As the end of the year approaches, HR and payroll teams have a lot on their plates. Between managing holiday schedules, reconciling benefits and preparing tax forms, it’s easy to feel the pressure of closing the year accurately and on time. But with the right payroll best practices, framework and a reliable system, you can simplify the process, stay compliant and start the new year on solid footing.

Tackling year-end payroll is a lot like planning a road trip: looking back at where you’ve been, checking the map for what’s ahead and making sure your route is clear before you go.

Look Back: Audit and Verify Key Payroll Data

The first step to a smooth year-end is to review the past year’s payroll data. Think of this as a year-end payroll audit, or an opportunity to ensure your system is clean and accurate before you generate Forms W-2 and 1099, Affordable Care Act (ACA) forms and other key documents.

Start by confirming that employee information and payroll records are up to date. Employees should be reminded to double-check their Social Security numbers, addresses and banking information. Catching human error now prevents costly payroll mistakes later.

It’s also important to review benefit balances and accruals. Confirm that vacation, sick time and paid time off (PTO) align with payroll policies and labor laws. Be sure to communicate any “use it or lose it” provisions. Keeping accurate recordkeeping practices helps with compliance with employment laws while boosting employee trust.

Lastly, check your benefit deductions, including 401(k) and health savings account (HSA) contributions, to confirm they haven’t exceeded annual limits. It’s a simple step that supports tax compliance and prevents issues with tax filings down the road.

Look Forward: Plan for Payroll Compliance in the Year Ahead

Once you’ve looked back, it’s time to plan ahead. Payroll compliance is a moving target with tax laws and contribution limits often changing at the start of the year. Staying proactive is one of the most effective payroll best practices.

Review your payroll calendar and pay period schedules, ensuring they align with holidays or potential shutdowns. Check for updates to minimum wage, income tax and local laws, including payroll regulations that may impact your operations.

Next, stay informed about new Internal Revenue Service (IRS) rules and tax withholdings, and make sure your payroll software or payroll solution reflects those updates. Leveraging automation can help you streamline tasks, reduce data entry issues and eliminate payroll errors caused by manual processes.

Finally, encourage employees to update their Form W-4s, especially after life changes such as marriage or adding new dependents. Ensuring accurate withholdings supports compliance and avoids surprises during tax filings.

Prepare for the Final Payroll of the Year

Your final payroll run is one of the most important of the year. To avoid surprises, review your payroll schedule and deadlines well in advance, especially during shortened holiday weeks or potential shutdowns.

If you’re issuing bonuses or direct deposits, confirm correct tax withholdings and ensure your payroll system reflects any overtime pay or fringe benefits, such as company vehicles or tuition reimbursements. Addressing these early ensures accurate payroll reporting and prevents errors on pay stubs and year-end tax forms.

Modern payroll software can help you automate calculations, track real-time deductions and reduce the risk of noncompliance. Whether you manage payroll in-house or through a provider, using a trusted payroll solution minimizes compliance risks and simplifies payroll reporting.

Avoid Commonly Missed Payroll Items

Even the most diligent payroll teams can miss a few important year-end steps. Some of the most common include:

• Overlooking unrecorded fringe benefits: These taxable items, like transportation allowances or company-provided parking, are easy to miss if not tracked throughout the year.
• Forgetting third-party sick pay: Clarify who is responsible for reporting and tax recording to avoid confusion in January.
• Miscalculating pay periods: Biweekly pay schedules occasionally create a 27th pay period. If this happens, make sure annual salaries are adjusted accordingly to prevent overpayment or discrepancies.

Maintaining detailed payroll records and performing periodic payroll audits help prevent these payroll mistakes and ensure full tax compliance. A simple checklist can help you stay organized and ensure nothing slips through the cracks during the final rush.

Strengthen Payroll Management for the New Year

A focused year-end plan that reviews, prepares and prevents mistakes will help you finish the year strong and position your team for continued success. Focus on automation, compliance and consistent time tracking to enhance accuracy and efficiency.

If manual data entry and compliance tracking have become overwhelming, consider outsourcing payroll or using modern payroll services. Automated timekeeping, self-service portals and templates for reporting can drastically reduce human error and help you pay employees correctly every time.

By following these payroll best practices, your organization can stay compliant with tax and labor laws and ensure smooth, efficient operations for accurate year-end reporting.

Ready to move into the new year with a smoother, smarter payroll process? Start now by perfecting your year-end close with the right payroll software and setting the stage for compliance and success in the year ahead.

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