Switching Payroll Providers
Although you can switch your payroll provider at any time during the year, the best times to do so is at the end of a calendar quarter or ideally at the end of the year. If the transition happens during the year then the new payroll provider is typically responsible for completing all year end tax obligations including issuing the employee’s W-2 Forms, consequently it is usually a smoother transition if it happens at the end of a calendar quarter or end of year. Here are some helpful steps to prepare you to do so:
Realize that the new payroll tax obligations start on the date of the first pay date and not on any other time during that pay period, therefore the new payroll company may have responsibility for the payroll of days worked in the previous year. It is thus very important to notify both companies as soon as possible and ensure that there is clarity on the payroll dates and the transitional plan.
Ensure that the outgoing payroll company understands that they have the responsibility to complete and file all end of month, quarter, and annual tax obligations for the period that they processed payroll.
Clarify the role and obligations of your new payroll provider including if they are taking on the responsibility of all payroll tax obligations, year end W-2’s, 1099’s, etc. Also ensure that you have clear understanding of their costs for such services.
Ensure that you provide the new payroll service all of the documents and information that they need to begin processing your payroll. They should provide you with a list of needed information which may include your legal business name, EIN, type of business entity, employee information including W-4 and state withholding elections and deductions, voided checks and signed authorization forms from employee’s direct deposits, etc.
Once the transition is complete then make sure that you remember to turn off the service with your old payroll provider. Nobody wants to find out in the future that they’re paying for two payroll services!
Double check all of the details upon running the first payroll with the new service to ensure complete accuracy and to identify any possible concerns so that they aren’t repeated in future payroll runs.
Notify your employees that you’ve made this switch being proactive knowing that they will most likely see some change in the way the payroll is now being handled.
Congratulate yourself on successfully transitioning to what most likely will be a more reliable payroll provider.