Migrating Payroll Data: An Employer's Guide To Switching Providers

You’ve made the decision to consider switching your third-party payroll provider to a partner that will provide greater accuracy, efficiency, and smart, cloud-based software. But you may be wondering what happens to your payroll data when you change vendors. That’s a natural concern, because you’ll need access to the data for historical data as well as current year employee information, quarterly returns and totals, and annual reports (W-2s).

So what information should you preserve – and how?

At Complete Payroll Solutions, we do thousands of payroll system transfers every year. We know what’s involved when you change providers, including what happens when migrating payroll data. To help you understand the process, we’ll review:

• What information do I need to switch payroll providers
• How do I migrate payroll data
• How long does it take to transition my payroll data
• What payroll data will be available to me with my new vendor

After reading this article, you’ll understand how to best preserve your payroll data when switching providers for greater convenience and compliance.

What information do I need to switch payroll providers?

When you change payroll providers, generally, you’ll need to provide basic information to get started with the new vendor. That information can include:

• Your business information, including legal name, federal and state IDs, address as well as your business structure
• Banking information to draft live checks or direct deposits 
• Past tax returns and forms that have been filed
• Your employees’ personal information, W-4 details, and direct deposit information

You’ll want to find out what kind of support your new provider offers during implementation in case you have any questions or need help when providing this data. In most instances, the new company can provide you with a template so you know exactly what data will be needed and when. Either way, it’s important that you be involved in extracting and reviewing that data both before and after it’s transferred to your new system.

How do I migrate payroll data?

After you’ve provided the basic information and begun the process of switching to your new vendor, you’ll want to make sure they have access to all your payroll history as well as any changes you may be making during the process. Typically, you’ll need the following but be sure to ask questions if you are unsure of what payroll information is needed:

• Employee data for current and terminated employees during the year (those who need a W-2)
• Payroll reports, unmasked, that include tax totals, ID numbers, tax rates, etc.
• Pay history with details, including total hours, earnings by type (overtime, bonus, salary), deductions by type (retirement, medical), taxes by type, and any employer paid items by type.

To migrate your payroll data from one platform to another, gone are the days of slow, error-prone manual entry. Instead, in most cases, transferring this information from your current provider is seamless since most platforms today are cloud-based and plug and play.

As a result, you’ll likely have the option to give your new provider permission to access your data through the cloud. If not and you need to download it, they’ll probably ask for it in a format and organization that makes it easy to upload into their own software. You’ll just want to make sure it goes to the new provider securely. Any data breach is bad, but a payroll data breach could be catastrophic for you and your employees. Some providers use secure emails or secure folders for depositing files and secure file drop boxes. Either way, the information should never be faxed or emailed insecurely.

After you’ve transitioned your data, you’ll want to review the information for any import errors. It’s also a good idea to keep a running list of any changes you made to your current employees from the time you pull the data until you are trained on the new platform. This step ensures all updates are made so that the systems mirror each other prior to your first processes on the new platform.

How long does it take to transition my payroll data?

With cloud-technology, the time required to migrate your historical payroll data is fairly minimal. Depending on the platform you use, it could range from a matter of days to several weeks. 

However, since data is just one piece of what’s required when changing payroll providers, you should plan on enough lead time with your new vendor to make sure you can meet your desired switch date.

If you’re a smaller company, it may take as little as a few days to complete your implementation. For larger businesses, it could take weeks or even months to get your payroll set up. While cloud technology makes the transition easier, in general, the best times to change are still at the end of the year or the end of the quarter since payroll requires that you file tax forms with various agencies quarterly and annually. Transitioning during these times will help eliminate confusion and issues with filing and paying taxes.

What data will be available to me with my new vendor?

When you migrate your payroll data to your new payroll provider, you’ll likely have some choices when it comes to the data you move.

1. If you’re switching payroll providers mid-year, you can bring in all your payroll history for the current calendar year by employee. Depending on your circumstances, that data will be loaded quarter by quarter or check date by check date. Either way, the employee’s year-to-date (YTD) totals should be the same from system to system. 
2. If you are switching at the beginning of a year, moving the prior year’s data is your choice. However, the employee data entered for a clear year start should still mirror your prior system. Often you can contact your previous payroll provider for additional access or to possibly migrate your data to cloud-based storage for future reference. You should note that some companies may increase the implementation fees to load in the prior year’s totals.

What’s important to know as an employer is that you’re required to keep records that were used to calculate pay such as hours worked, total wages per pay period, date of payment, payment basis, and additions to or reductions from wages for at least 3 years for compliance with the Fair Labor Standards Act. In addition, the IRS requires you to keep payroll records related to employment taxes for at last 4 years. And some states have longer requirements.

The Best Way to Protect Payroll Data When Switching Providers

When you decide to switch payroll providers, you’ll want to make sure everything goes as smoothly as possible. And that includes migrating your payroll data from your old system. To ease your mind, you’ll want to make sure your new payroll provider lays out the steps needed for a successful payroll data transfer.

At Complete Payroll Solutions, typically, we start by finding out what your needs are, then together we’ll make a plan to extract the data from your legacy system. For current year data, we’ll typically move the information as part of our standard implementation. For historical data, we usually recommend waiting to transfer the information until your setup is complete. In some cases, the historical data may not be moved to the new platform at all but, instead held in cloud or drive storage until it’s needed. Each vendor may have a slightly different approach so it’s important to ask about data transfers in the sales process.

If you’re considering switching payroll vendors, read our next article on what else is involved when making the leap.