7 Factors to Consider if Replacing Payroll System is your Next Move

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Aniruddh Parmar

Senior editor

Parul Saxena

Chief editor

Last updated: April 13, 2021

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Many people are still living with the misconception that payroll is all about cutting employees’ cheques. However, this is not the case. It involves payroll system taxes imposed by state and federal government, managing deductions for specific benefits like Health insurance, pensions etc.

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It becomes even more perplexing if along with full-time employees you have freelancers or contractors working for your business. Plus, the payroll management team also need to take care of bonuses and annual increments.

This is not enough. Suppose, if you are a multinational company than you have some additional factors to consider – taxes, payments and labor laws for International Employees.

Too much to handle…!!!

Your business is growing big, the employee number is increasing and your current payroll software for small business is not able to handle it. One of the important decision you should make this year is replacing your payroll system with a new one. However, this is not as simple as it sounds and various factors should be considered before you shift your payroll to an entirely new System.

Points to Consider when Replacing a Payroll System

1. Timing is everything

The transition of the payroll software during the year-end or quarter end is considered to be the most advantageous.

If you start with a new system at the beginning of a financial year all you need to do is simply import the historical data of the previous year and begin the new year with a zero balance in the system.

Switching of software at the beginning of a new quarter is the second option to consider but it comes with few disadvantages. Replacing your payroll system with a new quarter means you still have to convert calendar year information in regard to employee earnings, deductions.

Any mistakes encountered during the converting process can cause huge blunder as this will severely affect W-2 reporting, earnings, deductions and especially employee tax liability data. When you are implementing a new system make sure the quarter end dates are correct else the quarterly reports will be inaccurate.

However, these two periods are not mandatory, if it makes sense for your company to do it at different times you are good to go. Just make sure you contact your vendor to know about prerequisites or any other thing that should be kept in mind.

2. Have your own in-house evaluation team

Form an evaluation team that will have members from every department of your company who is also a stakeholder in the payroll process. When you have a perfect team with representatives from HR, IT, accounting and executive you will be more confident on when is the right time to replace the payroll software for a small business and implement a new payroll software which will help the flourishing business.

3. Check for hardware requirements

Does your IT department need to purchase any additional tools to support an in-house software solution or you already have the required Operating Software and hardware in place. This is a very important area that you should consider when planning for a transition to the payroll system.

4. Data transfer and conversion

The next question now is how data from an already existing payroll software will be entered into the new system? Manually entries will obviously consume a lot of time and are sure to create a lot of errors.

The most convenient option can be if the payroll vendor provides an easily customizable link to transfer data from one system to another. Verify that the data transferred is correct. You can do this by running the same kind of reports on both the systems and compare the results for any discrepancies.

5. Sufficient manpower

You will definitely need someone who will do all the set-up and installations procedures for you. Will the vendor provide you with these services? Will you need a reseller? Is anyone from your team is capable enough to carry out these implementations?

Don’t compromise on the amount of time and resources you will be required for the successful transition to the new system. There can be a situation where you may require a new temporary employee who will do all the data entry work. Your employees will also have to stretch their working hours to analyze the reports generated from both systems.

6. Stability of your vendor

For any company, payroll process is one its most important and transparent asset. There is no room for error else it will affect the employee’s salary which will affect the overall reputation of the company. Choose a vendor which has a good history of providing ideal payroll products.

Some of the factors you can consider for evaluating a software vendor is the period for which it has been in this business and the total number of clients it has offered the payroll software in the past and their client’s reputation in the market.

You can also visit the same vendor from whom you bought the payroll software for small business.Other factors that you can consider for determining whether the product will be a good fit for your organization or not is the type of industries and their business size they serve. All these factors will help you decide the quality of product offered by the vendor.

7. Compliance with federal laws

When you are changing your payroll software don’t forget to make sure that the new one is in compliance with state and federal laws. Choose a software that can easily show you when your employees are on break, how much are they making per hour and when are they working overtime and are they paid sufficiently for that.

Bottom Line

Make sure you get your new payroll software installed effectively. Even a small error can cause bitterness in your relationship with your employees and internal process might suffer a big setback. Invest a lot of your time in testing your payroll technology to find out errors and get it fixed in the initial stages itself. Once you have filled out with all the gaps your payroll is formally ready to kick-start your business.

Related Article: 7 Smart Reasons for Your Payroll Clients to Use Time Clocks

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Aniruddh is Blogger and Digital Marketing Specialist at SoftwareSuggest. Ready to grab a cup of coffee anytime if you want to talk about tech, cars, businesses or cricket.

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