5 things to know when you’re switching payroll service vendors

Third-party payroll service vendors come and go. A change can be triggered by a merger or acquisition, you can outgrow the vendor you’ve been using for ages or some new feature caught the C-suite’s eye.

Remember, the IRS is indifferent if your third party overpromises and underdelivers. You are still responsible for the payroll taxes that weren’t deposited or that were deposited in an incorrect amount. States are equally unconcerned about why your deposits were incorrect. Best advice: Get your ducks in a row before switching vendors.

So much to do in so little time. Switching payroll service vendors should never be a spur-of-the-moment decision. There are some things you need to consider beforehand.

1. Conversion date. If you schedule the switch for Jan. 1, you won’t have to worry about reconciling data from the old system or inputting data into the new system. Downside: January is the most stressful month for you.

If a January conversion is too nerve-racking, a conversion at the end of a quarter is your next-best option. Caution: Avoid mid-quarter conversions. Reason: Your new vendor may be late in uploading the old vendor’s quarter-to-date reports. Boomerang effect: Late uploads can impact your quarterly tax reporting and employees’ year-to-date earnings.

Payroll Handbook D

Regardless of your conversion date, you should inquire whether the new vendor has templates you can use to provide it with the data. And, since there are always nagging issues with converting and reconciling year-to-date data, ask to speak with the reps from the implementation and data conversion teams.

2. Reconciliations. Midyear conversions require data from your old system to be input and reconciled with the new system, so your accumulators continue to function properly. Be sure to verify that everything in the new system matches old quarters and make adjustments as needed.

3. Parallel processing. Test runs are important. You should expect your new vendor to run two full parallel payrolls—old and new systems running simultaneously. If data or calculation issues arise, your vendor should be willing to commit to additional parallel runs, even if that pushes back the implementation date.

4. State unemployment issues. You should ensure that the new vendor can produce a balance for wages and taxes. If you have multiple locations, your vendor should be able to comply with quarterly multiple worksite reporting.

5. Employee questions. You should be prepared to answer employees’ questions about the new look and feel of their pay stubs and direct deposit receipts.