A few weeks ago, we hosted a webinar outlining specific tactics for preparing for year-end successfully and efficiently. This is part 3 of 3. The webinar is presented above, the transcript below.
Your organization should audit compensation and taxes on at least a quarterly basis at minimum.
As part of payroll, each quarter, your organization will need to:
- Complete a quarterly report for the IRS to report wages and taxes. Many times your payroll provider will provide this service, but the report they generate and file on your behalf should be compared to your payroll records.
- Take gross wages and subtract from that any non-taxable wages for federal taxes, social security taxes and medicare taxes, enabling you to calculate out your taxes. These figures should match what you see on the 941 or other applicable quarterly report.
- Know your types of compensation and the taxability. Publication 15, 15a and 15b will be your best friend in reconciling this information.
Employee Social Security Verification
Another key step in ensuring your W-2s are accurate is to have your employees confirm their name and social security number for accuracy prior to the end of the year. This is important because:
- This is one area the social security administration checks.
- If the name and social security number in the SSA (social security administration) database doesn’t match those on the W-2, the employer could receive a penalty and the employees’ wages won’t get posted for social security benefit administration purposes so they could lose out on benefits later in life.
Be sure to:
- Verify this information with all new hires.
- Ask employees (prior to the end of the year) to verify their name and social security number through your payroll system or on their paystubs.
- Instruct employees to notify HR/payroll of any discrepancies right away.
- Remind employees to report any name changes due to marriage, divorce, etc. to the SSA and to their payroll department. If a name change is requested, payroll should continue to use the old name until the employee obtains an updated social security card with the new name.
- Verifying the address is also important along with the other information if you mail W-2s to employees.
The Last Quarter
Beyond the initiatives we already mentioned, there are a handful of items that we also recommend checking on as you prepare for that last payroll of the year and get ready for the new year. These items are generally done in the last quarter of the year.
Communicate with Your Payroll Provider
Each payroll provider works differently and so it is recommended that you communicate with them about year-end preparations at the beginning of the 4th quarter. This is especially important if you are a new client and unsure of what the year-end process is with your payroll software provider.
Good Questions to Ask Providers:
- What can you expect for year-end with them?
- Do they have any checklists or communications that can assist you with your preparations?
- Who prints my W-2s— you, or me?
Something that has become very popular is allowing employees to consent to receive their W-2 online. Your payroll provider may have instructions available for this process which you can provide right to your employees.
If your employees do consent to receive their W-2 online, you may actually be able to cut down on printing and supply costs at year-end and save yourself time from not having to print and manually disburse the W-2s. This initiative not only saves time and money, but is also a much easier process for both you and the employees.
Next Year’s Holidays
During the last quarter of the year be sure to double check that holidays are set up for the new year. If you have a payroll or timekeeping software system, adding these in generally allow those to be paid automatically as they come, but don’t forget to set that up before the new year to help automate your payroll processing a bit.
Assess PTO Policy
If you want to adjust the rules of the policy you may need to contact your payroll provider. On the other hand, if you don’t have a paid time off policy through your payroll system, but would like to get one setup, you can contact your payroll provider to discuss this option. Be sure to contact them with plenty of time to discuss the changes, and for them to make the changes in time for the first payroll of the new year.
New Earnings and Deductions
If you know you will have new earnings or deductions in the new year, you’ll want to contact your payroll provider. Maybe you’re going to offer a new HSA this year that you didn’t offer next year; you will need a deduction for employee HSA contributions so you’ll have to contact your payroll provider to ensure those get setup around this time as well so those that are ready for the new year.
ACA Tracking Data
This is also the time to confirm all ACA tracking data which was recorded for the year is accurate and to set up an audit to make sure no information is missing; doing an audit of that information should become part of your year-end process moving forward.
First Payroll of the New Year
IRS Tax Notices
Make sure to provide any IRS tax notices to your payroll provider. Technically, you may receive these notices in December, so be sure to send those to your payroll provider as soon as you receive them and they can update the information in the system. The notices we are talking about here will generally be for updated state unemployment tax rates. Each employer gets a new rate each year, so it’s important to be sure that data gets updated.
IRS Rates and Limits
The IRS often sets new rates and limit changes with the new year; be sure to research this.
Sometimes you can’t or don’t want to add new deductions or earnings into the payroll system until after your last payroll of the year. Once the last payroll is over, however, you can begin to add these new earnings and deductions to your employees so they are active and ready to occur with the first payroll of the new year. You’ll also want to confirm all holidays and any changes to PTO (Paid Time Off) have been implemented so they process accurately with the first payroll.
Now, even though payroll providers generally update all of these on their end on their own, it’s always a good idea to verify this information in case your employees have questions with their first payroll of the new year. Many times tax rates change with the first payroll of the year and employees will come to you with questions on why more taxes are being withheld now. It’s important for you to be able to communicate that information to them. Dominion does offer a resource which outlines these new rates and limits each year in hopes of outlining that information in one easy to reference form.
Re-evaluate the earnings and deductions that your organization has setup:
- Are there any new earnings or deductions that need setup in payroll? Maybe this year your organization changed health insurance providers and with those changes your organization chose to now offer a Health Savings Account option for employees which you didn’t offer in the previous year.
- You also want to look at if any changes need to occur to your current earnings or deductions. Health insurance coverage is a great example—health insurance rates rarely stay the same. If your organization has a plan year that processes from calendar year to calendar year, then you’ll need to make sure that the changes to the insurance premium deductions are accounted for in payroll prior to processing that first payroll of the new year.
- Keep in mind that your payroll software may have some features that enable you to make changes to multiple employees at the same time, so keep that in mind and inquire with your payroll software provider about any such features that they offer to assist you in making your changes!
Look at the IRS changes that have taken place.
- Each year, usually in December, your organization should be provided with a new state unemployment rate, unless your organization is exempt from SUTA.
- Provide this new rate to your payroll provider along with any other tax notices you have received.
- Verify that changes in tax tables or retirement benefit contribution limit changes are accounted for.
- Your payroll software provider should be aware of these changes, but it is always great to verify that they are aware of upcoming changes and be sure to check this on the first payroll of the year.
Any other changes that may have occurred.
- Many times employees will notice changes to their paychecks and it’s important for your organization to be able to communicate the changes to them.
- Double check that your paid holidays are indeed set for the New Year and also double check that your PTO policies are set and ready to go for the New Year and that if there were any changes made that they were made appropriately.
The Home Stretch
After you have done all of the things listed above, successfully processed your first payroll of the year, and reviewed that for accuracy then you can relax; right? Unfortunately, there are still a few more things left to be done.
4th Quarter 941 Report
At about this time you should be receiving your 4th quarter 941 report; you’ll want to prepare for your 4th quarter 941 or applicable quarterly report audit. Once you’ve done that for the 4th quarter, you’ll want to add all of your 941’s together for the year and verify that the wages and taxes match from your 941’s to your annual reports, W-2’s, W-3s, and payroll audit reports.
If you have allowed your employees to consent to receive their W-2s online, now is the time to take the final steps to release the W-2s to them. Keep in mind you must release W-2s to employees by January 31st, so you’ll want to do so to avoid any penalties.
If you utilize a payroll provider, they will generally offer a service to file the W-2s with the social security administration, but if you don’t have a service like this, then you need to make sure to file the W-2s according to the W-2 instructions.
Along with W-2s, this year if you are required to report ACA, you can expect to need to review the ACA reports as well, and the IRS does say employees will need to have these reports disbursed to them by the end of January also and then the reports will need to be filed with the IRS. Remember your payroll or timekeeping provider may offer a reporting and filing service for these ACA report so you can inquire with them now in preparation for these requirements.
Today we talked about a lot of information, walked through an entire year’s worth of preparations, and discussed what you can do to begin preparing for year-end now. Integrating these processes into your year-end routine will be especially helpful in achieving an efficient and less-stressful year-end!