It’s never too early to prepare for your year-end payroll. Get ready for 2024 by taking care of these important payroll tasks.
Wrapping Up Year-end Payroll
From calculating employee compensation, updating records, filing taxes, and keeping up with changes in local, state, and federal employment laws, your payroll team has a lot to keep track of during the fourth quarter. While responsibilities vary from business to business, some of the most common activities include:
Review Your Business Information. Verify your business information on file for tax purposes, including the business name, address, and state and federal employer identification number (EIN).
Review and Update Employee Records. Inaccurate or outdated employee information can lead to costly delays, reprinting W-2s, and IRS-imposed penalties. Ensure employee records are accurate and up to date. Have employees confirm information, such as their full name, Social Security number, address, and additional contact information, to help streamline your end-of-year processes and ensure that important tax documents get to the right location.
Verify Employee Wage and Classification. Depending on job duties and pay frequency, employees can be classified as either exempt or non-exempt. Understand the difference in order to accurately report income, withhold and pay taxes, and manage overtime. Also, become familiar with local wage requirements to avoid potential legal action and penalties.
Verify Accruals and Paid Time Off. Reconcile employee accrued paid time off and other benefits. Ensure employees have used their entitled time off and any accrued time off aligns with your company’s policy.
Prepare and File Important Forms. Generally, most businesses are required to file the following forms:
- Form W-2. Form W-2 reports employee wages and withholdings to the Social Security Administration (SSA) and must be filed for each employee. Review to make sure that employee wages, taxes withheld, and other relevant information are accurate.
- Form W-3. Form W-3 summarizes the W-2 information and submitted together with Form W-2 to the SSA.
- Form 1099-NEC. Applicable employers are required to file with the IRS annually to report non-employee compensation to contractors or companies over $600.
- Form 941. Form 941 is due quarterly and is used to report wage withholding for income taxes as well as the employees' share of Social Security and Medicare (FICA) taxes, plus the employer's share of FICA.
- Form 940. Used to determine an employer’s federal unemployment tax (FUTA), Form 940 is based on the employer’s annual payroll and filed with the IRS by businesses with one or more employees.
- Form 1095. Under the Affordable Care Act (ACA), the responsibility for affordable healthcare coverage is on the employer, and reporting requirements depend on the number of full-time equivalent employees (FTEs). Employers with 50 or more FTEs last year are considered an Applicable Large Employer (ALE) for the current year and must file Form 1095. If your company is an ALE, verify that your health plan meets all ACA requirements for coverage and affordability.
Reconcile Payroll Tax Filings. Avoid potential penalties and legal issues by ensuring payroll taxes, including federal, state, and local taxes, have been calculated and filed throughout the year. Reconcile tax filings to identify discrepancies and resolve them before the end of the year. Remember that business tax responsibilities for year-end payroll vary by state, as well as by industry and the size of your business.
Perform Year-End Bonuses and Incentive Calculations. Ensure that all criteria for annual bonuses are clearly defined according to your bonus structure and that the calculations are transparent.
Remind Employees About Unused Benefits. Let employees know about benefits that expire at year-end, such as vacation, sick days, personal leave time, and flexible spending accounts (FSAs) for medical costs and dependent care and expenses for reimbursements.
Audit Payroll Records. Audit activity is expected to increase as part of the Inflation Reduction Act to modernize the IRS. These audits will focus on areas such as executive compensation, fringe benefits, and employment tax compliance. Prepare now by conducting a thorough audit and review to maintain accuracy and compliance for year-end payroll activities. Review payroll records, tax filings, and financial documentation to identify any errors, discrepancies, or irregularities.
Plan for 2024. While wrapping up payroll tasks, it is also important to plan for the upcoming year. Review and update payroll policies, employee benefits, compensation changes, and tax strategies. Evaluate any changes in regulations that may affect payroll and make necessary adjustments to ensure compliance.
Navigate Your Year-End Payroll with Confidence
With a bit of advanced planning, small businesses can successfully wrap up this year's payroll responsibilities with confidence and set a smooth transition for the year ahead. And if you need help, just give us a call. Depending on the type of business and industry, your payroll responsibilities may be different and even more complex. By partnering with an IRS-certified PEO like Propel HR, you gain access to a team of experts to help you navigate the complexities of your year-end payroll as well as stay compliant.
PLEASE NOTE: This information is for general reference purposes only. Because laws, regulations, and filing deadlines are likely to change, please check with the appropriate organizations or government agencies for the latest information and consult your employment attorney and/or benefits and payroll advisor regarding your responsibilities. In addition, your company may be exempt from certain requirements and/or be subject to different requirements under the laws of your state.
About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for more than 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. Visit our website at www.propelhr.com.