Switching payroll providers involves evaluating a few different factors in your business. Paying your employees on time, consistently, and in a regular cadence is an important part of every business. As many small business owners have discovered, outsourcing payroll is a practical decision as the business grows. Many business owners find that managing payroll, and more importantly, ensuring that payroll is happening on a regular basis, can be time consuming to manage.
A good payroll service will distribute employee paychecks, calculate taxes, manage filings, and ultimately keep you compliant. Unfortunately, not all payroll services perform this service with the level of diligence you would expect. In fact, you may have found that your current payroll provider is no longer meeting your needs.
Missed payment distributions, errors, and late filings are just a few of the issues you may encounter when you work with the wrong payroll company.
As you look at the growth of your business, you may find that your current payroll provider is struggling to keep up.
Here are the most common signs that it’s time to move on and switch to a new payroll provider.
1) Payroll Errors
Mistakes in payroll are serious — nothing disenfranchises an employee more than to receive an error-riddled paycheck. Not only are these mistakes costly and time consuming to correct, they communicate to the employee that they are not a valued part of the team.
As you can imagine, this affects their productivity and the outcomes of the business as a whole.
Underpaying and overpaying employees both are not inconsequential, nor is missing direct deposit deadlines or filing taxes incorrectly. These kinds of missteps often build frustration internally, as well as place unneeded strain on the cash flow of the business as penalties accrue. Furthermore, if trust is lost within your team, it can be difficult to build back.
Common payroll errors include:
- Incorrect paycheck amounts
- Missed pay periods
- Late tax filings
- Errors in W-2s or 1099s
If you’ve experienced any issues like these above, it might be time to switch to a payroll provider with more robust systems and a better sense of attention to your business.
2) Misunderstandings Around Tax Understanding and Compliance
One misconception around payroll is that it only relates to issuing paychecks. Just as important is that your payroll provider has a deep understanding of tax withholdings, filing the correct forms, and staying compliant with all requirements related to state and federal law.
On this note, often businesses will pursue large scale payroll providers at the cheapest possible price. These companies usually have an automated payroll service that works at scale with as many businesses as possible.
Unfortunately, not only are these companies sometimes unaware of state regulations and especially local requirements, they are also unaware of the nuance of a small business in particular.
They also do not always have the acumen around tax filing, and since payroll can often be as much as 30% of gross revenue, its key for your payroll provider to understanding how this service ties to your tax filing each year.
If you’re wondering if your payroll provider is the right fit in this area, here are some questions to ask:
Have you ever received tax notices from your state or the IRS?
Have you ever had to manually file your own forms, including calculating your own payroll expenses?
And most importantly, have you ever had to pay a fee or fine related to incorrect filings regarding payroll, including incorrectly underpaying a team member?
Consider switching payroll providers to a company that not only handles your payroll service effectively, but also is familiar with tax preparation and can file on your behalf.
3) Limited Integrations or Tools for Reporting
Your payroll provider should have systems in place to integrate smoothly with your bookkeeping and accounting tools. If you’ve ever found yourself exporting spreadsheets or entering data by hand — worse, if you’ve done these at the request of your payroll provider — they may be creating more work than necessary for you.
An effective payroll provider should be familiar with reporting tools like Quickbooks Online, Xero, and more.
They should additionally have a system in place to automatically sync expenses, as well as offer clean and straightforward exports of the payroll information for the month.
Stay clear of payroll companies who seem to lack reporting tools entirely, or who are not familiar with some of the most common third party resources available.
On the other hand, sometimes a payroll provider has tools that are actually too expansive for your business. Many national payroll services have developed systems aimed at assisting companies who do billions of dollars in transactions each year.
These kinds of organizations have payroll platforms that are cumbersome and unwieldy for the small business owner. Even though their brands have nation-wide recognition, they are not always the best fit for your business.
4) Lack of Customer Support
Many business owners are attracted to these larger providers because they offer services at a cheap monthly rate, even when they don’t offer a customized approach that is often needed for small businesses.
Worse, when a payroll mistake happens, or a problem needs to be resolved, these larger organizations often do not possess a means for quick contact and resolution.
The Wall Street Journal wrote a similar article in 2022, pointing out nationwide brands like Facebook have even taken extra steps to make their phone support numbers difficult to find.
It is simply no longer profitable for these businesses to have a support person who you can reach over the phone when you need them.
It isn’t solely a problem in large-scale providers — often small payroll providers lack the structure and systems to provide support when you need it.
When a payroll mistake has been made — or worse, when a team member is frustrated or negatively impacted by a payroll error — you need a payroll provider who is accessible and easy to reach.
If you’ve found yourself experiencing any of these issues, it might be time to make a change. Switching payroll companies can feel like a significant step — but the right provider will help you make a smooth transition.
Ready to Switch Payroll Providers? What to Look For
If you’ve experienced any of these red flags, it may be time to switch your payroll provider. The next step is choosing a provider who offers more than basic payroll functionality.
Here are the key elements you should expect from an effective payroll service:
1) Reliable systems that lead to accurate, timely reporting
Ask your provider what systems they have in place, and what kinds of businesses they support. How do they ensure that paychecks are sent on time? What is in place to ensure that tax filings are compliant and accurate?
With this, remember that no provider is perfect. Ask them about their error rates, and what they have done previously to correct those errors.
2) Experience in Tax Compliance
Your payroll provider should be taking the proper steps for you to easily file your taxes each year, with all the important information you need. This includes:
- All appropriate calculations, withholdings, and remittances for payroll taxes
- Correct forms utilized, with an understanding of all hired designations (1099 vs. W2, for example)
- Familiarity in state-specific and local-related tax laws
- Audit support, or availability if IRS communication is needed
3) Transparent Pricing
Your payroll provider should not have a confusing fee structure. Effective payroll services clearly communicate upfront what you are paying for, and how often. This should include payment pacing, whether that’s per payroll run, per employee, or per month.
Be sure to ask if there are any upfront setup fees or cancellation fees. Both of these are normal, but they should be clearly communicated by your provider. Also ask if additional support is included, or if there is a cost associated with it. Lastly, ask about end-of-year filings, and what kind of tax help is involved in the service.
Want to know how we’ve made these three factors key parts of our own payroll service? Learn more about how we can help you.
Common Questions About Switching Payroll Providers
Can I Switch Anytime?
Yes, you can switch at anytime, assuming you are not in a contractual agreement with your current provider. If so, examine your agreement for any fees associated with an early termination.
Will my current payroll period be disrupted during a switch?
You shouldn’t experience any disruption in your payroll, so long as the transition is handled correctly. An experienced payroll provider will guide you through the process and ensure that no pay period is missed.
What kind of information will my new payroll provider need?
When you switch payroll providers, you should be prepared to provide the following information:
- Employee details (W-4s, I-9s)
- Year-to-date payroll history
- Your company’s tax ID
- Any miscellaneous information or special circumstances, including benefits or deductions already in place
How long does it take to switch payroll providers?
Most provider switches can be completed in one or two weeks. Plan the switch to happen around a clean payroll cycle, like the start of the month, to make the transition smoothly.