From holiday staffing to closing out the end-of-year books to spending time with family, December and January can be full of distractions for many small business owners.
To help you focus, we’ve put together a detailed checklist that should make it easy to stay organized and keep your payroll and HR compliant for the new year. Here are the to-do’s employers need to get done to start next year on the right foot, avoid mistakes, and maybe even spend more quality time with loved ones!
Whether you use payroll software or a ledger, it’s important to make sure the books are accurate before you close them for the year. If you’re using payroll software to file your taxes automatically, ensure that all contractor payments, W-2 earnings, and bonuses are completed prior to December 31, 2020 to ensure that tax payments can be made on time. Any adjustments or new entries after December 31 could put you on the hook for penalties and interest from the IRS and the State.
The information that will appear on your workers’ year-end forms depends on the accuracy of your year-to-date payroll data, so it’s important to get it right. The Social Security Number Verification Service is a good resource for verifying employee IDs, and your payroll provider will usually allow you to run a report with all the relevant information. These reports are usually called something like an “Employee Summary” or “W-2 Preview”. Take the time to review and update all information, including current mailing addresses and phone numbers for all employees and contractors you’ve paid this year, even if they’ve left the company.
For 2% (or more) shareholders of an “S” election corporation, certain fringe benefits you receive are taxable. These include company-paid health insurance, company HSA contributions on behalf of the shareholder, and company-provided automobiles.
For 2% shareholders, company-paid health insurance and HSA contributions are only subject to Federal and State Income Tax (where applicable). Personal use of a company car is subject to all employment taxes.
The amounts paid by the company for these fringe benefits will need to be included in the shareholders’ earned income so that their W-2s are accurate at the end of the year.
If you’re not sure how this works, you may want to ask your accountant for help (or spend a little more time looking into the ways you can pay yourself).
Has your business paid all or a portion of any employee health insurance premiums throughout the year? If so, that data needs to be reported on each employee’s W-2, along with any premiums that the employee has paid toward a company-provided plan.
Contact your Health Insurance provider and request a document listing the total employee and employer contributions to healthcare for the current year. Even if the year is not over, your provider will have this information.
Third Party Sick pay includes any insurance payments received by an employee through an insurance company and is considered earned income for the employee. The insurance company will provide a notice that details what should be added to the employee’s income. You’ll need to update this information no later than December 31st to ensure everything reflects accurately on the W-2s.
Services like personal use of company cars, gift cards, and gym memberships are taxable. Ensure that entries which document any fringe benefits received are made to an employee’s payroll history. For more information on Taxable Fringe Benefits, please refer to IRS Publication 15-B.
A number of states across the US have payroll-related changes that will take effect in 2021. These changes include Minimum Wage changes, updated state unemployment wage bases, and new Paid Sick or Family Leave Laws.
If you have at least one employee, you’re required to post up-to-date state and federal employment law notices in full view, and in an area frequented by all employees. Failure to display the correct state and federal employment law notices can result in penalties, fines and lawsuits. With all the changes states have recently made, it’s a good idea to order new posters for your office every year.
If you need to submit bonus pay runs before year-end, allow enough time for them to process in 2020. Depending on the amount, bonus pay runs often require extra time due to IRS Next-Day Rules and pre-approved direct deposit limits. If it helps, we have a bonus pay calculator here.
If you mail your W-2’s and 1099’s yourself, please note that they must be postmarked no later than 1/31/21. If you provide copies to employees in-person, digitally, or by another method, you must provide these forms no later than 1/31/21.