The Briefing: How Ramp transitioned from a PEO to a new payroll provider
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In 2021, Ramp’s headcount expanded from 80 to 200 employees. This growth necessitated significant changes in how we approached compensation management. Employee compensation expenses are usually the most significant costs of any organization, often representing more than half of all operating overhead. Our exponential headcount growth led us to take a closer look at our PEO (professional employer organization) to see whether switching providers could help with managing our increasingly complicated compensation needs.
Typically, companies transition from a PEO to a more robust payroll service provider and human resources information system (HRIS) once they pass the 200 to 250-person mark. At this point, they often create an in-house human resources team to manage their payroll, benefits, and compliance processes. That’s because you can secure better pricing per employee and more flexibility with a non-PEO provider. Owing to Ramp’s unprecedented growth, we were ready to make the leap to a PEO and HRIS, and started our search in the fall of 2021.
Here's what we learned.
How your payroll provider and HRIS needs change as you grow
Here is a general outline of when your business may also be ready for a change
When you are just starting out, you don’t need anything fancy. You just need a tool to help you process payroll and taxes. A simple payroll provider, such as Gusto, is a great tool for these needs—they offer straightforward onboarding, an easy-to-use platform, and reasonable pricing.
Once you reach 50 employees, the option of a PEO becomes attractive. The PEO will ensure that employees are properly onboarded, meet the requirements of the states in which they work, and are compensated as needed. At this stage of growth, platforms like Justworks, Trinet, Sequoia, and ADP are valid options.
Over 250 employees
When your headcount approaches 250, it might be beneficial to bring your human resources processes in-house in order to acquire more control and visibility into the support and benefits packages offered to employees. You’ll want an HRIS that will allow you to sync your employee data across multiple tools, and ideally have single sign-on for security. Many PEO platforms do not offer these capabilities while big payroll services, such as ADP, Paylocity, and Trinet, do.
9 considerations to help evaluate your next payroll service provider and HRIS
Here are the considerations we weighed to help assess the different providers and determine which one was the best fit for us:
1. Depth of offering
Does the provider allow us to administer payroll and benefits? How about legal and compliance services? Does it offer international payroll services or the ability to integrate with any future providers?
Are we able to process the first payroll for the calendar year on the platform? Can we start paying our employees/contractors on January 1, 2022? (This was important for us at Ramp since we wanted to have a clean break for compliance reporting and our benefits cutoff, as well as to minimize the administrative burden of managing two systems during a calendar year.)
Does the provider integrate with other tools being used or that will be rolled out in the near future?
4. Compliance support
Can the provider support our compliance requirements?
5. User experience and product support
Is the interface user-friendly for admins and employees? Do they have available training? How accessible and responsible is their customer support?
Can the platform enhance our anticipated employee growth? If headcount doubles or triples, will the provider still be able to perform successfully?
What is the average monthly cost per employee? Are there variable expenses or fees charged to process non-routine transactions, off-cycle payrolls, terminations, and adjustments?
8. IT and security approval
As a service organization, does the provider have the required controls reports and IT general controls needed to ensure the security and reliance of our information? Are they able to meet our standards for IT efficiency?
9. Other considerations
What is the overall perception of this vendor in the market? Do they have a good reputation? Do they have good referrals? Are there potential synergies between this provider and us?
In our assessment, we met with multiple vendors (Justworks, ADP, Paylocity, and Workday), attended their demos, and reviewed their quotes, timelines, and product specifications before deciding on a new payroll provider. This assessment was done with the support of our consulting and brokerage team at Sequoia.
Our implementation rollout plan
We started our implementation at the beginning of October 2021, with an aggressive goal to complete implementation by the end of 2021 in order to meet our January 1st 2022 payroll deadline.
To hit our goals, we divided our rollout into five phases:
Phase 1 - Preparation
We kicked things off by reviewing our payroll processes (onboarding, changes, termination), mapping different departments and cost centers, labor and time set ups, reviewing the control reports, and creating the necessary GL accounts and entries.
Phase 2 - Migration
With the initial setup in place, we migrated our data from our previous solution to the new provider. Payroll information is sensitive, and we ensured that the files were exported in a secured way.
Phase 3 - Test
Once the data was imported over, we performed multiple payroll tests. We also conducted a tax audit for all the locations that our employees were in to ensure there were no errors. Since we are moving from a PEO to independently managing our payroll, new registration and tax numbers are required for all the states where we have employees.
Phase 4 – Education/Communication/Implementation
It was go time! We communicated the transition plan to our employees and informed them on what to expect for their compliance reporting for 2021 and for the new upcoming year of 2022.
Phase 5 – Assessment and mitigation:
After the first payrolls, it was time to work on the glitches. Some of the urgent fixes that needed to be done were local and state tax codes, as well as integration with our 401K and transportation benefits providers. We also had to review our GL mapping and spent significant time educating ourselves and our employees on how to properly use the platform.
Despite the transition process being stressful, overwhelming, and challenging, we were able to meet our deadline of January 1, 2022 with the support of our team and partners
Tips for ensuring a smooth rollover
Now that we’ve been on our new payroll provider for six months, here are the lessons we’ve learned.
- There is no perfect solution: After using different payroll providers, my general observation is that none of them are perfect. If the interface is super easy-friendly, the reports will most-likely be difficult to configure. If the reports are easy to obtain, there probably are some tasks that cannot be automated, like doing an upload of payroll changes. Remember to make compromises when necessary and be sure to set reasonable expectations.
- Give yourself enough time: Ideally, plan for the transition to take up to six months. If you’re working against a shorter timeline, set expectations with management and your employees that unanticipated issues will come up. Be clear about the trade-offs. In our case, the transition was done in less than 3 months and even though our provider promised a seamless process, the reality was more painful. There were many unplanned contingencies along the way, such as attrition in our provider’s team, Covid, holidays, and API bugs that caused glitches in execution and hampered communication.
- Hire a payroll specialist or a contractor: Payroll and benefits are complex issues, and adding new variables can multiply the complexity if payroll is not your day job. At the beginning of our implementation, we hired a payroll accountant, who provided invaluable help. If you do not have an employee fully dedicated to the transition process, my advice is to hire a contractor for additional support.
- Involve your partners in testing and rollout: Payroll is not a pure finance function, but a shared one between human resources and sometimes business operations. The right software for payroll will need to jointly satisfy finance and HR. Our team worked together during the assessment process and throughout the implementation and we are still combining forces to deliver the best experience for our employees.
- Invest in admins and employee education: Make sure that all admins understand how to properly use the new software. Because they will be the ones implementing the setups, adding and removing employees, and completing checklists, ensuring that they understand what they are doing will diminish the risk of errors and complaints. Make sure to also provide appropriate training to your employees, so they understand how to navigate the software.
Any PEO transition will inevitably include glitches and issues that you cannot anticipate. With time and as people become accustomed to the new software, the questions and issues will get resolved. The transition might feel overwhelming and stressful, but at the end of the day you will have built a stronger backbone for your organization and paved the way for a better payroll process.