End of year (EOY) payroll reviews and reconciliations are time consuming. It helps greatly to have a good EOY checklist to guide you through the process. Using a checklist not only keeps you on track, but it helps to ensure that you do not skip any of the important items that can put the company in the position to be fined or puts your employees in a position that incorrect withholdings are made during the year.
One of the initial steps included on any good checklist is the verification of Social Security Number (SSN) and names for each of the employees who were included in a payroll during 2012. New hires, marriages, and divorces that occur during the year can all create name/SSN verification issues. Employees need to update their records so your annual reporting submission process goes smoothly and your employees are properly credited for the wages they have earned. For more detail on SSN verification, please see our post “Are You Verified?”
Employee Census Changes
EOY is a good time to review all employee information for accuracy and completeness. Possibly the most important item is their mailing address. An incorrect mailing address can create an issue as any EOY reports that are mailed may be delivered to the wrong location. More importantly, in some jurisdictions, the city or county of residence also sets the income tax withholding rates. An incorrect address can cause payroll withholding amounts to be incorrectly calculated. When this occurs, payroll adjustments need to be made and filed reports may need to be amended to correct the withholding amounts and payments. This is a major issue that needs your immediate attention.
EOY is a very good time to verify the accuracy for current and former employee retirement plan eligibility and retirement plan needs. One key value that needs to be calculated in your company’s retirement plan is employer matches that are no longer needed. This occurs when an employee is not fully vested in the plan when they depart. This money can be recaptured to reduce the required contribution in the current year if that is advantageous to the company.
You can see how keeping your employee information and retirement plan information up-to-date is important throughout the year. Making sure this information is correct as part of your EOY process is just good business.
Once your employee census has been verified, there are a number of other EOY considerations to be addressed prior to that last payroll of the year. Some of these considerations are:
- Handling employees/payees who need both a W-2 form and a 1099-MISC form
- Reporting for current year retirees
W-2 Forms & New Reporting Requirements
If you are printing your own W-2 or 1099 forms, you will want to make sure that you have ordered the forms early enough to get them in house so you can verify the form layout will match the program you are printing from, as it changes from year to year. If you’re a large employer, for the first time your employees W-2 form will include the reporting of group health insurance contribution amounts.
Annual Rate Changes
It’s nothing new that the Federal Government adjusts various limits each year. Here’s a list of just some of the limits that could be changing for your first payroll next year:
- Social Security wage base, tax rate, and earnings limit
- Medicare tax rates, including the new rate for high earners
- Retirement plan contribution limitations
- Flexible spending account (FSA) contribution limits
- Health Savings Account (HSA) contribution limits
- Fringe benefit limitations
- Per diem allowances
- Standard mileage rates
The IRS website can provide you with more information about retirement benefits limits and contribution deadlines. Additionally, other common beginning of year changes to be aware of and update before processing that first payroll, include:
- Changes to state unemployment and state disability Insurance rates
- Any group health or long term disability rate changes from your company’s providers
- Changes to company contribution toward health or retirement benefits
- Any employee withholding changes
Getting these rates updated and correct at the first of the year prevents later, and at times embarrassing, adjustments from needing to be made. Any of these changes coupled with the expiration of the Tax Relief Act of 2010 could create surprising changes to your employees’ net check amount in January. Being proactive and informing your payees of these upcoming changes can reduce any shock while building confidence throughout the company.
Tax Exempt Employees
Another reminder that can be provided to your employees covers those who are tax exempt. All employees who claimed “exempt” status on their W-4 withholding form (and potentially the related state form) have until February 15 of next year to file an updated form with the company’s HR Team. If no updated form is filed, IRS regulations require any pay check issued after that date use a filing status of single with zero allowances until a new form is received. Further if the new form is filed after the deadline, any withholdings are not to be refunded to the employee though payroll adjustments.
How Benepay Technologies OneTouch Payroll™ Helps
OneTouch Payroll™ solutions take care of most of these headaches for you:
- We automatically update and apply the annual rate changes along with any new limits for both federal and local authorities. Your OneTouch Payroll™ withholdings and payments for one or multiple localities are 100% accurate. You won’t have to spend your time figuring out the new regulations or track if there is a new city or county withholding tax that has been created.
- We send out your W-2/1099 forms directly so there are no forms to order and no software updates to apply.
- We provide you a year-end checklist so you can focus on getting things done on time.
Start Early to Alleviate Headaches
By starting your end of year processes now, you will have time to effectively handle any adjustments. Waiting until the last minute will increase the likelihood of errors and additional adjusting entries. Start next year off in an organized and easy-to-manage way – download our end of year checklist and get started on all those tasks today!