A Guide to Switching Payroll Companies: Steps, Tips, and Solutions

Is your current payroll provider causing more issues than they solve? If so, it’s time to consider switching payroll companies. With the end of the year fast approaching, now is the ideal time to find and implement a new system.

Read this guide to learn how business owners can benefit from switching providers, and how to transition to a new solution.

Signs it’s time to switch payroll companies

Frequent payroll errors 

If your current payroll provider is prone to errors, it can lead to significant issues for your business. Errors in payroll processing can result in incorrect payments, leading to employee dissatisfaction and potential legal repercussions. Frequent mistakes can also erode trust between employees and management, affecting morale and productivity.

Poor customer service 

If your current provider has slow response times, unhelpful support staff, or lacks comprehensive support options, it can cause delays in addressing payroll problems. Poor customer service can also mean longer downtime during issues, leading to frustration for both the payroll team and employees.

Lack of integration with other HR systems

Does your current payroll provider integrate well with other systems like HR management, time tracking, or benefits administration? For 43% of payroll leaders, syncing HR and payroll data between platforms is a struggle. It can lead to data silos and time-consuming manual tasks, and hinder your ability to manage employee information efficiently and accurately.

High costs and hidden fees 

Payroll is typically the largest cost of any business. If your payroll provider has high service fees or hidden costs, it can strain your budget. 

According to a commissioned study conducted by Forrester Consulting on behalf of Deel (January 2024), 42% of payroll leaders experience unexpected or hidden costs during the implementation of payroll services.

Unexpected fees can disrupt financial planning and force your business to allocate funds away from other critical areas. Evaluating the total cost of ownership, including any hidden charges, is crucial when assessing your current provider. For example, over half of surveyed payroll leaders have encountered unexpected or hidden costs related to exchange rate fluctuations following payroll implementation.

Inadequate reporting and compliance features 

Accurate reporting and compliance are vital to avoiding legal issues and managing your workforce effectively. If your current payroll provider does not offer robust reporting tools or fails to keep up with compliance requirements, it can lead to significant risks. 

One of the top challenges organizations are facing with their current global payroll systems is a lack of visibility into employee and payroll data (32%). This challenge has resulted in a limited ability to analyze employee data for 42% of decision-makers. 

Inadequate reporting can also hinder your ability to make informed decisions, while non-compliance with regulations can result in hefty fines and legal challenges.

Benefits of switching payroll companies

Making the switch to a new payroll company can offer a range of potential advantages, including cost savings, improved technology, better customer service, and more customizable solutions tailored to your business needs. Be sure to thoroughly research your options and consider the potential benefits of making the change:

Improved accuracy and efficiency 

Switching to a modern payroll provider like Deel can dramatically improve the accuracy and efficiency of your payroll processes. Automated systems reduce the likelihood of human errors and streamline payroll tasks, freeing up your HR team to focus on strategic initiatives. 

Automation ensures that calculations are performed accurately and consistently, reducing the risk of errors that can lead to employee dissatisfaction and compliance issues.

Enhanced compliance and security 

Payroll providers like Deel offer enhanced compliance and security features to help your business adhere to complex US regulations. Staying compliant with federal, state, and local laws is crucial to avoiding penalties and legal complications. 

Deel’s platform includes automated compliance updates, ensuring your payroll processes remain up-to-date with the latest regulations. Enhanced security measures, such as data encryption and secure access controls, protect sensitive employee information from unauthorized access and breaches.

Better customer support 

Access to dedicated support teams is a significant advantage of switching to a reputable payroll provider. Deel offers responsive customer support with knowledgeable staff ready to assist with any payroll issues. 

For example, Deel assigns a dedicated Customer Success Manager (CSM) to each client. The CSM acts as a single point of contact for queries and support needs, offering personalized assistance tailored to your business.

Deel’s customer support includes five different support channels, access to instant answers via Deel AI, in-app chat, and wholly-owned infrastructure featuring specialized support teams.

Cost savings 

By reducing manual tasks and automating processes, your business can lower administrative costs and allocate resources more effectively. Deel’s transparent pricing model provides clarity on costs and fees, allowing for better budget management and financial planning. The cost savings achieved through efficient payroll processing can be reinvested into other areas of your business to drive growth and innovation.

Advanced integrations and technology 

Modern payroll systems, such as Deel, offer robust features and technology that enhance your payroll operations. Real-time reporting capabilities provide valuable insights into payroll expenses, employee compensation, and workforce trends. 

Integration with other HR systems ensures seamless data flow and reduces the need for manual data entry. Advanced features like customizable dashboards, automated tax filings, and employee self-service portals improve the overall payroll experience for both administrators and employees.

7 steps to changing payroll providers

What does the process of switching payroll providers look like? While your experience will depend on your company size, needs, and complexity of the project, here’s a general overview of what you can expect:

1. Initial setup and discovery

Step one in switching payroll providers is to identify your needs. Understanding the current payroll process, challenges, and requirements is essential. Assess the need for a new payroll system based on pain points like compliance management and onboarding processes. For instance, frequent payroll errors can be significantly reduced by switching to an automated system like Deel. 

During this phase, it is important to ask questions about the current payroll provider, compliance management, and onboarding processes. Questions might include:

• What challenges are you facing with your current provider? 
• How is compliance managed? 
• What is your onboarding process for new employees? 
• What are your current contract requirements with your provider? Are there any cancellation fees?

2. Onboarding process

Once you’ve signed on with a new provider, the company onboarding process will begin. This typically starts with creating an entity in the payroll platform, ensuring all company details are accurately entered. 

Next, clients add their employees to the new entity. Setting the payroll schedule, including pay frequency and the first payroll cycle, is also a crucial step. For example, weekly, bi-weekly, or monthly payroll schedules can be set up according to the company's needs.

3. Employee onboarding

Employee onboarding involves confirming workers’ locations and tax residencies to ensure correct payroll tax filings. Employees must complete the necessary tax forms, such as IRS forms like W-4s for withholding information, and set up their bank accounts for direct deposits, ensuring timely and accurate payments.

4. Compliance and registration

Completing all state registrations correctly is vital, as missing or incorrect registrations can incur penalties. Each state has its own requirements and deadlines for payroll tax registrations, withholdings, unemployment insurance, and other payroll-related obligations, and failing to comply can result in significant fines and legal complications. 

Deel can support your team with state registration and continuous compliance. Deel’s platform includes built-in features for managing state-specific payroll requirements, helping your business improve compliance across all jurisdictions. Deel’s in-house experts provide guidance on the necessary forms and filing procedures, assisting with the registration process from start to finish.

5. Payroll configuration

Next, clients review their payroll details, including gross-to-net calculations and payslip items, to catch any discrepancies before payroll is processed:

Gross-to-net calculations:

• Gross earnings: Verify that all hours worked, overtime, and salary amounts are correctly calculated
• Deductions: Ensure that all deductions for taxes, benefits, and other withholdings are accurately applied
• Net pay: Confirm that the final take-home pay for each employee is correct after all deductions

Payslip items:

• Itemized breakdown: Review each payslip to ensure it includes a detailed breakdown of earnings, deductions, and net pay
• Tax withholdings: Check that federal, state, and local taxes are withheld correctly
• Benefit contributions: Verify that contributions to benefits such as health insurance, retirement plans, and other programs are accurate

Clients can also typically make salary adjustments, such as adding bonuses, PTO payouts, or severance payments at this time. Approval of payroll must be done by the cut-off date, which is typically five business days before the pay date.

6. Funding and payment

Once payroll is approved, the funding request is automatically initiated. Payslips (also known as paystubs) are generated and made available to the employer, and employees see them on payday.

7. Post-onboarding

After the second successful payroll, the onboarding manager (OBM) initiates the handover to the CSM. The CSM provides ongoing support and ensures the client is comfortable with the new system. Clients and their workers can also refer to help center articles for detailed guidance on various steps, or use designated Slack channels and service desks for any issues or questions.

Common challenges and how to overcome them

Want to stay ahead of blockers that can impede your payroll transition? Here are the most common challenges teams face when switching to new provider:

Data migration issues

One of the primary challenges during a payroll transition is ensuring that all data is accurately transferred from the old payroll provider to the new one. Inaccurate data can lead to payroll errors, compliance issues, and employee dissatisfaction. 

Say that ABC Corp is transitioning from Payroll Provider A to Payroll Provider B. During the data migration process, an error occurs where employee John Doe's pay rate is incorrectly entered. John Doe’s pay rate is $25 per hour. However, during the data transfer, a typo causes his pay rate to be recorded as $250 per hour in Provider B’s system.

On the next payday, John receives a paycheck significantly higher than his actual earnings, causing a major payroll discrepancy. Overpaying employees can lead to compliance issues, particularly with tax filings and withholdings. When the error is corrected, John’s subsequent paycheck is much lower than expected, leading to confusion and dissatisfaction.

To mitigate errors like these, conduct thorough audit of all payroll data before migration. Verify that all employee information, payroll records, and tax details are up-to-date and accurate. Implement data validation procedures to cross-check the information during and after the migration process.

Handling data compatibility

Data compatibility is another common issue during payroll transitions. Different payroll systems may use various data formats and structures, leading to compatibility problems. 

For example, Company ABC is transitioning from Payroll System A to Payroll System B. Payroll System A stores employee data in a CSV format with columns that are not directly compatible with System B’s data structure.

To address this, work closely with your new payroll provider to understand their data requirements and formats. This could include developing a comprehensive data mapping plan to ensure that all data fields from the old system align correctly with the new system. Leveraging data migration tools and software that can automate and streamline the conversion process can also help minimize compatibility issues.

Integrating with existing HR and accounting software

Seamless integration with existing HR and accounting or payroll software helps maintain efficient workflows and avoid data silos. Integration problems can disrupt payroll processes and lead to redundant manual tasks. 

To help, choose a payroll provider like Deel that offers robust integration capabilities. Work with your IT team and the payroll provider to configure and test integrations thoroughly before going live. Ensure that data flows smoothly between systems and that there are no discrepancies in payroll calculations or reports.

See also: 20 Enterprise Payroll Integrations to Boost Efficiency

Employee questions and concerns

Employees may have concerns about the new payroll system, especially regarding paychecks or tax withholdings. To address these concerns, maintain open communication throughout the transition. Provide clear information on changes, their impact, and any actions required from employees, such as updating bank details or completing new tax forms. Or, offer a dedicated support channel for timely responses to employee questions.

Get a free demo of Deel US Payroll

Whether you’re a small business or enterprise organization, you can streamline US payroll and consolidate your global payroll under one platform with Deel. From international contractors in Europe to EOR employees in Canada to direct employees in the US, Deel brings everyone under one roof. 

With Deel, you can also run background checks on-platform, centralized your HR data, get visa support with Deel Immigration, and so much more.

Schedule a 30-minute platform demo with an expert to learn more.