If you’re a business owner, it’s essential to understand all the tasks and objectives related to year-end payroll processing.
Some of these tasks are common yet, good housekeeping practices (i.e. verifying your employee’s social insurance numbers, reviewing your payroll system, etc.), while others are compliancy requirements (i.e. ensuring your payroll taxes have been remitted accurately, including information for W-2s and 1099-NEC.) It’s important to have accurate information for each employee, whether they’re active or inactive, as there can be penalties associated with each misfiled W-2 and 1099-MISC.
To ensure a stress-free year-end season, we prepared a list of common, but vital things any business owner should do as part of their year-end payroll process. So, close out the calendar year and start the New Year on the right note.
Year-End Payroll Checklist
1. Verify your company information.
It’s easy to overlook, but don’t forget to double-check that your business information is accurate for 2020 W-2s and 1099s. If you’ve moved, changed the name of your business (or any other pertinent business information), or have a new EIN, you will need to ensure this is updated on all tax forms.
2. Verify employee and contractor data.
Review employees’ and contractors’ information at the end of the year to make certain their information is up to date, including their full names, Social Security numbers, and addresses. When doing this, including any former employees who worked for you during 2020. You need to include their information for W-2s and 1099-MISCs. It’s critical to have the right data for each employee, whether they’re active or not. There can be penalties associated with each misfiled W-2 and 1099-MISC.
Your team’s information must be filed with the IRS by January 31, 2020, so be sure any updates are made prior to that. If you’re using a payroll service, it may have earlier requirements, so check to be sure you’re clear on deadlines for W-2 and 1099 filings.
If you’re not the one filing the W-2s and 1099s, verify your team’s information with your payroll manager or accountant, or update it with your payroll service provider.
3. Process your final payroll.
With everything you have to do at the end of the year, don’t forget to process your last payroll before the end of 2020. Any payments with a 2021 pay date will be reported in 2020. W-2s and 1099-MISCs. For example, if you’re paying employees for hours worked between December 16–31, 2020, on January 7, 2021, those wages will be included on their 2021 tax forms.
Fingercheck Tip: If you’ve decided to switch payroll service providers, this is the best time to do it. You won’t have to carry over nearly as much information from your old provider to your new one if you run your last payroll of the year with your old provider and the first payroll of the year with your new provider.
4. Run your final off-cycle payment for the year.
It’s possible you’ll need to pay bonuses or backdate a 2020 payment outside of your typical payroll cycle. If that’s the case, remember that you can run an off-cycle payment with a 2020 pay date.
5. Update paid or sick time off balances.
If you don’t update your employees’ paid time off (PTO), their balances automatically roll over to 2021. We recommend updating your employees’ PTO hours at the start of the year after you’ve run your final payroll for 2020.
Sick leave hours also automatically roll over to the new calendar year. And depending on your state’s laws, you may be required to carry over accrued and unused paid sick time to the new year. Confirm your state requirements to make sure you’re compliant.
6. Double-check benefit contribution limits.
When it comes to employee benefits, it’s easy to have a “set and forget” approach, but at the end of the year, it’s critical to verify your employee benefits information because benefit limits apply to each calendar year. First, you want to ensure that withholdings are correct for the new year, and if necessary, you can reset deduction and contribution limits for 2021. If you don’t do this, your existing limits from 2020 will be applied, and they may not be accurate.
7. Confirm minimum wage requirements.
As a small business owner, it’s important to stay current on minimum wage regulations in your state, since they directly affect your business. Considering minimum wage laws are a regular topic of discussion, and frequently changing in various states, you need to be aware of the latest developments to properly prepare.
For those of you not using a payroll service provider, or looking to start with a new one, make your New Years’ resolution to switch to Fingercheck Payroll. We make it simple to update all your employee info, onboard new employees remotely, process your quarterly and year-end filings, and much more! Contact us today or sign up for a FREE trial.