A Complete Year-End Payroll Checklist

November 15, 2022

With the new year approaching, many companies are dedicating time to evaluate the efficacy of their HR practices, benefits administration, and payroll strategy over the past year. As a practical part of that process, businesses must also prepare for year-end payroll. From calculating tax liabilities to confirming employee information, preparing for new labor laws, setting compensation, and checking payroll records, this multifaceted process helps businesses accurately file taxes and avoid penalties, legal disputes and financial losses.

To help your business successfully navigate the fourth quarter of this year (and the first quarter of next year), we’ve created a comprehensive year-end payroll checklist. This checklist will guide you through each step needed to manage local, state, and federal payroll taxes, remain legally compliant, and ensure a smooth start to the new year.

Tasks to Complete Before Year’s End

To simplify your year-end payroll process, our checklist offers everything you’ll need to accomplish before the start of the new year. In later sections, we’ll cover important steps to prepare your business following your final pay period, especially in preparation for business tax returns and a number of January 31st tax deadlines.

Verify Business and Employee Information

Before distributing W-2s, W-3s, 1099s, and other tax forms to your employees, you must verify that all personal employee information is accurate and up-to-date. You should confirm each employee’s full legal name, current address (especially if forms will be mailed), SSN, and current contact information.

It’s equally important to confirm the accuracy of all information related to your company, including employer identification number (EIN), company address, and state unemployment account numbers.

Review Payment and Payroll Records

It’s easy to overlook payments made to employees outside of regular or recurring payroll. Whether it’s retroactive pay, bonuses, commissions, or another form of payment you may have failed to document, it’s critical to account for these payments in your year-end payroll process. This also includes voided or handwritten checks you may have missed. 

Report PTO and FSA Balances to Employees

Regardless of which policy your business has adopted regarding paid time off (PTO) usage within a set period, you should calculate each employee’s remaining time-off balance and share that information with your workforce. This grants employees the opportunity to plan their future use of the PTO, cash out (in compliance with state laws), or roll over the PTO based on company policy and/or individual circumstances. We recommend simultaneously notifying your employees of any outstanding balances in flexible spending accounts (FSA) to ensure full transparency and opportunities for employees to use those balances within the 75-day “grace period” if they’re eligible.

Manage Open Enrollment and Benefits Changes

If you haven’t already provided open enrollment benefits options to your employees, be sure to grant them the opportunity to modify their health, dental, and vision coverage selections. These new changes should uniformly apply and initiate on January 1st of next year, so retain updated records that reflect any changes. The end of the year is also a good time to reflect more broadly on the efficacy of your employee benefits program and how you can offer more appealing benefits and perks to existing employees and potential new hires.

Process Final Payroll & Confirm Employee Deductions and Wages

To ensure timely payroll processing, be sure your final pay date does not fall on or around a bank holiday. In anticipation of distributing W-2s in January, you or your payroll provider should also revisit your records to confirm the accuracy of employee wages and deductions before sending out tax forms. A capable payroll provider should offer integrated software that ensures total accuracy and flags any errors or discrepancies.

Review Forthcoming Tax Rates and Wage Base Changes

Whether it’s changes to minimum wage standards for non-exempt employees within your state or wage base changes for exempt employees, you should prepare for upcoming changes that could impact compensation, bonuses, and employee classification.

Employers should not only review local, state, and federal tax rates for income tax, unemployment tax, or state-specific taxes, but also be aware of changes to social security and Medicare taxes. As just one major example, the wage base of the Social Security portion of FICA will increase to $160,000 in 2023, compelling many employers to pay a 6.2% share in 2023 (and likely more in future years).

Order Updated Labor Law Posters and Tax Forms

Your payroll provider should help you determine which labor law posters you’ll need for the new year based on your industry, as well as local, state, and federal laws. Depending on the agreement with your current provider, you may also need to order W-2s, W-3s, and other applicable tax forms. 

Final Steps to Complete in the New Year

As year-end payroll tasks roll into the new year, remember to finish the process by completing the following steps:

    • Distribute W-2s, W-3s, 1099s, and other applicable tax forms to employees. These should be sent to your employees and the Social Security Administration (SSA) no later than January 31st. Although most local and state governments also share a January 31st deadline, double-check deadlines based on your business’ location.
    • Prepare and file taxes. Forms 940, 941, and 944 are due by January 31st, along with fourth-quarter FUTA tax deposits. Remember that annual business tax return deadlines vary based on your business structure (C-corporation, multi-member LLC, or otherwise).
    • Review and update your payroll to reflect any changes to employee information, employee benefits selections, or industry-specific tax rate changes. It’s essential to ensure informational accuracy before your first pay period of the new year.

Streamline Payroll in the New Year with Payday

With such a wide array of tasks necessary to complete year-end payroll, it’s helpful to have experts in your corner. We can help you smoothly transition into the new year and sustain best practices throughout the year, providing a comprehensive payroll solution that integrates with HR, timekeeping, benefits administration, and more. Ready to simplify payroll, improve employee satisfaction, and ensure legal compliance? Contact us today to start our collaboration.


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