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How to Transition from In-house to Outsourced Payroll

For many organizations, outsourcing payroll is a common-sense way to save time and ensure compliance without sacrificing the level of service provided to employees. For those reasons, the decision to outsource is often easy, while the actual process of transitioning from in-house to outsourced payroll functions is more challenging. Here are a few of the most important things to focus on:


Don’t quit too soon

A lot of organizations underestimate the time and skill that will be demanded of their employees during the transition phase. Be careful not to downsize or reassign employees until the transition has been completed and things are running smoothly.

Communicate the change to employees early and often

Employees are often anxious when they learn that their employer is about to outsource payroll functions – they anticipate that there will be problems getting paid accurately and on time. The best way to get buy-in is to be very transparent about what’s changing, what the process will be, what (if anything) employees will have to do differently, and what contingency plans you’re putting in place to resolve any problems that might arise.

As part of the employee communication process, it’s important to be very clear as to the division of responsibilities during the transition process. For example, if there’s a problem with an employee’s check during the changeover, should they call you or the new vendor?

Thoroughly document the “legacy” system

Though it may seem unnecessary to document a payroll process you won’t be using anymore, it’s actually a very important step. There are any number of situations that could require a review of old payroll records, and you need to maintain enough knowledge in-house to answer any questions that might arise.

Establish clear parameters for data transfer

Well in advance, ask the vendor if there are any specific technical requirements for the data transfer. In addition, inquire about any “technical difficulties” encountered by other clients, and ask for the vendor’s advice regarding the best way to avoid those difficulties.

Test the new process

No matter how thoroughly you vetted the vendor, that doesn’t guarantee that there won’t be any glitches – especially on your end, if your systems aren’t as up-to-date as those used by the vendor. If at all possible, due a “test” run with dummy information before you pull the switch – and do it far enough in advance that you’ll have time to fix any problems that crop up.

Provide an in-house resource for your employees

In an ideal world, your payroll provider would provide impeccable service to every employee, every time. In the real world, things don’t always go so smoothly. Make sure your employees have a place to turn if there’s a problem with their pay and they aren’t getting an adequate response from the vendor.

Change is hard – even if it’s good change for the right reasons. Change that affects employees’ ability to feed their families and pay their bills is harder yet. Make it as easy as possible by eliminating as many of these potential hurdles as you can.

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