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 year-end payroll checklist that should make it easy to stay organized and keep you 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!
What is year-end payroll?
Year-end payroll is the process of finalizing payroll records, calculating and paying taxes, and sending out year-end payroll reports to both employees and government agencies. It’s an important task that ensures compliance with federal and state regulations and gives employees the information they need to prepare their own taxes during tax season in April.
Businesses need to be aware of year-end payroll procedures to avoid penalties, maintain accurate financial records, and fulfill their legal obligations. A year-end payroll checklist is the perfect place to start.
When is payroll year-end?
Payroll year-end aligns with the calendar year (and also the US tax year), which is January 1st to December 31st. As a result, payroll year-end is December 31st, and reports must generally be sent to employees, contractors, and the IRS by January 31st of the year following the payroll year. In the next section, we’ll explain which payroll reports need to be produced and sent, and by when.
Year-end payroll and HR checklist
Below is a handy year-end payroll and HR checklist you can bookmark on web and mobile so it’s easily accessible when you’re preparing payroll reports.
Complete payroll entries by year-end
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, 2024 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.
Review workers’ W-2 and 1099 information
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 a good payroll provider will usually allow you to run a report with all the relevant information automatically filled out. These reports are usually called something like an “Employee Summary” or “W-2 Preview”, though it depends on the vendor. 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.
Account for S-Corp shareholder benefits
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, for example, 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).
Record employer health care contributions
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.
Record third-party sick pay
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.
Account for fringe benefits
Services like personal use of company cars, gift cards, and gym memberships are taxable. Ensure that you document any fringe benefits paid to employees and include this information on their payroll history. For more information on taxable fringe benefits, please refer to IRS Publication 15-B.
Review federal and state law changes that may impact your business
A number of states across the US have payroll-related changes that took effect at beginning in 2024 (and updates are to come in 2025). These changes include minimum wage changes, updated state unemployment wage bases, and new paid sick or family leave laws. Both states and the federal government periodically update tax and payroll laws, so it’s important to stay updated on these changes. Your payroll provider should automatically reflect any applicable law changes as soon as they happen.
Be aware of business ownership information (BOI)
Have you completed your BOI report? As of January 1, 2024, many businesses will be required to report information about their company’s beneficial owners to the Financial Crimes Enforcement Network (FinCEN). BOI reports are designed to help prevent money laundering and other financial crimes, and they can help businesses identify potential risks associated with their business partners and customers.
Order new compliance posters
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 potentially even lawsuits. With all the changes states have recently made, it’s a good idea to order new posters for your office every year.
Ensure all bonus payroll entries are submitted with enough time before year-end
If you need to submit bonus pay runs before year-end, allow enough time for them to process before December 31st, 2024. 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.
Postmark year-end forms by January 31st, 2025
If you mail your W-2s and 1099s yourself, please note that they must be postmarked no later than 1/31/25. If you provide copies to employees in person, digitally, or by another method, you must provide these forms no later than 1/31/25.
Why does it make sense to have an end-of-year checklist for payroll?
Processing payroll can be complicated, with a lot of moving parts, tax laws, and payroll reports to get right. The year-end payroll checklist included in this article will ensure that you can keep track of payroll records, file accurately and on-time, and don’t forget any important information. It can help you avoid errors and penalties, stay compliant with tax and payroll laws, keep your workforce happy, and improve your efficiency, saving time and money every year.
Want to learn more about how to simplify year end with accurate payroll and HR? Check out OnPay, or see a full list of the payroll services we offer.
Please note all material in this article is for educational purposes only and does not constitute tax or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.
