Mergers and Acquisitions: Integrating Payroll Systems

Updated: April 30, 2009

It's one of the toughest tasks an HR department will ever face: integrating payroll systems after a merger or acquisition. Getting two disparate systems to function as a single, seamless process requires both careful planning and hard, hands-on work. Here's how to get started:

1. Assess the situation. Once any immediate feelings of shock and panic have subsided, calmly assess the situation. It may not be as awful as you initially imagined, particularly if both businesses use the same HR software, or at least share common data formats. Even if this isn't the case, getting the two data sets to match can usually be accomplished without too much difficulty as long as the process is handled intelligently and methodically.

2. Assemble a team. A big job like payroll-system integration requires a project team that can collectively analyze the situation and then assign specific tasks to subgroups and individuals. The team should be led by the person ordinarily in charge of payroll operations, working in close consultation with key HR and IT-staff members.

3. Establish a time frame. Payroll integration is one of a company's most critical tasks after a merger or acquisition since employees depend on paychecks , tax forms , benefits statements and other documents arriving accurately and on time. This means creating and sticking to a tight integration schedule.

4. Get the data. This isn't as easy as it sounds, particularly if the target company was working with one or more outside payroll vendors or maintained multiple databases. In any event, it's important to make certain that all relevant data has been obtained before moving forward.

5. Examine the new data. Carefully examine the new data's design and structure before attempting any integration work. Are the target records compatible with the company's existing payroll system? If not, how much work will be necessary to make it compatible? Are all employees covered, including part-timers and seasonal workers — or are some still hidden in separate databases? Also take a look to see if any key data is lurking inside the target company's HRIS , financial and accounting systems.

6. Set the conversion parameters. There's a very strong likelihood that the new data incorporates codes and fields different from the ones used by the receiving system. If this is the case, you need to determine which fields are worth retaining and which should be discarded. If the new data contains additional fields, such as employee email addresses, you may decide to collect and add such data to the target database.

7. Transfer the data. In the case of a small work force, it often makes sense to treat incoming employees as new hires , manually entering their information into the target payroll system. This approach isn't practical with larger companies, however, since manual entry is a time-consuming and error-prone process. If there's just too much data to manually input within a reasonable amount of time, the IT team will need to feed the new data directly into the target system. Cross your fingers and be sure that you have up-to-date backups on hand.

8. Test the integrated system. It's impossible to understate the importance of thoroughly testing the integrated system before taking it live. The havoc that can be created by issuing checks in the incorrect amount or to the wrong employees can be devastating, resulting in disgruntled workers, bad publicity and potential tax-reporting headaches, among other problems. That's why it's best to test the system with sample data and then begin using it with a small subset of real-world employees. This way, in the event trouble arises, damage will be limited and contained.

9. Take it live. If the tests show that the integrated system is working flawlessly, it's time to place it into full operation. Make sure that your help desk and other support resources are at full strength to answer employees' questions during the system's first critical weeks of service.

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