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Preparing for Year End: Payroll Processing Checklist

Year end is a hectic time for businesses between holiday closures and extended employee vacations. But there are some housekeeping tasks which must be completed, whether you are processing payroll in-house or outsourcing it. We’ve made a checklist for you below.

1. Update Employee Contact Information

Payroll Processing Tax ComplianceAudit employee data to ensure you are not missing critical W-2 information, such as complete Social Security numbers and addresses. If that information is incomplete, ask employees to update their file with Human Resources. Not only are most W-2s mailed directly to employees, but the address information is also used to update Social Security Administration records.

If your payroll processor offers an employee self-service feature, as APS does, you may recommend employees use it as a means to review critical data.

For some employees, updated addresses can be garnered from an updated W-4, if their withholding allowances changed or will change in 2011.

2. Address How W-2 Reprints Will Be Handled

If you plan to charge a fee to reprint an employee’s W-2, be sure to inform your employees of the fee prior to distributing the W-2s. In most cases this will ensure responsible maintenance of the document.

If your payroll processor publishes W-2s to an employee self service site, as APS does, instruct your staff about accessing the document online and the expected date the W-2 will be available online.

3. Gather All Year-End W-2 Adjustment Information

The two most common year-end adjustments are for non-cash fringe benefits such as personal use of a company vehicle, and employer-paid group term life insurance in excess of $50,000. The reporting and withholding of Social Security and Medicare taxes on these two benefits need to be processed no later than the last payroll of the year, so that they are properly taxed and reported on the W-2 and the quarterly 941 tax return.

Another common year-end adjustment is employer-paid health insurance for sub-chapter S shareholders holding at least two percent of the company. Although it is fairly easy to adjust a W-2 record to reflect this amount, it is always best to include it with a payroll run to ensure that it is reported on the applicable quarterly and yearly payroll tax returns.

Finally, make sure that all third-party sick pay records have been recorded for the year, COBRA assistance credits have been calculated, and qualified employees under the HIRE Act have been identified. For 2010 W-2 forms, wages subject to the HIRE Act tax credit will need to be reported in box 12 of the W-2.

4. Process All Manual and Voided Checks

Any employee checks issued outside of the regular payroll process must be recorded and their tax liabilities paid prior to the beginning of 2011. Likewise, all voided checks should be recorded.

Some payroll checks cut throughout the year may never have been cashed. These checks should not be voided in the payroll system, but should instead be considered unclaimed property and reported to the appropriate state agency. The unclaimed property office may be a division of your state’s Department of Revenue or Treasurer’s Office.

5. Other Tasks

If you’re not currently outsourcing your payroll, you may need to:

  • Order W-2 & 1099 Forms
  • Print and distribute W-2 & 1099 Forms
  • Create a checklist of due dates for federal quarterly and annual tax returns
  • Create a checklist of due dates for each state’s quarterly and annual tax returns
  • Order state annual reconciliation forms
  • Reconcile Forms W-2 to Forms 941 for the year
  • Verify that pension plans are being reported correctly on Form W-2
  • Install new federal and state tax tables
  • Archive prior year payroll files

Sound overwhelming? Consider outsourcing your payroll and tax compliance needs to APS. Contact Us to learn more about our payroll processing, tax compliance and workforce management solutions.

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