It’s that time of year again. Time to break out the eggnog, put up the holiday decorations, and finalize payroll for the year. As an accountant, this time of year can be both hectic and stressful.

But it doesn’t have to be. By following these simple steps, you can ensure that your year-end payroll preparations are completed efficiently and without any headaches. 

So let’s dive in.

The payroll department plays a critical role in year-end preparations. In addition to preparing and submitting reports to government agencies, they are also responsible for reconciling records and making adjustments as necessary.

Review & Update Employee Information

To prepare for year-end, businesses should begin gathering the necessary data. This data includes employee information such as addresses, social security numbers, and dates of birth. This data will be used to prepare year-end tax reports. Here’s a checklist to assist you with gathering information.

Once all of the necessary data has been gathered, businesses should review and reconcile their records. This process helps to ensure that all employees are properly classified and that all compensation amounts are accurate.  Any discrepancies should be resolved before year-end reports are prepared.

Set up employee access to W-2s

Allowing your employees to access their information empowers them to find answers without requiring you to look them up on an as-needed basis.

Check federal and state tax rate notices

It is important to keep in mind that tax rates and wage bases are subject to change on an annual basis. You should also check if there are any new wage bases in the upcoming year, in addition to tax rates.

Run final payroll for year-end

After all other preparatory activities have been completed, the next step is to run reports. Running reports helps identify any errors or discrepancies that may have occurred throughout the entire process.

This step is especially important when processing payroll for many employees. If any errors or discrepancies are found at this stage, they can be corrected before finalizing payroll for the year.

Here are some of the key reports to run:

  • Payroll Tax Liability — This report is useful when confirming all payroll tax payments have been calculated and paid correctly.
  • Payroll Deductions/Contributions — Run this report after processing each paycheck to confirm deductions and contributions were correctly applied. Deductions and contributions often have a monthly maximum. When you review this report, ensure additional deductions and contributions have been calculated.
  • Time Activities by Employee Details — This report is useful for viewing all hours worked by employees. It shows the hourly rate and duration and any billable customer hours.

The Vacation and Sick Leave report show employees’ balances for time accrued and used, and remaining time for vacation, sick, paid time off, and unpaid time off leave. Clients must first set up their policies for paid or unpaid time off, sick pay and vacation pay. They can add time off at any point if someone needs more.

Submit year-end forms

After the data has been gathered and reviewed, businesses must prepare several forms for submission to government agencies. These forms include W-2s for all employees, 1099s for independent contractors and 941s for federal payroll taxes.  

Other Year end Checklists

Completing year-end payroll prep may not be everyone’s favorite way to spend their holiday season, but it is an essential part of keeping your business running smoothly. By taking the time to review employee files, update outdated information, add new hires to the system, and run reports, you can rest assured knowing that your employees will be paid correctly and on time.

Liz Scott is a multi-business entrepreneur working to bring together technology and accountants through her business, Liz Scott Consulting. A member of Intuit Trainer/Writer Network, she authored and taught Master level courses, including Advisory Guides and Consulting Tools for Accountants. In addition to Liz Scott Consulting, she also owns Accounting Lifeline, a firm to serve small businesses with their financial needs. Liz is a co-host of the “Appy Hour,” which helps other accountants learn about the different tools and apps for small business needs. Holding a high passion for real estate investment, she owns properties throughout Oklahoma. 

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Insightful Accountant