Switching payroll provider – A detailed guide to changing payroll companies

Are you thinking of switching payroll provider? Payroll is one of the most crucial aspects of running a business. It not only ensures that employees are paid correctly and on time but also plays an integral role in maintaining compliance with various legal and tax obligations.


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However, as your business evolves, you may find that your current payroll system is no longer meeting your needs. Whether due to poor customer service, lack of features, or high costs, the need to switch payroll providers may arise.

In this comprehensive guide, we will delve into the pros and cons of changing your payroll provider, offer a practical checklist for the transition and provide a how-to section for making the switch. Additionally, we will discuss the ideal time to make this significant change.

Pros and cons of switching payroll provider


  1. Enhanced features: Modern payroll providers offer a plethora of features like integrated HR software, time-tracking, and robust reporting tools.
  2. Cost savings: Some providers offer competitive pricing models that can save you money in the long term. See our guide to payroll outsourcing costs.
  3. Improved compliance: Newer systems are often updated more frequently with the latest tax codes and compliance rules.
  4. Better user experience: A more intuitive interface can make the payroll process faster and less prone to errors.
  5. Increased efficiency: Many new-age payroll services offer automation features, which can free up time for other business tasks.


  1. Transitioning costs: There may be initial costs for switching, including time, resources and sometimes monetary charges.
  2. Learning curve: Your staff will need to learn how to use the new system, which can take time and lead to mistakes during the transition period.
  3. Data migration risks: The transfer of data from your old provider to the new one can sometimes result in errors or data loss.
  4. Contractual obligations: Some providers have strict contracts that could result in penalties for early termination.
  5. Unforeseen glitches: No system is perfect; a new provider might also have its own set of issues that only become apparent once you’ve made the switch.

Checklist for switching payroll companies

  • Conduct a needs assessment: Define what you are looking for in a new payroll provider.
  • Budget analysis: Know how much you are willing to spend.
  • Research and compare providers: Take time to read reviews, ask for recommendations and perhaps take a few systems for a test drive. See our payroll costs comparison tool.
  • Check for compliance: Ensure the new system adheres to UK regulations and tax laws.
  • Negotiate contract terms: Read the fine print carefully and don’t hesitate to negotiate.
  • Plan the transition: Decide on timelines, allocate resources and set deadlines.
  • Data backup: Before the migration begins, backup all existing payroll data.
  • Run parallel payrolls: For at least one cycle, run your old and new systems simultaneously to check for discrepancies.
  • Train your team: Conduct training sessions and create guidelines for using the new system.
  • Review: After successfully running a few payroll cycles, assess the performance of the new system.

How to make the switch

How to switch payroll providers

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  1. Select the new provider

    Once you’ve done your research, select your new provider and inform your current one of your intent to switch.

  2. Review current contract

    Check your obligations and notice periods with your existing provider.

  3. Data migration

    Coordinate with your new provider to transfer data. Some providers offer this as a free service.

  4. System setup

    Configure the settings in your new system, including pay schedules, employee data, and other essentials.

  5. Run test payrolls

    This is crucial to ensure everything has been set up correctly.

  6. Go live

    Once you’re satisfied, terminate your contract with your previous provider and fully transition to the new system.

  7. Continuous monitoring

    Keep an eye out for any issues and address them promptly.

What is the best time to switch payroll provider?

The best time for switching payroll provider is usually at the end of a financial quarter or the fiscal year. This minimises complications related to tax filing and reporting. However, if your current system is causing significant issues, it might be worth making the switch mid-year and sooner rather than later.

Common mistakes and pitfalls to avoid

Switching payroll providers can bring numerous benefits to your business, but the process is not without its challenges. Below are some common mistakes and pitfalls you should steer clear of to ensure a smooth transition.

1. Neglecting to read the fine print

Many businesses make the mistake of not thoroughly reading the contract with their new provider. This oversight can lead to unexpected fees, lack of essential features, or unfavourable terms.

2. Failing to back up data

Not backing up your existing payroll data is a risky move. Always ensure you have a secure backup before starting the migration process.

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3. Ignoring compliance

Compliance with UK tax laws and regulations is crucial. Failing to ensure your new provider is compliant can result in fines and legal problems.

4. Inadequate staff training

Underestimating the time and resources needed for staff training can lead to errors and inefficiencies. Make sure your team understands how to use the new system before going live.

5. Poor timing

Switching providers in the middle of a fiscal quarter can make things unnecessarily complicated. The end of a fiscal quarter or year is generally the best time to make the switch.

6. Not running parallel payrolls

Running parallel payrolls for at least one cycle is essential for catching errors or discrepancies between the old and new systems.

7. Overlooking hidden costs

Some providers have costs that aren’t immediately obvious. Always inquire about any potential additional charges that might apply.

8. Failing to communicate

Poor communication with your existing provider, new provider, and even your own team can lead to misunderstandings and errors. Clear, open communication is key throughout the process.

9. Lack of planning

Switching payroll providers is not a task to be done on a whim. Inadequate planning can lead to delays, increased costs, and compliance issues.

10. Assuming all features will migrate

Not all features from your old system may be available in the new one, or they may function differently. Make sure you’re aware of these differences to prevent any unexpected issues.

FAQ for switching payroll companies

Why might a company consider switching payroll providers?

Companies may consider switching for various reasons such as cost-effectiveness, better compliance, improved features, or dissatisfaction with customer service.

Are there penalties for changing providers?

This depends on the contract with your current provider. Some may charge for early termination while others might not.

How long does it usually take to switch providers?

The time needed to switch largely depends on the complexity of your payroll system but generally, it can take anywhere from two weeks to two months.

What is the cost involved in switching?

There may be initial setup fees with the new provider, and some costs associated with data migration and staff training.

Can I switch at any time of the year?

While it’s possible to switch anytime, it’s generally easier to make the transition at the end of a fiscal quarter or year.

Is it complicated to transfer employee data?

This varies by provider but many modern services offer data migration assistance to simplify the process.

How can I ensure compliance when switching?

Choose a provider that guarantees compliance with UK laws and regulations and offers regular updates for tax codes.

Will the new system integrate with my current accounting software?

Most modern payroll systems offer integrations with popular accounting software. Check this in advance to ensure compatibility.

What is a parallel run and is it necessary?

A parallel run involves operating your old and new payroll systems simultaneously for at least one payroll cycle to spot any discrepancies. It is highly recommended.

How do I train my team on the new system?

Many providers offer training as part of their package. You can also create your own internal guides and conduct workshops.

What are the risks involved in switching?

Data loss, a steep learning curve, and system glitches are some of the potential risks involved.

Can I customise the new system according to my needs?

Many modern payroll systems offer a level of customisation. Check with your chosen provider for specific details.

How do I handle pensions and other benefits during the switch?

Coordinate with your new provider to ensure that pension schemes and other benefits are correctly migrated and set up in the new system.

What should I do if I encounter problems after the switch?

Contact customer support for your new provider and also consult any online resources or guides they may have.

Is customer support important when choosing a new provider?

Absolutely. Good customer support can make the transition smoother and help you quickly resolve any issues that arise.

How secure is the data when switching providers?

Check that your new provider has strong data encryption and security policies in place to protect sensitive information.

Will switching affect my employees?

If done correctly, your employees should experience minimal disruptions, although they will need to acquaint themselves with the new system.

Do I need to inform HMRC when switching?

You generally don’t need to notify HMRC, but you do need to ensure the new system is compliant with UK tax laws.

Can I negotiate terms with the new provider?

Yes, you often can. It’s always a good idea to read the fine print and discuss terms that could be more favourable for your business.

Are there any hidden costs I should be aware of?

Some providers might have fees that are not upfront. Make sure you inquire about any hidden or additional costs before making the switch.

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