A matter of timing

Making the switch to a new payroll provider can be overwhelming. There are a million and one details to consider. When it comes to making the best decision for the business and, of course, employees, you will want to ensure the transition is as simple and seamless as possible.

Before making the switch, there are many things to consider:

•What are your goals: Why do you want to make a change? What items or processes need to be implemented or improved?

•Functionalities: What items do you wish to streamline? Do you need better reporting options?

•What services are important? For example, online capabilities (such as pay statements or T4s), data protection or data access? How much will be outsourced; how much will be retained in-house?

•Which software products will be needed? Will you purchase software or use a provider’s software? What are the related licensing costs?

•What is the budget, are there restrictions that need to be considered?

•What are the ramifications throughout the business, both positive or negative?

•Who will project manage the transition? Which key individuals need to be involved?

•Who is going to gather all the necessary information (such as employee personal details, tax information or historical data) and when?

•What payroll rules need to be implemented? What pay codes are needed and what are their applicable rules? Don’t forget to consider rules specific to different provinces, groups of employees, such as hourly versus salaried staff, or union employees.

•Who will be processing and handling other employer payroll taxes such as workers’ compensation or employer health tax?

•What are your specific needs relating to time and attendance? Is there a system in place that you wish to continue using or do you need a different or better solution? How will it be rolled out to existing staff? For larger groups, consider a phased rollout.

•What is the notification period required by the existing payroll service provider? What are the processes for “off-boarding”?

•How will parallel testing be managed to ensure a smooth transition?

•How will the training and rollout of the new system be managed?

Another big consideration is when to actually make the change. One popular date is to pick Jan. 1. Alternatively, you might want to pick another prominent date in the year such as the fiscal year-end or the beginning or end of a quarter.

In making a transition using a Jan. 1 date, there are some factors to consider:

•This date is easier for employees to understand.

•It can be cleaner and simpler.

•Year-to-date employee and employer payroll source deductions don’t need to be carried over to the new provider.

•Current year earnings, deductions and benefits values don’t need to be considered by the new provider for T4/RL1 purposes which, in turn, means less work to prepare data.

However, if an employer’s fiscal year-end also coincides with Dec. 31, key people at the organization, such as accounting staff, may already have a heavy workload at this time. Many internal employees may have scheduled vacation time around the Christmas and new year period, so resources may be stretched and they might not be able to assist with the transition and data preparation required.

If a company’s fiscal year-end occurs on a date other than Jan. 1, this can be an option to consider for the change. This transition time tends to be preferred by accountants; in general, accountants like to make major vendor service changes at these dates due to the impact on established budgets. However, depending on the complexity of the business, it might make sense to choose another date option such as the beginning of a new quarter.

One thing to make clear is what the effective date of the change will be, and it is important to consider the different dates, pay period start date, pay period end date and paycheque date. It’s also recommended to provide very specific information to employees, including the pay period start/end/cheque dates for the last pay under the previous provider, and the pay period start/end/cheque dates for the new provider, so there is no ambiguity.

One of the biggest advantages to a mid-year transition is there will be time to make adjustments or amendments to employees’ pay, automated calculations or processes prior to year-end reporting.

By splitting the different payroll functions into manageable portions throughout a year, especially for more complicated payrolls, a phased approach can also be an option. An employer may not need to change all aspects of payroll at exactly the same time.

It is important when planning the transition to give consideration to structuring the change in stages. For example, split the functions into five phases: data collection/human resources information system (HRIS), parallel testing, time and attendance, rollout, and reporting.

And once you have implemented a new provider, it’s important to schedule a followup meeting to ensure your goals have been achieved and to discuss what, if anything, in the process needs to be tweaked or changed.

Deborah Boksteyn is the corporate services director and Ashley Unger is the payroll team lead at PEO Canada in Calgary, which provides comprehensive payroll, benefits and HR services to employers across Canada. For more information, visit www.peocanada.com.