The Ultimate Year-End Payroll Checklist For Small Businesses
The year-end payroll gauntlet is fast approaching. With the holiday season in full-swing, taxes around the corner, and fourth quarter payroll requirements looming, there is a lot of pressure on business owners to complete these tasks smoothly and accurately (especially since even simple mistakes may accrue fines and fees). If you’re looking for a simple guide to walk you through your year-end payroll responsibilities, we’ve got you covered.
We’ve broken down the year-end payroll process into 10 easy steps. This way you can close out your payroll and ensure that you file all of the proper tax forms on-time. To make things even easier for you, we’ve also created a printable Year-End Payroll Checklist so you can mark your progress.
You can print the Year-End Checklist now and use it to follow along, or you can jump right in.
Table of Contents
How To Complete Year-End Payroll
Year-end payroll is all about balancing your books, ensuring you’ve paid people the right amount of money, and double-checking that you’ve sent the right amount of taxes to the government. By the end of January, employees should have access to a W-2 or 1099, which is a record of payment received and taxes paid. You will also need to submit wage and tax information to the Social Security Administration (SSA) and the Internal Revenue Service (IRS).
Payroll is a year-long process: keeping your records updated as you go throughout the year will help with any end of the year accounting and paperwork management. Even if you outsource payroll, there is information you should verify and deadlines you shouldn’t miss. (Also, now is the perfect time to review your company’s payroll choices. Anything you/employees want to change before the new year?)
Step 1: Verify All Employee & Company Information
As the year winds down, you will need to ensure that all of the information for your company and employees are correct. First, verify that your company name, tax IDs, and company tax information is updated and accurate. Next, make sure that your employee information is up-to-date. For employees, check the following:
- Employee’s name is spelled correctly
- Correct Social Security Number
- Updated/accurate employee addresses
- Lived-in/worked-in jurisdictions
If you find any discrepancies between recorded information and accurate information, update your files and/or let your payroll service provider know of any changes.
Step 2: Verify Wages, Taxes, & Benefits
After you’ve checked and made sure all your employee and company information is accurate, the next step is to run through and verify that your wage, tax, and benefit numbers match up with your payroll numbers. Here’s what you’ll need to verify:
- Yearly PTO accrual
- Worker status (active, terminated, on leave)
- Filing status (exempt or non-exempt)
- Number of exemptions
- Year-to-date wages and taxes
- Pre-tax amounts
Most of the information above is on an employee’s W-4 form. Employees can change their tax information with the government at any time, so this is where you may find and remedy discrepancies. Bonus: Many payroll software programs have reporting features that will do this work for you.
Step 3: Order Your W-2s
If you run payroll yourself or if you do not have a payroll provider that manages your W-2s, you will need to order paper forms from the Internal Revenue Service. A W-2 is a tax and wage statement for your employees. Contractors will receive a 1099 form. You can also file these forms online on the IRS website. Paper forms take 10 business days to mail, so plan ahead and order these in December.
Step 4: Manage Paid Time-Off
What is your company’s paid-time-off (PTO) policy? Do you offer PTO as a lump sum at the start of the year or does your PTO accrue as the year progresses? Will your employee’s PTO reset in January? What happens to the unused time?
Some states have mandates on whether or not a company can clear PTO, so check with your accountant or bookkeeper about the laws in your state. If you pay-out accrued PTO, you will need to manage that payment with the last paycheck of the year and keep a record of that payment for tax purposes.
Step 5: Decide On Bonuses
If you are awarding bonuses, those payments must go out with the last paycheck of the year. You will need to keep a record of bonuses given for tax purposes.
Step 6: Update Your Compliance Posters
In November or December, it’s important to order your new labor law posters for the upcoming year. These posters are federally mandated and expected to be displayed in a conspicuous place where all employees can read them. Failure to post updated labor law posters could result in fines, fees, or even labor lawsuits.
Step 7: Update Payroll Information
Before you run your first payroll of the new year, you will need to update your payroll information. That includes checking for new tax rates, making adjustments to employee information, balancing PTO, and tweaking yearly deductions.
Step 8: Deliver W-2s/1099s To Employees
Your employees need their W-2/1099 forms documenting their pay and taxes for their own tax filings. You have a legal responsibility to deliver pay and tax information to employees by January 31st.
Step 9: File Your W-2s/1099s
File all W-2s and 1099s with the Social Security Administration by January 31st. (You may also need to file W-2s with your state or county, depending on location and local tax laws.) In addition to each W-2, you will send a W-3 form; this form is needed for each employee and is a summary of the information on the W-2.
Step 10: File Tax Forms 941, Form 940, and Form 944
Forms, glorious forms! You will need to pay your federal unemployment tax (FUTA) from the fourth quarter with Form 940. You must also file federal income taxes and FICA (social security and medicare taxes) through Form 941. The last form (Form 944) is an annual return of all paid payroll taxes. All are due by January 31st.
If you need a refresher on the various types of payroll taxes your business needs to collect, read our article What Are Payroll Taxes And How Do You Calculate Them?
Payroll Year End FAQS
Still have questions about closing the books? Here are the most popular year-end payroll questions. Don’t see your question? Leave a comment below.
Get Started With Our Year-End Payroll Checklist
It’s understandable if all the steps above feel overwhelming. It’s best to think about your end of year payroll like this: This is when you account for the wages and taxes you’ve paid and withheld throughout the year.
As you look to settle books and wrap up your fourth quarter taxes, you might find that you’re interested in outsourcing the task next year, if you don’t already. Some payroll software companies like Gusto and Intuit offer tax services as part of their payroll programs. Whether you’re running payroll yourself or outsourcing, use our Merchant Maverick Year-End Payroll Checklist to get started, and check out our other great payroll and tax resources for more help running your small business.