Have you been thinking about switching payroll providers? The beginning of the year is the best time to do it. Why? By starting with a new provider at the beginning of the year, you won’t have to go through the hassle of collecting all your year-to-date and quarter-to-date information from your old provider. Your new payroll provider can start fresh for the new year.
With that in mind, we’ve outlined three simple steps to transition payroll processing at the start of a new year. (Be sure to check with a professional for any details that might apply to your specific situation.)
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1. Set your first pay date of the new year.
To make things as clean as possible, be sure your last pay date of the year is with your old provider, and your first pay date of the year is with your new provider.
For example, if you have a pay period of December 16 to December 31, 2022, with a pay date of January 5, 2023, that cycle should ideally be with your new provider since it will be reported on your 2023 W-2s (which your new provider will prepare). Your previous provider will prepare the 2022 W-2s.
Payroll taxes are based on when wages are paid, not when employees worked. Any wages you pay in January, regardless of the actual pay period, will be included in the new year’s wages for tax purposes (and annual W-2s).
2. Close your payroll account with your previous payroll provider.
Before you close your account with your old provider, don’t forget to save copies of all employee information, payroll reports, and annual tax forms for your own records. Keep in mind that some payroll providers restrict access to this information after you close your account, so be sure to download or ask for this data ahead of canceling.
3. Have your business information ready.
Have the following information on hand when switching providers:
State Employer Identification Number
Legal business name and address (as registered with your EIN)
Bank account details for payroll withdrawals
Let’s walk through an example (using Square Payroll as your new provider).
December 2022: Joe hears about Square Payroll and decides to switch over in 2023. He informs his provider that he will be canceling service at year end and runs his last pay run with a 2022 pay date.
December 2022/January 2023: Joe sends his first pay run through Square Payroll with a 2023 pay date.
What to expect from your previous provider:
- Joe gets his 2022 W-2s, Q4 2022 quarterly tax filings, and 2022 annual filings from his previous provider.
What to expect from Square:
- Joe’s 2023 federal and state tax payments and filings are processed by Square Payroll.
What if you’re not switching at the beginning of a year?
If you’re switching in the middle of a quarter, talk to your former payroll provider and clarify which tax payments and filings they will make on your behalf. Your previous provider should refund any quarterly taxes collected, but not submitted, to the IRS and/or state to you. If you work with a new provider like Square Payroll, they will re-collect and submit those specific taxes on your behalf. Your prior provider should pay any federal and state income taxes collected.
As always, talk with your accountant or financial advisor before you switch providers. They should be able to help you through the process.