Checklist for Changing Payroll Providers in the UK

Payroll-related errors are a significant issue for UK companies, affecting 88% of businesses annually. As a result of these errors and other issues, such as high costs and inadequate support, many UK businesses frequently switch payroll providers.

But before you make the switch, there are several considerations to factor in. This guide serves as a checklist to help you change payroll providers, including useful tips and guidance to ensure a smooth transition.

Why You Might Want To Switch

There are many potential reasons you may want to switch from your current provider to a new one. We explore them below:

• Payroll errors: If you experience frequent tech issues, tax problems, inaccuracies or other payroll errors while using your current payroll provider, it makes sense to change. In addition to wasting a significant amount of time resolving these issues, research indicates that UK businesses incur payroll errors resulting in annual losses of up to £150,000.
• Poor productivity: If your current payroll software is tedious to use because of time-consuming and manual processes, you may want to look for a platform with automation capabilities. Not only will it make your team more efficient and productive, but it may also reduce employee stress. According to a survey of UK employers, 37% of respondents said that manual and time-consuming payroll processes have led to stress within their teams, which has impacted both productivity and morale.
• High costs: A change of scenery may be on the cards if you feel you’re overpaying. The average cost to outsource payroll ranges from £2 to £25 per month, so if you’re near the top end (or even above it), you may be paying too much and could likely find something cheaper.
• Lack of self-service: Many employees desire more transparency and autonomy regarding their personal data, so providing access to payslips or paid time off (PTO) balances may mean opting for a platform that offers this functionality.
• Inadequate support: It makes sense to look for a new company if your current provider offers slow response times or subpar assistance when you need it most.

Best Time To Switch

The best time to switch payroll providers is at the end of the tax year, in April. This is the preferred time as it drastically reduces the amount of data you need to transfer. You won’t have to migrate as many tax records, year-to-date wages or other payroll data, as the new tax year is about to begin.

An April switch essentially lets you start with a clean slate and requires minimal effort compared with switching during the tax year. A mid-year switch is possible, but it generally requires more data transfer and careful attention to ensure all data is migrated properly.

Moreover, to prevent additional work and potential disruptions, avoid switching payroll providers mid-month or near payroll deadlines. Always keep your payroll cycle in mind when deciding when to switch and coordinate with HMRC throughout the change to ensure compliance.

Pre-Switch Audit

Before you switch payroll companies, it’s crucial to do a brief audit of your current situation. This begins by evaluating your current provider. You need to assess performance, support, cost and the features it includes. This will give you a clear picture of what you liked about the software and what you didn’t.

In addition, you also have to review your contract. Consider the notice period, any exit or cancellation fees that may be payable and the process for retrieving your data upon contract termination.

Lastly, engage with stakeholders such as IT, HR and your finance team to identify key pain points they’re experiencing. These may be slow processes, compliance issues, or poor integration and compatibility. You should prioritise choosing a solution that helps to address these issues and offers any extra features your teams require.

Selecting New Providers and Performing Due Diligence

With many potential payroll systems to switch to, it’s important to do your due diligence before choosing. This process begins by determining your needs and what you want from the provider.

One of the first considerations is whether you want to outsource your payroll and have someone else handle it or keep it in-house and manage the entire process yourself. You should also consider whether you need self-service and whether the provider can accommodate the size of your team, the payroll cycles it supports and what it integrates with.

It’s crucial to compare the functions and features of different options before making a decision. Examine its Real Time Information (RTI) compliance, self-service functionality, mobile access, reporting features, accuracy and tax management features.

You may also want to prioritise automation features—businesses using automated payroll systems encounter 70% fewer compliance issues than those that don’t.

Speaking of compliance, verify the compliance credentials of each provider to ensure it integrates with HMRC, complies with the Making Tax Digital initiative and is certified/accredited by the International Organization for Standardization (ISO).

Evaluating the service and support a potential provider offers is also important, and you should look for onboarding assistance, a responsive customer service team and a UK-based helpdesk. Don’t hesitate to check reviews and learn what past customers have to say about different payroll providers.

Lastly, compare the costs of the payroll vendors you’re considering, as well as the pricing transparency each provides. Ensure the company is clear about any setup fees, the cost of moving or exporting data, the price per payslip, and cancellation fees.

Migration Preparation Checklist

As you prepare to migrate to a new provider, there are a few actions to take.

Notify your current provider

You need to alert your current provider about your plans to move to another one. You should discuss the exit terms and how you’re going to extract your data, and also how long you’ll have access to the data post-cancellation. Most providers offer a short period of continued access after cancellation, but always confirm this, so you don’t lose anything.

Gather essential data

Gather and prepare all necessary data before the switch. This includes direct deposit details, historical payroll journals, pensions, statutory payments, start dates and tax codes, as well as P11D and P60 forms. You’ll also want to collect all employee names, salary details and benefit information.

Map data transfer

Ensure you understand how the data will be transferred, whether it’s done manually or via CSV/XML files. Also, discuss whether you’ll have to handle this transfer internally or if the provider takes care of it. After switching, verify successful data transfer by comparing payroll IDs and information between your old provider and your new one to confirm everything aligns.

Test and validate

In addition to confirming that the transferred data is correct, ensure the new provider’s software is working properly. You can test it by running parallel payroll cycles on both your new and old platforms, ensuring consistent results that match. You should also validate each transaction and check the accuracy of all calculations.

Employee communication

To ensure a smooth transition, inform your team about the change and involve them as early as possible. You’ll have to discuss what they need to do, what’s changing and how they can access pay information.

While this may seem obvious to some companies, it’s not as common as you might think. For example, a report found that 29% of UK employees say that change isn’t communicated clearly in their organisation.

A major internal change like this is often difficult for employees to deal with, so make an effort to keep them involved and updated throughout the transition. In fact, research consultancy Gartner indicates that 73% of employees affected by change experience moderate to high levels of stress.

Go-Live Phase

When you go live with the new provider, it’s smart to run payroll using both old and new providers simultaneously to ensure everything is correct.

Beyond that initial validation, it’s also crucial to be extra vigilant during the first few weeks or months of using the new software. You should monitor payslip accuracy, pension and benefits calculations, and RTI submissions, and address any issues as soon as they’re discovered.

Once one or two payment cycles pass and you’re happy with the performance/accuracy of your new provider and have successfully migrated all data, you can close your old account.

Post-Switch Review and Ongoing Optimisation

After switching to a new provider, there will still be a few loose ends to tie up. For example, you’ll want to hold a post-implementation review with key stakeholders, where you’ll go over what’s working well and where there’s room for improvement. This is also a good time to gather feedback about the implementation process in general.

Beyond this review, plan for regular reviews in the future to streamline your processes, address common issues, and be better equipped to take advantage of new and exciting features that the provider introduces or releases.

You should also ensure all employees and stakeholders have proper login information and document access to do their jobs as soon as you switch providers. This helps ensure everyone can begin working normally as quickly as possible.