Payroll Year End Best Practices

The end of the year is almost here, and it's time to wrap up payroll. Every HR rep wants to stay compliant at this very pivotal time of year. HR reps may be contemplating what to do in order to knock it out of the park and stay compliant to start the New Year off right.

Q. What can HR/Payroll specialists do to prepare for end of year?

A. HR/Payroll specialists should spend time looking back and forward to make sure the turn of the calendar does not hold any unnecessary surprises. They can rely on year-end webinars and checklists to review last year’s process to see how it went, identify any issues to correct, and prepare for any evolving legal changes.

Q. How can HR/Payroll specialist ensure payroll compliance?

A. Payroll specialists need to be nimble in their knowledge and documentation. Laws change, and many have a January 1 effective date, so keeping on top of changing requirements and making sure they are handled timely is critical. Some changes should be anticipated, like changes to HSA contribution rates, Social Security maximums, 401(k) and FSA Limits. Those tend to vary from year-to-year. Likewise, state unemployment contribution rate changes are typical. Some things are less obvious, such as workers compensation classifications or changes to taxable fringe benefit rules. To maintain compliance, payroll specialists need to make sure their legal resources are dependable and timely.

Q. What are a few best practices for end of year payroll?

A. In planning for and executing a successful year-end, start by getting into a “look back” and “look forward” frame of mind early – don’t wait until the final payroll.

Finally, some best practices to prepare for the final payroll include:

• Confirm payroll schedules and deadlines for the last check of the year, especially given shortened holiday weeks or potential holiday shutdowns.
• When processing bonuses, make sure they are being taxed correctly. Plan documents should be reviewed to make sure 401(k) contributions are withheld appropriately.
• If cash value holiday gifts are going to be distributed, make sure taxation is set up correctly. It can be particularly time consuming if the company is planning to gross up taxes on the bonus, so plan accordingly.
• Make sure any last-minute manual checks or adjustments are accounted for in the system before year end.

Q. Are there any end-of-year actions that frequently get missed?

A. Typical missed items include:

• Collecting and recording taxable fringe benefits (including personal use of company vehicles, non-qualified moving expenses, company-provided transportation/parking, tuition reimbursement)
• Assuring who is going to handle tax recording and W-2 preparation for third party sick pay.
• When reviewing the payroll schedule for the next year, pay particular attention to the number of payrolls, especially for biweekly employees so that the correct annual gross pay is made for the year (e.g., 26 pay periods versus 27)