax data for the running financial year from your old provider to the new one, along with any other payroll-related information, such as a list of new joiners and leavers.

Here are a few tips to make switching payroll providers easier:

• Wait until the end of the pay period: If waiting until the end of the tax year is not an option, you should at least try to align the switch of your payroll provider with the end of the pay period instead of changing to a different payroll service in the middle of a payroll cycle.

• Know your contractual obligations: Payroll service contracts are often concluded for a fixed period of time and contain detailed conditions for contract termination. Make sure to check the fineprint to avoid fines for breach of contract.

• Choose a less busy period: In every business, there are periods that are particularly busy and periods that are less busy. To ensure a smooth transition between payroll providers, you should choose a quiet period.

• Avoid periods of legal changes: Legal changes that affect payroll happen in regular intervals. Since new laws and regulations are often announced in advance to give businesses time to prepare, you can plan accordingly and switch payroll providers either before or after the implementation phase of the regulatory changes.

• Choose the end of the quarter to change providers: Wait until the end of the quarter to avoid unnecessary complexities in your quarterly payroll tax reporting.

Even when keeping these considerations in mind, switching payroll providers has its challenges. It’s not just about finding a good moment to make the change, but also about choosing a suitable new payroll partner, and ensuring a smooth transition between the current and the new provider.

With a global payroll solution like Lano, you can easily switch your local payroll providers and add new payroll vendors as you expand into new markets. Thanks to our international network of payroll partners, you can effortlessly set up your local payroll in over 170 countries worldwide and replace your current providers should they not live up to your expectations. Book a demo with one of our experts to learn more.