Congrats—you’ve chosen a new payroll provider, and now it’s time for the transition!
This guide will show you exactly how to switch payroll providers. You’ll also get a printable payroll calendar to help you plan out what you need to do at each step to make the switch as smooth as possible.
When should I switch payroll providers?
Timing can make a big difference.
While most online payroll providers can accommodate your business at any time, it’s easiest to change payroll providers at the start of the calendar year. That will make tax time easier and more streamlined.
If that’s not possible, the beginning of a new quarter is your next best option.
Why is the end of the year the best time to switch?
When you switch at the end of the year, you don’t have to transfer your historical payroll data. Instead, you start running payroll on January 1 so your payroll provider has everything it needs to file your quarterly and year-end forms.
Allow me to explain.
Payroll involves filing tax forms with various agencies on an ongoing basis. Forms that must be filed on time. Which is why you, smart business owner, are paying a payroll service to do all that for you.
All this reporting means that switching payroll companies mid-year can be a pain. Your payroll provider sends quarterly and annual reports to the government and, to do this on time and accurately, they use your payroll history. If you switch payroll providers mid-year, you’ll need to import your year-to-date payroll data— like immediately.
Let’s say you switch payroll providers on May 1 and run May and June’s payroll through your new provider. You used your old provider for April’s payroll.
On July 31, Form 941, the Employer’s Quarterly Federal Tax Return, is due for April, May, and June. Luckily, your payroll provider files this for you. But your new payroll service only has May and June’s payroll history. The rest is with your old provider. Until you transfer your old payroll data, your payroll provider can’t file your tax form.
Don’t put your business in that situation.
How to switch payroll providers
Now, let’s walk through the steps you need to take when starting payroll with a brand new payroll solution.
Step 1: Clarify what your new payroll provider handles
Some payroll providers handle paperwork like W-2s and 1099s and file your payroll taxes for you. Others leave it up to you.
Before you officially switch, make sure you’re clear on what services the new payroll provider offers, and what, if anything, you’re in charge of filing and paying going forward. Some companies have a payroll comparison page that shows how they stack up to other providers.
If you’re switching payroll mid-year, ask your new provider what type of transitional services they offer. Some small business payroll companies, like Gusto, help you import historical data if you have a certain number of employees, saving you the trouble of doing it yourself.
Step 2: Sunset your current payroll provider
Check your current contract and see if there are any cancellation terms you should be aware of, or if your contract is for a specific period of time (like a year). If you’re in the clear to terminate your service, notify your current payroll provider that you’re canceling your account with them.
It can take anywhere from a few days to a few weeks to transition to a new payroll provider, so allow yourself some buffer time to ensure that there aren’t any missed payrolls.
While it can be awkward to terminate service and tell your current service that you’re moving to a new payroll provider, avoid telling them that you’re no longer running payroll. Some payroll services may notify the IRS and/or state governments that you’re closing your business and request to close your accounts if it’s not clear that you still have payroll.
Step 3: Prep for your new provider
Ask your new payroll provider about the forms and information you’ll need to provide them to initiate service.
Then get the necessary documents and information from your current provider. Depending on your service, you may be able to download all of them yourself, or you may need to ask customer support for assistance.
Here’s some of the information you typically need to set up payroll for the first time:
Your business info, such as your legal business name, business structure, and EIN;
Employee information, including names, Social Security numbers, addresses, earnings, W-4 withholding elections, and deductions;
Payroll information and pay stubs or payroll journal for all staff (including independent contractors and terminated employees);
Payroll tax returns, plus payroll tax deposit dates and amounts
Information regarding your registrations with state and local tax authorities, like payroll tax account numbers
A voided check for your payroll or tax account
For historical payroll information, you need to get records going back to the beginning of the calendar year.
If your new payroll provider will file and deposit payroll taxes for you, you may also need to complete new copies of your third-party payroll authorizations, including a new Form 8655 and any state and local authorizations required.
Moving your payroll over to Gusto? Here’s a detailed list of what you’ll need to switch payroll to Gusto.
Step 4: Set up your account
It’s time to migrate your information over to your new service!
Depending on your new payroll provider, you may have to manually enter and upload your payroll and employee information, or your new payroll service may help do all of this legwork for you.
Step 5: Officially shut off service with your old payroll provider
Once you’ve finished transferring all of your necessary payroll information to the new provider, you can close your old account.
Make sure your old provider knows whether you expect them to file W-2s at the end of the year, or if your new payroll service provider will be handling it. If you don’t clarify, duplicate W-2s may be filed, resulting in IRS notices and requiring amended W-2s to correct the issue.
Step 6: Set your first pay date and notify your employees of the switch
If you’re switching at the end of the year,
Run the payroll corresponding with the last pay date of the current year with your old provider.
Then run the payroll corresponding with the first pay date of the new year with your new provider. This keeps your payroll records as clean as possible.
Here’s a sample December calendar you can download to help you figure out when to switch payroll providers. (You can use this timeline for other months if you’re unable to switch at the end of the year.)
Keep in mind that payroll taxes are based on when your employees are paid, not when they worked. So if your first pay date of the new year is January 5, you should run that payroll with your new provider.
But what if my employees are being paid on January 5 for hours worked in December?
You’ll still run this payroll with your new provider because the wages are being paid in the new year. These wages will be reported as income on your employee’s W-2s for the new year.
After you’ve set your first pay date with your new provider, notify your employees of the switch. Tell them who your new payroll provider is and when the service starts. Every payroll provider’s pay stubs, payment notifications, and employee dashboard look different, so this step is key.
You don’t want your team to feel confused about why they suddenly started receiving emails and mail from a company they’ve never heard of before.
Step 7: Double-check all the details
Before you run payroll with your new service for the first time, it’s wise to conduct an internal audit to ensure all of your company’s payroll records have been entered correctly.
What to look for in a payroll provider
Switching payroll providers—while well worth it—can be a big hassle, so you want to make sure the new provider you’re choosing isn’t just an improvement from your current system, but one you can see your business with for a long time to come.
The right provider for your business depends on a handful of factors, including your business’s size, long-term growth goals, and budget. In general, though, it’s smart to prioritize a provider that offers flexibility (plenty of functions for scaling or customizing) and robust support (think: help with tax filing or onboarding new employees).
Keep the following characteristics in mind when you explore providers:
Your business needs: Do you need a platform that automates only payroll, or an all-in-one system that incorporates human resource tasks and benefits administration too?
Your bottom line: Does the new payroll system’s pricing make sense for your budget?
Your payroll complexity: Can the new payroll company handle different payment types for employees, as well as different forms of compensation (from salaries to bonuses and PTO)? Can you use it to pay contractors as well as employees? What about payroll processing for employees in different countries?
Your time: Does the new platform streamline your workflow and update payroll automatically? Is it easy to learn and train other employees on? Does it have an employee self-service portal?
Your current tech stack: Can the new platform integrate with the software you already use and rely on?
Your long-term goals: Can the platform scale as your business evolves or grows?
Your comfort with compliance: Can the new platform handle compliance tasks, like managing W-2s, filing federal, state, and local taxes, handling new hire reporting, and managing ACA compliance?
Your need for help: Does the new platform have responsive, supportive customer service?
Looking for the perfect payroll fit for your small business? Our detailed guide showcases the best options available, helping you make the right choice with confidence!
FAQs
How long does it take to switch payroll providers?
It usually takes anywhere from two to six weeks to switch payroll providers, depending on the size of your business, the complexity of your payroll, and which providers you’re transferring between. The reason the payroll transition period can be so long is that you have to migrate all your employee data from one payroll system to the next.
Will switching payroll providers affect employee pay or tax filings?
No, switching to a different payroll provider won’t change your employees’ pay or their tax filings. But if you switch providers in the middle of the year, you do run the risk of inaccurate tax filings if you don’t transfer over the year-to-date wages properly.
What common mistakes should be avoided when switching payroll providers?
When you’re switching payroll providers, the number one mistake you can make is not timing your switch. It’s best to transfer providers at the start of a new quarter or year, so you don’t complicate tax reporting. Other common mistakes include not reviewing your contract with your current payroll provider prior to trying to switch, hurrying the implementation process, and not thoroughly researching your new payroll provider (you want to make sure they have the integrations and customer service you need for a seamless transition).
How do benefits and deductions transfer between payroll providers?
Your employees’ benefits and deductions should transfer over to your new payroll provider during the data migration process, which tends to be the most time-consuming aspect of switching providers.
What should businesses do if errors are discovered after switching payroll providers?
If you find payroll errors after you switch payroll software providers, the first step is to document those errors right away. From there, you’ll need to let the employee know there’s an error and that you’re taking steps to remedy it, then coordinate with your current and previous payroll providers to find the source of the issue and update your records (and tax filings) accordingly.
