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 end of 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 provider.
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 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 looks 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.
You’re now ready to go with your new payroll company!