Wanna change payroll software? Be careful.
The TL;DR
Changing payroll software mid-stream can trigger tax, 401(k), benefits, ACA, and HR issues that lead to penalties and hours of rework. Before you move to a new software, Pathway clients should always reach out to our firm first so we can plan the timing, reconcile YTD data, map codes correctly, and make sure the switch supports your strategy—not your stress.
Thinking about switching payroll software? Better tools can simplify your life—but making the move without a full plan can create costly headaches.
Mid-year changes are especially tricky: wage bases may reset (think Social Security, FUTA/SUTA), tax deposit schedules can shift, and state/local IDs or nexus rules can be overlooked. If the new system doesn’t bring over year-to-date earnings correctly—including S-corp owner health, imputed income, and taxable fringe benefits—you risk W-2/W-2c problems and penalty notices from IRS and states you didn’t see coming.
Retirement and benefits add another layer. 401(k) deferrals, employer matches, loan repayments, and Roth vs. pre-tax coding must map perfectly—or you could blow annual limits or fail ADP/ACP testing. The same goes for Section 125 deductions (HSA/FSA), garnishments, workers’ comp reporting, PTO balances, and ACA tracking (1095-C data and measurement periods). Integrations matter, too: if your payroll doesn’t sync cleanly with your bookkeeping software, sales software, or timekeeping, you’ll trade “automation” for hours of manual clean-up.
Does all of this sound overwhelming? Clean up is worse. It is easier to obtain solid guidance on the front end….and always less expensive in time and money.
The safest path is a coordinated transition with clean cut-off dates, reconciled YTDs, and a checklist that covers registrations, deposit calendars, earning/deduction code mapping, and test runs before the first live payroll. Regardless of the new software salesperson’s promises, a knowledgeable CPA team will help you evaluate whether a switch is worth it, pick the best timing (often year-end), consider impacts on 401(k) plans, align settings with your tax strategy, and help you confirm payroll numbers that follow your people—from first check to W-2. Your staff will be grateful and your life will be less stressful.
