Switching Payroll Companies: A Complete Checklist

For some small business owners, switching payroll companies can seem like the ultimate administrative nightmare. There’s data that needs to be transferred, accounts to set up, and a whole new software to learn. Uhg.

We get it. Switching payroll companies isn’t exactly fun, but it can be easier than you think. The key to a smooth transition is all about preparation. If you take the time to prepare for the switch well in advance, there will be less risk of error and fewer headaches on your end.

To help you make the leap from a less-than-perfect software to your dream payroll provider, we’ve put together a handy overview. There’s even a mini checklist at the end, so you can check off each step as you go.

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Step 1: Review Your Current Contract

Not all relationships are meant to last forever and if you’ve found a payroll provider that’s better suited to your needs, it may be time to “break up” with your current provider. But before you pick up the phone, take some time to review your contract with your current provider and note any important cancelation terms or restrictions. For instance, there may be cancelation fees or restrictions on how long you can access your data for after disengagement. It’s important to know these details before you cancel your subscription because it may change the timing of your cancellation, or you may change your mind about cancellation entirely.

It’s also important to keep in mind that some company contracts require customers to give at least 30-days notice prior to cancelation. Though many cloud-based providers will allow you to cancel right away, it doesn't hurt to give yourself a buffer period to ensure that no payrolls are missed in the process of switching payroll companies. Of course, the best way to avoid any administrative headaches is to change payroll vendors at the end of a calendar year. This will ensure that there is less data to migrate over and fewer opportunities for error.

Step 2: Request ROEs for a Change of Provider

When notifying your current provider that you’ll be switching payroll companies, it’s important to request ROEs for a change of provider. A Record of Employment, commonly known as an ROE, is a document that reveals important information about a person’s employment history, including how long they worked and how much they earned with an employer. Most employers know that they must issue an ROE each time an employee quits, is terminated, or experiences any other interruption of earnings (seven consecutive calendar days with no work and no insurable earnings from the employer).

However, it’s important to know that ROEs are also required when switching payroll companies. In this case, you need to ask your current provider to issue and submit ROEs to Service Canada after you process your last payroll with them.​ Not only is this an important step in compliance, but it’s also necessary in order to give your new payroll provider access to a comprehensive per pay period breakdown of insurable earnings so they can prepare ROEs on your behalf.

If you’ve signed an ROE Web Authorization with your ​old provider, you will need to notify your new provider so that they can register as the new Primary Officer. This will allow them to electronically submit ROEs to Service Canada on your behalf.

Step 3: Request Copies of All Payroll Register Reports

In addition to requesting ROEs for a change of provider, you should also ask your current provider for payroll register reports. 

A payroll register report essentially provides a recap of the payments made to employees as part of payroll. In other words, the payroll register includes all the Year to Date (YTD) amounts of employee and employer incomes and deductions. For example, you’ll find key information like YTD wages, YTD CPP contributions, and other items such as RRSPs. If you’re switching mid-year, these reports will be necessary to set up your employees, both active and terminated, with your new payroll provider.

As an employer, the CRA requires that you “keep all required records and supporting documents for a period of six years from the end of the last tax year they relate to.” In order to make sure you have all your payroll records in order, you need to access all of this information from your current provider before the relationship is terminated. This is important because once the relationship with your current provider has ended, you’ll have no control over when information such as your payroll register reports will be handed over to you.

Step 4: Request Copies of Pay Stubs for All Employees

As mentioned above, keeping proper payroll records is extremely important from a compliance perspective, which is why you should also make sure to request copies of past pay stubs for all employees from within the current year—including contractors and terminated employees. 

Your new provider won’t have access to any old pay stubs, so you will need to get electronic copies of past pay stubs from your current provider in order to make sure you have a full set of records. This will be especially handy if your employees need access to their past pay stubs when you’re in the middle of making the switch to your new provider.

Step 5: Cover Your Year-End Bases

Most payroll providers know that once a switch has been made, it's the new provider that is responsible for filing year-end reports. However, it never hurts to explicitly clarify this with your current provider. 

If the CRA does receive two sets of year-end reports from two separate providers, it could trigger an audit or a Pensionable and Insurable Earnings Review (PIER)—neither of which is a great situation to be in. Therefore, the best course of action is to put down in writing that your new payroll provider is the one who will be filing your year-end reports.

Step 6: Notify Key Stakeholders

Now here comes the hard part: breaking up with your current provider. Having checked that you are providing the required amount of notice and having successfully run payroll with your new provider, kindly let your current provider know that you will no longer be using their services moving forward.

If you’re so inclined, you can take the termination of your contract as an opportunity to have an open and honest conversation with your current provider about the quality of service they offer. Most companies want to know what they did wrong, so any feedback you choose to provide may help the provider improve their service for other customers.

In addition to notifying your current provider, you’ll also want to give your team and your employees a heads up. Remember, switching payroll platforms affects more than just the person running payroll—it also affects those being paid. Therefore, it’s important to make sure that all stakeholders are aware of any upcoming changes before setting up payroll with a new provider.

Your Complete Checklist for Switching Payroll Companies

To sum up, we’ve put each step into a handy checklist:

🗹 Contract Review

🗹 ROEs

🗹 Payroll Register

🗹 Employee Pay Stubs

🗹 Year-End Reporting

🗹 Give Notice

By taking the above steps, you can ensure that switching payroll companies is a seamless transition, and not an administrative nightmare.