Changing Payroll Systems: Five Lessons Learned
They say hindsight is 2020 and nothing could be truer when it comes to the process of a payroll system change. This past year I had the opportunity to facilitate the selection process for a new payroll system. For those of you who have embarked on such a perilous mission, I applaud you and admire your stamina! For those of you have not explored this brand-new world, I am sharing five important lessons I learned through the process that will hopefully save you time and headaches along your journey.
I began my payroll system change process with research. I made it a point to read every review, to reach out to colleagues to learn from their experiences, and to better understand the range of payroll providers and payroll systems on the market. In seeking the best payroll system to fit my organization’s evolving needs, I left no stone unturned. The payroll system selected had to do double duty to fully integrate with a new accounting system and function as the human resource hub for benefits, PTO accruals, and staff onboarding. Is that asking a lot from a payroll system? Yes, it is, and rightfully so.
After a thorough self-education regarding payroll providers and systems available, I concluded that most of the common payroll systems available are similarly capable of executing basic payroll functions. You may now be asking, “If the payroll system I choose is not hugely critical, what is?” I have learned through the ups and downs of this process that a successful setup and implementation sequence is what makes all the difference.
Any payroll system setup can go south without turning enough attention and resources towards it. No matter if you are a small, large, or mid-sized organization, successfully launching a new payroll solution requires a clear and detailed plan. Create a roadmap to ensure that by the final go-live date the system will be working at full capacity. Use these five takeaways to guide your payroll system implementation. You owe it to yourself and your HR department to plan as thoughtfully as possible.
Lesson 1: Timing – Initiate the new system with the first payroll in January
I learned the hard way not to transition payroll systems mid-year, or worse, mid-quarter. Timing your go-live date with the regular payroll filing schedule will help stave off mistakes on quarterly payroll tax filings (and subsequent amended filings to correct them). Starting at the beginning of a tax period will also streamline the yearend W2 reporting process. It is easy to forget just how much filing goes into proper processing of payroll. As someone who has had to file quarterly payroll tax reports and W2s manually, calculating salary data for each employee from two separate sets of payroll data, I can tell you this is not how you want your transition to start. Initiating the new system in January will seamlessly align all filing timelines within the new payroll system. You will appreciate having the full reporting year intact to file reports accurately.
Starting with the first payroll in January sets a clear understanding of which payroll provider (the new versus the former) will file the necessary payroll compliance documents at yearend. If making the transition in January truly is not possible, then be sure that your new system will allow you to import data retroactively. You will want to bring over accurate payroll data for those pay periods you miss by starting later in the year.
Lesson 2: Responsibility – Outline responsibilities of the old and new providers before implementation
The next lesson learned is to clearly define the responsibilities of the new and old payroll providers – to outline the roles and duties each provider will play during the transition process. The key is to do this before the implementation process begins. I have been promised the world by payroll providers during the sales phase. “Will your team set-up wage garnishments?” “Of course.” “Can the system track and distribute 401k contributions and file the corresponding 5500 filings, or is that extra?” “Absolutely!” Remember that a salesperson will generally be less familiar with the ins and outs of payroll compliance and may be quick to say “Yes, of course we can do that!” to everything. You will want to be sure all of these promises can and will be carried out. If possible, ask to speak with the leader of your incoming provider’s implementation team to confirm the capabilities before agreeing to the contract.
Lesson 3: Accountability – Get everything in writing.
Raised in a family of lawyers, I was always told that a verbal contract is only as good as the paper it is written on. Verbal agreements can be forgotten or misunderstood, so having documentation that clearly outlines responsibilities and expectations will avoid confusion throughout the implementation process. Having a tangible document will make an excellent “go-to” reference when trying to settle disputes, and more importantly, can act as an implementation checklist during the setup process.
Most payroll providers assign multiple people to an implementation team, depending on the various modules selected. I have run into a situation where the payroll team did not coordinate with the benefits team, and this led to inaccurate employee deductions for health and dental benefits. While having experts on the implementation team who focus on specific portions of the payroll process may be effective, these groups will have to communicate with each other clearly to ensure payroll accuracy.
Lesson 4: Coordination – Have an in-house designated lead payroll administrator
Early on, designate which member of your staff team is going to coordinate the entire implementation process to ensure proper follow-through. The lead payroll administrator can be the organization’s IT director, the HR manager, or even an outsourced consultant with payroll implementation experience. The idea is to identify someone to better guide and manage the process from start to finish. As payroll implementations have several steps along the way, from uploading prior employee data to configuring the employee interface, having a designated point-person to oversee the various pieces will help coordination on multiple levels.
I have worked with quite a few small nonprofit organizations that did not have the staffing capacity to take on this responsibility. If that rings true for your organization, do not be afraid to outsource! Getting the new payroll system set up the right way from the start will save time and headache for your staff down the line once the system is in use.
Lesson 5: Expectation – No payroll provider will be perfect
As you go through this change process, keep in mind that no payroll provider will be perfect. Inevitably, there will be bumps along the way and unforeseen changes that arise out of necessity. What separates the good payroll providers from the bad is how quickly they take responsibility for mistakes made, and how quickly they work to correct them.
Of course, the best way to meet your own expectations for this transition is to apply the lessons shared above – time your implementation with the tax year, clearly define who is responsible for what and capture those agreements in writing, and identify a lead person to manage the transition.
Navigating a payroll system change is not for the faint of heart. Creating a solid implementation roadmap will put you on your way to a smooth transition. A good plan will help you meet your own expectations.
How we can help
If you are considering whether to make a change in payroll providers and/or systems, please check out these additional resources. CLA teams are available to help with software selection, outsourced payroll services, and payroll and human capital management.
Stacey Johnson has been a member of the CLA team since 2018 and assists nonprofit executive leadership in advancing the vision, mission and financial goals of their organizations. Stacey is an accomplished and motivated self-starter with over 15 years of finance, accounting, operations and grant management experience. She is a UCSB graduate who studied Business Economics with an emphasis in accounting and has a minor in art history.
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