Tips & Tricks for Year End
It’s never too early to prepare for Payroll Year End!
Once we get through our year end processes, many of us sit back, let out sigh a relief and think, “I’m glad I don’t have to worry about doing that again for another year!” When in all actuality, your year-end could have gone much more smoothly, and you wouldn’t need to be afraid of the next one. Most payroll systems provide reports that help us keep payroll information clean to avoid all the last-minute updates that are needed at year end.
These reports can be run as often as needed throughout the year:
A W-2 error report: This report would give you any errors that the system would have when running W-2’s.
A W-2 preview report: This report would give you all the totals that are on employees’ W-2’s.
A Payroll register report: This report would give you the totals that have been processed through payroll that can be balanced back to the W-2 preview report.
W-2 box configuration: There should be a place in your system that shows what pay elements map to which boxes of the W-2.
Then use these reports to look for the following items:
Social security or Medicare deductions that do not equal the correct percentages or are over the annual limits
401(k) deductions or company match over the annual limit
New pay components that need housed on the W-2 box configuration (it would be helpful to have a checklist for new pay components and include the W-2 configuration)
October Prep
You should start preparing for Payroll Year End processing in mid to late October. At this time, you will want to touch base with any 3rd party providers, such as ADP or OSV. You will want to do the following tasks with your 3rd party provider:
Make sure all your information is up to date, including tax IDs (federal, state, and local), legal names and addresses, as well as state unemployment rates.
Process any amendments needed for prior years or quarters.
In addition to 3rd party providers, you will want to touch base with other departments within your own company. This could include finance, HR, compensation, or benefits. It would be helpful if the payroll team was including in any benefit enrollment testing tasks. If your company does holiday bonuses, or beginning of the year pay rate increases, you will want to work with the teams handling these items so that you are up to date on what to expect during these payrolls.
Also in October, you need to create payroll calendars for the next year. Here are some things to think about when creating calendars:
Create pay period schedule. This calendar includes your pay period begin and end dates as well as your pay dates. Provide this schedule to any departments or 3rd party providers that will need this information.
If you utilize a separate time tracking system, be sure to create a schedule with your timecard open, close, and lock dates as well.
If the following year will have 27 biweekly or 53 weekly pays, be sure to work with your benefits team to determine the number of benefit deductions that will be withheld.
Be sure to check all banking holidays and move any pay dates that may fall on a holiday to the prior day.
To avoid having to issue W-2c’s in the spring, there are a few things you should do in October.
✔ Check your W-2 errors report again and make necessary corrections.
✔ Encourage employees to confirm the accuracy of their legal name, social security number, and address.
✔ Process any W-2 related adjustments and tax accordingly. This may include any of the following:
✔ Group Term Life Insurance in excess of $50K
✔ Personal use of company vehicles or other fringe benefits
✔ Third party sick pay
✔ Company provided transportation or parking
✔ Moving expenses
✔ Tuition reimbursements
✔ Imputed income on gift cards or other noncash disbursements
✔ Restricted stock
✔ Enter any payments created outside of your payroll system.
December Prep
As the end of the year is quickly approaching in December, you will want to make sure you have all your ducks in a row. Here are a few items to look out for:
Submit any state unemployment tax rate change notifications to your 3rd party provider.
Update your state unemployment tax rates in your payroll system.
Complete any W-2 related adjustments.
Reverify all your off-cycle payments and reversals are in a completed status and any manual payments done outside of your payroll system have been entered.
Recheck your retirement deductions and company matches.
Recheck medicare and social security deductions.
Make sure any overpayments are paid back so as not to carry over into the new year.
The last pay of the year is often during a shortened week due to the holidays, doing as much as you can ahead of time and being proactive will go a long way. Unfortunately, there are some things that you just can’t do until the last pay. Here are a few items to watch on the last pay:
FSA or HSA deductions may need to be balanced to elections depending on how your plans are set up.
Clear out any arrears balances that should not be carried into the following year.
Pay out any necessary vacation balances based on state or company guidelines.
Include any last-minute W-2 adjustments that come in.
January Prep
Much like the last pay of the year, the first pay of the year has many items to look out for:
Make sure new rates for health deductions are calculating correctly.
Check that your new SUI rates are calculating correctly.
Check that any new or updated local tax rates are calculating correctly.
January is your busiest time for year-end as you prepare employee W-2s for processing. The W-2 creation process is completed by doing the following:
✔ Review your W-2 configuration, paying special attention to Box 12dd and Box 14.
✔ Ensure all boxes have the desired pay components included.
✔ Review employee W-2s.
✔ Run the W-2 Errors report and correct any errors.
✔ Run the W-2 Preview report and the Company W-2 Audit report.
✔ Balance the W-2 reports against the latest YTD Payroll Register for a completed payroll.
✔ Correct invalid or missing SSNs
✔ Verify employee addresses are complete and accurate to the best of your knowledge
✔ Enter manual payments necessary to adjust YTD discrepancies.
After all adjustments are made, run the W-2 error report again to ensure all errors are cleared. Once you are error free, data can be sent to your third party provider such as ADP or OSV and published in your payroll system. If you are publishing in your payroll system or printing from it, complete the following items:
✔ Review W-2 printing options
✔ Determine if you want to allow workers to opt out of a paper copy. This means they will only access their W-2 in your payroll system. Please note you need to print W-2s for any terminated workers.
✔ Create your W-2 data
✔ View your W-2 Form data
✔ If everything looks good, test creating the W-2s in your test environment and validate the data that is produced.
✔ Once all data is validated and everything appears to be accurate, you may publish the W-2s in your payroll system.
Wrap it up!
It is essential that all employee W-2s are in the mail or visible online and filed with the IRS by January 31st. In addition to your W-2s being due January 31st, you need to make sure all your 4th Quarter-end and Year-end reports are filed. If your payroll department processes 1099s for independent contractors, make sure those are completed by January 31st as well.
Be sure to communicate to your employees when their W-2s will be available to see. If you publish them in your payroll system, you can usually choose the date on which employees can see their W2s. The earlier you let them know when to expect their W-2s, the less questions you will receive!