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4 Things to Know About Payroll Conversions

October 13th, 2023 | 4 min. read

By Kristi Feist

The thought of switching your payroll system or converting your payroll data can be overwhelming. Hitting deadlines and avoiding penalties are  That's a headache many organizations experience, and it's completely understandable. After all, payroll is more than just software.


Payroll ensures your employees are paid accurately and on time. With decades of experience in the field of payroll, Payday HCM knows what’s involved in making such significant changes. 


We're here to guide you through the four basic necessities you must know for a successful payroll conversion. By the end of this article, you'll learn:


  • Why Payroll Conversion Matters
    • Ensuring a Smooth Payroll Conversion
  • Avoiding Payroll Pitfalls
  • FAQs About Payroll Conversion


    1. Why Payroll Conversion Matters to Your Business

Payroll is the backbone of any organization. It's the machine ensuring employees are paid for their hard work. When payroll is accurate, it creates a sense of trust and reliability between the employer and the employees. They know they can count on being paid the right amount at the right time, which in turn boosts morale and productivity.


The importance of accurate payroll goes beyond employee satisfaction. It also has legal implications. Incorrect payroll can lead to complications with tax authorities, and the penalties for such errors can be severe.


When you're considering converting your payroll system, it's not just a matter of convenience or upgrading to a system with more features; it's a matter of legal and ethical responsibility.


Switching to a new payroll system is not without its challenges. One of the biggest risks involved is the potential for errors during the conversion process. These errors can range from minor issues like incorrect employee contact details to major problems like wrong tax calculations or benefit allocations. Mistakes like these can take a toll on your organization in multiple ways.


Errors in payroll conversion can lead to financial losses. Overpayments need to be recovered, and underpayments need to be corrected, both of which are time-consuming and hurt the relationship between employers and employees. 


These errors can also lead to legal compliance issues. Incorrect tax deductions or failing to adhere to state-specific payroll laws can result in penalties or even legal action against your organization. Understanding the risks and taking steps to mitigate them is important for a successful payroll conversion.


    2. Ensuring a Smooth Payroll Conversion

Before you think about hitting the 'convert' button, careful planning is paramount. Start by identifying the specific needs of your organization. Are you looking for a system with better user experience? More features, or one that is more cost-effective? Once you have a clear understanding of your needs, you can begin to research different payroll systems meeting those criteria.


Creating a detailed conversion plan is the next step. This plan should outline what data needs to be transferred, who will be responsible for each task, and a timeline for completion. It's also a good idea to involve key department heads in this planning phase. This includes HR, accounting, and even representatives from the employee base. Their input can provide valuable insights into what features are most important, helping to ensure the new system will meet the organization's needs.


After laying down a solid plan, the next step is testing. Never underestimate the power of a good test run. Start with a small, manageable set of data to convert. This could be as simple as the payroll information for one department or even a single pay period. The goal is to identify any issues before they become bigger problems.


Once the test run is complete, review the results carefully. Check for any discrepancies in the data. This could be incorrect pay rates, missing deductions, or errors in tax calculations. If you find issues, this is the time to correct them. 


It's much easier to fix problems at this stage than after the full conversion has been completed. After successful testing, you can proceed with full-scale implementation but continue to monitor the system closely for any issues that may arise.

    3. Avoiding Payroll Pitfalls

One of the most common mistakes organizations make during payroll conversion is underestimating the time it will take to complete the process. Sadly, payroll conversions are not done in one day. We’ve seen conversions take approximately 6-10 weeks on average.


The planning, testing, and implementation alone is a process. Failing to allocate sufficient time can lead to rushed decisions, skipped testing phases, and ultimately, errors in the converted data.


Timing is everything. Choose a period for the conversion when your organization is less busy, avoiding peak seasons or other critical business cycles. This will allow your team to focus on the conversion without the added pressure of other time-sensitive tasks. Remember, a rushed conversion is a recipe for mistakes, so give yourself ample time to do it right.


Another common pitfall is neglecting compliance requirements. Your payroll must adhere to federal, state, and local tax laws. Different jurisdictions have different rules, and your new payroll system must be capable of accommodating these. For example, if you’re like Payday and has employees in multiple states, your payroll system must be able to handle different state tax rates and regulations.


Ignoring compliance can lead to a number of problems. Legal penalties and damaged reputation to name a few. Before finalizing the conversion, double-check that the new system complies with all relevant laws and regulations. If possible, consult with a legal advisor or a payroll expert to ensure you're not overlooking compliance issues.

    4. Summing Up Payroll Conversion

Payroll conversion is the process of changing from one payroll system to another. This could be due to various reasons such as the need for more features. Maybe it’s better user experience or compliance with new tax laws. 


It's a big process requiring careful execution. But why would an organization decide to go through this potentially complex process? Often, it's to improve efficiency, reduce costs, or better meet the business's and its employees' specific needs.


The conversion process usually involves transferring all existing payroll data to the new system. This includes employee salaries, tax information, benefits, deductions, and more. It aims to ensure a smooth transition from the old system to the new one, limiting disruptions to the regular payroll cycle.


When it comes to doing payroll, there are several factors to consider. These include employee wages, tax deductions, and other benefits like health insurance and retirement contributions. All these elements must be accurately calculated and disbursed on time to maintain employee satisfaction and comply with legal requirements.


Doing payroll is not just about calculations. Record-keeping is a big part of it. Accurate records are essential for audit purposes and for resolving any disputes that may arise. This is another reason why choosing the right payroll system is essential. A good system will not only help you with calculations but will also assist in maintaining accurate and comprehensive records.


Your Next Steps

Let's circle back to where we started: the importance of understanding the world of payroll conversion. It's not just a matter of switching software. it's a process impacting your employees' livelihoods and your organization's compliance with tax laws.


By planning, testing, and being aware of common pitfalls, you can ensure a smooth and successful payroll conversion. The effort you invest now will undoubtedly pay off in the long run, leading to a more efficient and error-free payroll process.


So, whether you're a seasoned HR professional or a business owner taking your first steps into the world of payroll, remember that knowledge is power. Understanding the why, the how, and the what to avoid can make your payroll conversion journey less daunting and more rewarding.

Now that you know the basics of payroll conversions, it is time to learn about two different payroll services and understand your business needs.

Kristi Feist

As a seasoned veteran in the industry and with Payday HCM, Kristi maintains a 1000+ client portfolio with a 98% retention rate. As Vice President of the DSO Division, Kristi works with hundreds of DSO-like companies to adopt best practices around the use of payroll technology, implementing processes and empowering employees of DSOs to use the technology.