As the calendar year draws to a close, business owners and human resources teams find themselves immersed in the complexities of year-end payroll processing. Navigating this crucial aspect of business management requires careful attention to detail, compliance with regulations and strategic planning. Highlighted below are key steps and considerations to make your year-end payroll process seamless.

1. Review and Update Employee Information

Year-end payroll processing begins with a thorough review of employee data. This includes verifying social security numbers, addresses and tax withholding elections. Ensure any employee status changes—such as hires, terminations or shifts between part-time and full-time—are accurately documented. Verifying this information before year-end minimizes the risk of filing errors that could lead to costly penalties or delays during tax season.

2. Ensure Compliance with Tax Regulations

Tax laws and regulations are constantly evolving, so it’s vital to stay informed and ensure compliance. Confirm your business has complied with all federal, state and local tax obligations throughout the year. Verify your payroll system is updated to reflect any changes in tax rates, deductions and exemptions. This will help you avoid penalties and ensure your employees’ tax obligations are accurately calculated. Working with a tax advisor, like those at Doeren Mayhew, who specializes in your industry offers confidence you are in compliance and have the strategic tax planning to set your business up for success.

3. Review and Reconcile Payroll Records

One of the most critical steps in year-end payroll processing is reconciling total payroll figures for the year. This process involves verifying taxable wages, tax withholdings and employer contributions against payroll records and financial statements. Any discrepancies found at this stage should be corrected immediately to ensure accuracy on W-2 forms and other tax filings.

4. Review and Adjust for Minimum Wage Changes

Many states and localities update their minimum wage rates effective January 1. As a payroll provider, it’s critical to ensure your systems reflect these adjustments to prevent payroll discrepancies or compliance issues. Informing clients about these changes is also key, as it impacts budgeting and financial planning for the new year.

5. Implement Benefit and Deduction Adjustments

The end of the year is a common time for benefit plan renewals, including health insurance, retirement contributions and other employee benefits. Payroll providers should coordinate with HR to implement new deduction rates or adjust contribution limits for the coming year. For example, changes to contribution limits for 401(k) plans, health savings accounts (HSAs) and other retirement plans should be updated in payroll systems to ensure accurate deductions and reporting.

6. Prepare for W-2 Distribution

One of the most critical aspects of year-end payroll is the preparation and distribution of W-2 forms. Ensure all employee earnings are accurately reported on these forms and make sure to provide W-2 forms to employees by the IRS deadline, typically by the end of January.

7. Prepare for 1099-MISC Reporting

If your business works with contractors or freelancers, prepare for 1099-MISC reporting. Verify you have accurate information for each contractor and ensure you meet the deadlines for filing 1099 forms with the IRS.

8. Communicate Payroll Deadlines and Schedules

Clear communication with employees and clients about payroll deadlines, holiday schedules and cutoffs for year-end adjustments is essential for reducing last-minute issues. Year-end holidays can impact payroll timelines, so notify employees in advance about when they can expect to receive their final paycheck of the year. Additionally, set deadlines for any year-end updates, such as adjustments to withholdings or contributions, so there’s enough time for processing.

9. Prepare for the Next Fiscal Year

As you wrap up the current calendar year, take proactive steps to prepare for the next one. Review your payroll processes, assess any challenges faced during the year-end process and implement improvements. Consider adopting new technologies, outsourcing specific services or streamlining procedures to enhance efficiency and accuracy. Stay informed about changes in tax laws and regulations that may impact payroll in the upcoming year.

How We Can Help

Year-end payroll processing doesn’t need to be a daunting task. We help manage your W-2 and 1099 year-end reporting procedures – taking the pain out of payroll processing, so you can focus on your business. To learn more about how we can help you streamline your W-2 reporting and other year-end tasks, contact us today.

“Doeren Mayhew” is the brand name under which Doeren Mayhew Assurance and Doeren Mayhew Advisors, LLC and its subsidiary entities provide professional services. Doeren Mayhew Assurance and Doeren Mayhew Advisors, LLC (and its subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Doeren Mayhew Assurance is a licensed independent CPA firm that provides attest services to its clients, and Doeren Mayhew Advisors, LLC and its subsidiary entities provide tax and business consulting services to their clients. Doeren Mayhew Advisors, LLC, DM Payroll Solutions and their subsidiary entities are not licensed CPA firms.