Five things to consider when changing payroll provider

With a little under four months to go until the start of the new tax year, many businesses may be thinking about whether or not they should change payroll providers. 

There are a lot of things to consider, not least whether or not a payroll provider is HMRC- recognised.   

We at PayFit appreciate that this can be a stressful and challenging process with little margin for error. After all, changing payroll provider is a long-term business decision that impacts everyone on your company’s payroll.

This is why we’ve written this short article explaining five things you may wish to consider before deciding whether or not to make the change. 

❶ How long will it take?

There’s not really a set time period for changing payroll providers. 

Modern technology, such as PayFit’s payroll solution, can enable companies to move from one payroll provider to another relatively seamlessly. 

Nevertheless, there are certain things you may wish to consider before switching, such as when you will actually be looking to change.

This is an important question to answer as the time of the year you switch can affect how long the process takes. 

For example, switching at the beginning of a tax year — in the UK the tax year runs from April to March — can be a real time-saver. 

This is because you would be starting your financial year and, as a result, would not have to migrate a significant amount of data from one provider to another. 

However, if you are looking to switch in the middle of a financial year, you should certainly not be deterred. 

As is often the case with these sorts of things, if you’re organised and have diligently kept your records up to date, the transition can still be straightforward. Most payroll software allows you to extract your existing data so that it can be loaded to your new software.

❷ Should I run a parallel payroll?

When you first consider changing providers, it is quite likely that you will want to test the new system against your current one. 

This process is called parallel payroll and it is also a great way of ensuring that you are confident with how to use the new software and that it meets all your needs. 

However, and this may sound a little hypocritical, if you’re moving to a new and modern payroll system, a parallel payroll run is probably not needed. 

This is because a lot of the more sophisticated payroll solutions out there offer payroll in real-time. This essentially means that once data is entered into the system, the results are available straight away — e.g. data affecting payroll is entered and the results are available instantly. 

This has a couple of advantages for businesses looking to transition to a new provider quickly. 

First, payroll departments don’t have to spend a considerable amount of time processing two different payrolls and, second, any discrepancies or potential problems are spotted straight away.

Under a typical parallel payroll run, those who manage the payroll process have to run payroll twice. This means that their workload could, in theory, double and eat into other projects or tasks that they may be working on.

So, when choosing your next payroll provider, you may wish to consider whether a parallel payroll run is actually the best solution for you and the best use of time for your payroll department. 

Instead, modern payroll solutions, such as PayFit’s software, negate the need for parallel payroll by updating any payroll changes in real-time.

Furthermore, our Customer Support team, along with our professionally trained payroll experts, remain on hand to support you throughout the transition from your previous provider to our solution.

❸ What will happen with all my data? 

While we have already touched on data, you must understand how your existing software or payroll solution can support you when transitioning to a new provider. 

When you move to a new software provider, particularly during the middle of a tax year, you will need to make sure that the data you hold is accurate and that everyone’s year to date (YTD) figures are up to date. This means ensuring that the individual payroll identifiers for each of your employees match the information that HMRC holds. 

Generally, companies will provide each of their employees with their own payroll ID number. This identifier is provided by either the payroll administrator or the payroll software that you are using. However, there is often an extra element that can complicate proceedings — particularly when transitioning from one payroll provider to another. 

Some payroll solutions actually provide an additional ID number that is used to identify employees when the information is submitted to HMRC. This additional ID is what is used by HMRC to match your employees’ payroll records to HMRC's for each pay period.

If this process is the one employed by your current payroll provider, problems can arise when looking to migrate data. 

If the payroll ID assigned to an employee differs from the one submitted to HMRC, then HMRC’s systems may believe that there are more employees than there actually are and, as a result, create duplicate records and increased PAYE liabilities.

So, if you know that separate identifiers have been used in the past, it is best to collate them all together and make sure that they are all included under your first payroll with your new provider. 

If this is not possible, the problem can still be resolved by checking with HMRC after the first submission and making sure that there aren’t any discrepancies in the data. 

Should there be, you would still be able to notify HMRC about the problems and inform them that you have changed provider so that they can then amend their records. 

❹ Do all payroll providers do the same thing?

Ever heard of the phrase ‘horses for courses'? 

We thought so!

Anyway, it is important to remind yourself that not all payroll providers do exactly the same thing. 

By this, we mean that certain businesses will require a specific type of payroll solution and it is vitally important that you do the relevant research before making any final decision.

For example, if you’re a small business owner, you may not require the same type of service as a company with thousands of employees. 

But this doesn’t mean to say that your needs are any less great than theirs. 

All businesses need to make sure that the provider they choose is able to adequately support them with their payroll run, while also ensuring that the process is an easy and manageable one that allows them to meet all of their legal obligations.

This is where areas such as compliance come into play. 

Not all payroll software automatically identifies whether there are errors in a payroll run. For example, if you accidentally input an hourly wage below the National Minimum Wage (NMW) threshold, then you would be underpaying your employee and, perhaps most importantly, breaking the law. 

Good software will help identify if any errors have been made that may affect payroll compliance and help you avoid these pitfalls in the future. 

❺ Do I need to consider any changes in legislation?

Payroll is a complex subject. With different tax brackets, contract types, P11Ds, P60s and numerous other elements, it’s fair to say that the payroll administrator’s job is one few are hankering for. 

When it comes to payroll, legislation is introduced and changed regularly and keeping on top of it is a job in itself!

Nevertheless, there is some good news out there. 

Most payroll software can help support all basic payroll processes and calculation elements. Many are also able to assist with complex legislation such as IR35 regulations or automated furlough calculations.

Final thoughts

Before you move providers, identify just how complex your payroll could be and how much of the legislative burden can be absorbed by your software provider.

Suppose you are inexperienced when it comes to understanding payroll regulations or don’t have the time required to stay on top of things yourself.

In that case, it is probably best to avoid software that either doesn’t provide you with the right support or doesn’t automatically update to meet all of the relevant criteria needed to run a successful and compliant payroll. 

Interested in finding out more about PayFit? Why not book a demo with one of our product specialists today?