Executive Summary:
- Small businesses using basic payroll providers tend to struggle with a lack of integration, consistent payroll errors, and meeting compliance requirements.
- Employee workforce growth, worker satisfaction dropping, and excess time spent on manual input are all signs that your business needs to switch to a full-service provider.
- When choosing a new provider, determine the areas where you need the most help to ensure the best scaling results.
Imagine: it’s the dead of night and the glow of your computer screen is the only light in the room. You’ve been researching your city compliance codes for hours and still you’re worried that you’re missing some. For days, you’ve been screening emails with questions about pay slips and over time, and now you’re discovering miscalculations on a payrun that got sent out last week. Somehow, you need this mountain to become a molehill, but you are struggling to find time and answers, your only help being a QuickBooks spreadsheet and Reddit forum. The stress is crushing.
Doing your payroll shouldn’t feel like cramming before a final exam; it should be easy and streamlined so you can focus your attention on the bigger picture of continuing to grow your business. At Payday HCM, we are very familiar with how seemingly doable tasks can quickly become all consuming endeavors. Our dedicated team of professionals is eager to take on your payroll management, guaranteeing accurate, timely, and compliant results.
But, if you’re still unsure if it’s really time to switch payroll providers, we have you covered. In this article we will go through:
- Concrete signs that you have outgrown your current platform,
- Next steps for switching to a full-service provider, and
- Frequently asked questions
Soon enough, payroll errors and vague reports will be a thing of your past.
Concrete Signs That You Have Outgrown Your Current Platform
First, we are going to outline some common payroll challenges faced by small businesses so you can get a better understanding of your current position. Identifying areas where your current software is lacking can also act as a guide when looking at more integrated systems.
Employee Headcount Increase
For businesses just starting out, those with 10 employees or less, having a single-use payroll platform aligns perfectly with the small scale. These intimate workspaces make it easy for owners or managers to handle processing on their own, with little in the way of compliance and relatively simplistic onboarding.
If, however, your workforce is closer to 20 people, it may be time to consider a change. The threshold for more substantial compliance documentation and employment law - specifically the Americans with Disabilities Act (ADA) and Family and Medical Leave Act (FMLA) - sits between 15 and 25 employees. This means meeting certain handbook requirements and fulfilling mandatory postings, which can be a lot for any one person to handle, especially someone who isn’t trained in the specifics of compliance law.
Beyond this, a larger work force means more payrolls to process, more complex pay types to track, more benefits to consider, and more of your time spent on the task. What seems like a headache at 10 employees will be a full fledged migraine at 20.
Onboarding and Midcycle Changes Fall Through the Cracks
As your business grows, so does your workforce. With additional employees comes extra paperwork. From I-9 verification to benefits enrollment to W-2 processing, as well as system setups in payroll, HR, and timekeeping, there is a sea of opportunity for oversight. If you have these operations spread across multiple platforms, or have them handled by multiple people, it is very easy for gaps to appear.
The same can be seen in any midcycle changes; employees getting raises or switching positions internally should be causes of celebration, not paperwork nightmares. In fragmented systems, it is common for one platform to be updated and another to be outdated, resulting in errors that you will have to go through and correct later.
Lack of Integration
As aforementioned, integration is key to having an efficient and accurate payroll experience. It is so important, in fact, that 77% of payroll teams specify their biggest challenge as being a lack of integration.
Although individual systems seem easy to set up and manage initially, the lack of communication between them is a huge detriment to growing businesses. In instances like these, owners and managers need to manually bridge the gap, using both time and energy. It also introduces a much larger margin of error and fails to give a real time analysis of where your business is and where it is heading.
Payroll Errors and Manual Corrections
Consistent payroll errors are an easy to spot sign that you have outgrown your basic provider. Miscalculations in overtime payments and incorrect deductions combined with manual input and human error can result in late pay runs and unhappy employees. Because of this, nearly a quarter of payroll runs contain errors, one third of which take at least two pay cycles to rectify.
In addition to wearing away employee trust, errors requiring manual correction eat big chunks of company time, with 50% of payroll teams reporting 5 or more hours per month spent resolving problems. That is a minimum of 60 hours, almost an entire bi-weekly pay period, spent on fixing mistakes annually. If you are spending even a fraction of this amount of time on payroll error resolution, it may be time to scale up.
Unhappy Employees
For all businesses, big and small, employee well-being should be a top priority. They are the face of your company, working hard to convey your core values and support their team. Unfortunately, though, they are the group who will feel the most negative impact when any payroll errors occur. In a recent survey, nearly 44% of employees reported instances of finding a payroll mistake, and 42% noted these mistakes as frequent occurrences (meaning every month or cycle).
With over half of US workers living paycheck to paycheck, it is ever important to release accurate and timely payroll. 64% of the polled employees expressed feeling significant financial stress as a result of paycheck errors and delays, with 53% saying they would consider leaving their current job if these problems continued.
If your team has been expressing concerns about late payslips or miscalculations, you may want to consider a more holistic provider. Establishing a preventative payroll platform instead of relying on a reactionary one will help bolster company morale and keep your employees engaged in their work.
Compliance Issues
Of all of the challenges we’ll talk about in this article, compliance is by far the largest that small businesses face when it comes to payroll and benefits. Especially when it comes to multi-state payroll and tipped employees, keeping track of all the proper forms and guaranteeing accurate documentation can be quite the feat.
According to a recent FoxHire survey, 78% of polled employers decided to expand their operations into at least one new state in the last year. Despite this push for growth, 50% refused to hire a candidate due to state related compliance concerns, and 48% delayed hiring or expansion for the same reasons. Regardless of how well a potential employee meets your internal requirements, the looming compliance intricacies of their specific state remain daunting.
Even after thorough read throughs and countless hours spent understanding all of the necessary requirements, 88% of small businesses owners still feel tax laws are too complicated to handle their own payroll. Beyond that, a quarter of these businesses have paid fines or penalties associated with multi-state compliance errors in the last two years. When it comes to compliance accuracy, working with a specialized provider can be a big stress relief.
Next Steps for Switching to a Full-Service Provider
If you just read through our list of signs and felt like we were describing your business struggles, or if you already know it’s time to switch payroll providers but don’t know where to start, this section is for you.
What to Look For
Paramount to finding the right full-service provider for your business is identifying your room for improvement areas. Are those consistent payroll errors bogging down your productivity? Try looking for providers who offer automated systems and employee self service portals. Are you worried about employee welfare and feel you could be doing more for them? Consider pairing with a platform that offers substantial benefits packages and who will be able to walk you through every step of the integration process.
If your worries lie primarily with HR concerns and a lack of answers for employee questions, signing on with a provider like Payday HCM who have a dedicated HR team and quick response times. Finding a group who will go above and beyond for you will give you the peace of mind to step away from payroll processes and focus your attention on other important tasks.
Going National or Staying Local
When picking your provider, there is no right answer, only finding the platform best suited for your needs. For growing businesses wanting automation and reputable services, a national company may be the best fit. But for those who need to know the ins and outs of their specific state compliance laws and want around the clock service, a local union may be best.
Remember, don’t be afraid to ask your potential providers questions to make sure they will have all aspects of your business covered. The bottom line is finding a platform that will scale up with you instead of holding you at your starting point.
Frequently Asked Questions (FAQs)
What should I expect during a payroll conversion?
A payroll conversion is the process of moving your payroll data and processes from one provider to another. It typically involves gathering historical payroll data, setting up your employee and company information in the new system, and transitioning to live processing. A smooth conversion requires careful planning, clear communication with your current provider to retrieve all necessary data, and close collaboration with your new provider's implementation team. Following the conversion, allow your team a brief period of training to ensure everyone learns the new system and processes, and familiarizes themselves with the changes.
How do full-service providers handle changes in benefits regulation and compliance?
Your full-service HCM will work to continuously monitor changes in legislation and regulations, ensuring that your benefits package remains compliant and up-to-date, thereby protecting your company and employees. Especially here at Payday HCM, we keep a close eye on your account, performing audits and spot-checks to ensure your business is remaining in compliance with any new or updated regulations and employee-count milestones.
When is the best time to switch payroll providers?
Many businesses assume January 1st is the only time to switch payroll providers, but that is a myth. While switching at the start of a new year simplifies year-end reporting, mid-year conversions are entirely possible and sometimes preferable — especially if your current provider is causing ongoing issues. The key is thorough planning: ensure all year-to-date payroll data is transferred accurately so W-2s and tax filings remain correct. Working with an experienced provider who has handled many mid-year conversions can make the process seamless.
Taking Control of Your Payroll Landscape
Deciding to outsource payroll for the first time is a big step for any growing business. After months of manual input, compliance cram sessions, and threats of inaccuracy hiding behind every corner, putting an end to the stress can seem impossible. At Payday HCM, we are committed to finding solutions and providing answers; whether you choose to pair with us or decide on another provider, we want you to feel confident in all of your business decisions.
Outsourcing and integrating can sometimes feel like giving control away, or like letting an outsider into the inner workings of your business. In reality it is a way for you to seize command of your operations, to build a larger community of workers dedicated to your business growth, and to establish a solid infrastructure so you can be secure when facing new challenges. If you’re feeling convinced that now is the time to switch payroll providers, check out our other articles for tips on easy conversion and things to look for when combining payroll and benefits.
Topics: