Switching Payroll Companies Checklist: What to Do

Switching payroll companies is daunting. But it can also be crucial for cost-saving or improved efficiency. Our simple guide gives you the ultimate checklist to follow.

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You might want to switch payroll providers because your workforce has grown. Maybe you’re just not getting the service you expect, and want to shop around for a better deal.

Whatever the reason, regularly researching different suppliers is an important way to ensure your payroll remains efficient and effective. But in a market this crowded, the task can feel overwhelming.

When can you switch payroll providers? How do you find the best deal to move to? What potential issues do you need to avoid?

The above are common questions that Startups has heard from small business owners over more than two decades of working with them.

Below, we’ll answer them all in our step-by-step, painless guide to payroll migration. Read on to find out how to avoid mistakes or delays. Plus, find the company that most complements your business strategy.

Or, use the free, Startups-exclusive cost comparison form to get personalised payroll quotes for your firm. We’ve designed it as a super-fast way to compare costs in just one minute.

How to switch payroll companies: a checklist

Here are the 5 key steps to remember when undergoing payroll migration.

  1. Audit your current payroll provider
  2. Investigate the payroll provider market
  3. Speak to your current provider
  4. Collect the necessary paperwork
  5. Notify your stakeholders

Step 1: Audit your current payroll provider

Firstly, confirm exactly what you like and dislike about your current provider.

Make a list of the features you want included in your new payroll plan, including what’s working currently that you don’t want to lose.

If you’re currently using a full-service payroll (which does everything for you), consider switching to a less-expensive part-managed payroll (which does the hardest parts of payroll but leaves the smaller admin tasks to you).

Alternatively, you might choose to download payroll software as a combination of the two.

Now is also a good time to take note of your contract length. Likely, this won’t be an issue, as most payroll companies offer flexible monthly subscriptions.

But if you’re tied into a specific contract, you may have to contact your current provider to see what your options are before switching.

Step 2: Investigate the payroll provider market

Block out some time to search for the company you think is the best match for your requirements.

Analysing a new market can feel daunting. However, early-stage research is fundamental to finding the best deal or discount. It also doesn’t have to be time-consuming if you are strategic.

Search online for customer testimonials so you can get a clear picture of whether it’s a good fit for your business type.

This is also a good time to start comparing costs from various suppliers.

Whether you’ve a smaller budget or want to upgrade to a more-powerful system, Startups’ simple cost comparison form gives transparent figures based on your specific business details.

Step 3: Speak to your current provider

Tell your current payroll service you are looking to switch providers. Find out what it takes to terminate your service – but don’t cancel it yet.

Ask how much notice is required, what has to be in writing, and if there are any more fees or requirements. This is to ensure a smooth transition for tax filings.

Step 4: Collect the necessary paperwork

Once you have confirmed exactly what your old company will need, it’s time to start compiling the paperwork for your new provider.

This can be split into three categories: employee details, payroll records, and business information.

  • Employee details – including bank account details, national insurance numbers, national insurance categories, tax codes, start dates, student loan details, normal weekly hours worked, payment frequency, etc.
  • Payroll records – encompassing all salary and wages payments, all deductions made, all staff leave and absences, copies of all PAYE coding notices (P9T) which have been received, as well as every expense or benefit.
  • Business information – your employer PAYE reference number, business structure, number of employees, etc.

Step 5: Notify your stakeholders

Keeping your employees updated about your payroll migration plans will help you to get ahead of any confusion or potential misunderstandings.

It’s more than likely that employees’ new payslips will look different from one provider to the next, which could cause concerns.

We recommend that you communicate the change to staff members to alleviate any concerns or queries.

When is the best time to switch payroll companies?

There is no ‘perfect’ date to switch payroll companies. However, if you can afford to delay switching then it is a good idea to do so around 5 April, the end of the tax year.

Can I change payroll providers mid-year?

Yes. But we don’t recommend it because switching mid-year can lead to miscommunications regarding tax payments and filings. You’ll have to designate year-end tasks to your new payroll company.

Still, if you decide that changing mid-year is the best course for your business then it’s less disruptive to switch at the beginning of a new quarter.

If you are really unable to continue with your current processor for a moment longer, the only requirement is to ensure the switch doesn’t interfere with paying your employees on time.

Remember to ask your new payroll provider what migration admin they will handle. Some offer to manage the transition for you, where others won’t. Assess how this will impact your productivity and workflows. You might find it’s better to wait for year-end.

Why switch payroll providers?

Switching payroll providers is a common process that is usually triggered by a bad experience or loss of value with your current supplier.

This could be due to a number of reasons, the most common of which are:

  • You’ve noticed mistakes made in pay stubs or tax records.
  • You’ve experienced poor communication or customer service
  • You’re confused by your current system and want a more user-friendly option
  • Your payroll supplier’s pricing has become unaffordable
  • You’ve made lots of new hires and need a more powerful system
  • You want access to sophisticated payroll tools, like complex pay schedules
  • Your payroll process is time-consuming, causing staff to be paid late

What should I look for in a payroll company?

When the Startups research team spoke to small businesses about the biggest barriers to adopting a new service or technology into their business, the main obstacles they cited were cost, time, complexity, lack of awareness, and lack of human support.

Cost

Payroll service costs can differ depending on your staff size, making billing difficult to confirm.

On average, fully-managed payroll costs £6 per payslip or £25 per month. Part-managed payroll costs £2.50 per payslip or £12.50 per month.

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Complexity

You shouldn’t need a degree in finance to get to grips with a new payroll process. But some payroll services can feel unnecessarily complicated.

Choosing an easy-to-use payroll system will make setup time much shorter, so you can get started quickly and without delays.

Lack of awareness

Business services is an incredibly complex market to navigate. Conducting thorough research into the top small business payroll suppliers should be your first step when switching, so you’re certain of exactly what you’re looking for.

Most providers will have knowledge bases or help centres online, designed to answer any preliminary questions you may have.

Loss of human support

Mastering a new software is daunting. We recommend you only switch to a source that offers a full range of help and support tools.

This will make the transition much smoother. You’ll be supplied with a knowledgeable sales assistant for help with initial setup, data entry, onboarding, or general support.

Time

Carrying out research into the market, costs, and available features of payroll companies is fine if you have enough time. Of course, if you’re a small business owner, this is the resource you’re most likely to lack.

Our simple cost comparison form is designed to make things easier. Fill in some general details about your needs, and we’ll match you with speedy quotes from the most suitable providers.

Mistakes to avoid when switching your payroll provider

The sheer number of areas that payroll impacts – including taxes, workplace benefits, and your employees’ experiences in general – means that choosing the wrong supplier can have disastrous consequences.

Filing errors could result in fines from HMRC, as well as putting a lot of unneeded stress on your employees.

Because of this, it’s important to be aware of what to avoid or watch out for when switching your provider.

1. Not leaving enough time to plan

One of the biggest mistakes to look out for is lack of planning. 

Not leaving yourself enough time to research providers, or to gather historical data, means you’ll rush into a new company – which can lead to teething problems.

2. Not coordinating with existing software

Another risk factor is integration. Most small businesses already have employee management or data entry processes in place like point-of-sale (POS) systems or general ledgers.

Not considering how your new payroll process will complement these means you risk wasting time and money slotting a new system into place, so it’s best to work this out early on.

3. Not choosing a tax compliant software

Payroll tax compliance rules are constantly changing. Just recently, the Making Tax Digital (MTD) deadline came into place. All tax records and returns now need to be MTD-compliant.

Don’t make the mistake of utilising a payroll provider with a non-tax compliant department. It will make year-end processing near impossible – and could result in hefty fines.

How do I get started with payroll migration?

Now you’ve got a better idea of how to switch payroll suppliers, the next step is to gather and compare quotes from specialists.

To make things easy, we’ve built a free, Startups-exclusive cost comparison form for personalised payroll quotes in one place.

Simply answer a few questions about your business goals – such as whether you’re after payroll software or a third-party service – and we’ll match you with the most suitable source.

And, if you’re short on time, don’t worry: we’ve designed it as a super quick way to compare costs, giving you bespoke recommendations in just one minute. 

Switching payroll providers FAQs
  • What is payroll?
    Simply put, payroll is an administrative business process that ensures all employees are paid accurately and on time. Payroll is essential to any business, which is why most SMEs choose to use a third-party service or software provider to ensure it runs smoothly.
  • What is payroll migration?
    Payroll migration, as the name implies, involves moving all of your existing payroll data to a new service provider or system. It’s most commonly done by a growing business that needs to cope with increased employee numbers.
  • Is it easy to switch payroll companies?
    Because of the many regulations around payroll data, switching payroll companies can take months to complete and should be approached with proper planning and forethought. Firstly, research the payroll market to work out what you’re looking for in a new partner.

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Helena Young
Helena Young Senior Writer

Helena "Len" Young is from Yorkshire and joined Startups in 2021 from a background in B2B communications. She has also previously written for a popular fintech startup.

Included in her topics of interest and expertise are tax legislation, the levelling up agenda, and organisational software including CRM and project management systems. As well as this, she is a big fan of the films of Peter Jackson.

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