Year-End Payroll Checklists (and 5 Bonus Tips) to Make Your Christmas Merry

Ellen Griswold, in the holiday classic “National Lampoon’s Christmas Vacation” had the line, “I don’t know what to say, but it’s Christmas, and we’re all in misery.”

Hopefully that’s not your holiday experience! But there are times when scrambling to process your final payroll of the year can make you feel that way.

As 2021 comes to a close, we want to make sure that we are doing everything we can to help you cross the finish line without the stress of payroll and taxes looming over you. That’s why we’ve put together a short year-end payroll checklist of tasks that can sometimes sneak up on you. We also wanted to give you an early Christmas gift in the form of a couple of helpful resources.

So here they are!

Helpful Year-End Payroll Checklist

ADP, one of the nation’s leading payroll processing companies, has a detailed Payroll Year-End Checklist on their site that breaks the task down into two time-frames with three steps each.

Certain end-of-year payroll tasks need to be done either:

1. Before the last payroll of the year, or
2. After the last payroll and before the first payroll of the next calendar year.

The three steps you need to take during each of those payroll periods include:

1. Check employee and employer information
2. Check wage, tax, and benefits
3. Check for any special procedures

We’ll give you a few more items to consider below, but ADP’s Payroll Year-End Checklist is a good one to get you started. Also take a look at SHRM’s compilation of 2021 Year-End Benefit Plan & Payroll Checklists.

There’s no need to be overwhelmed with only a few short weeks to go! Our team can help guide you through any of these things you need to get done. Schedule a call with one of our experienced tax professionals to make your year-end payroll as smooth as possible.

5 Things to Include in Your Year End Payroll Checklist

Over our 40+ years helping small businesses with their taxes, here are a few important things we think you should definitely know about as you get ready to close out the year:

1. Order W-2 and 1099-NEC forms. Now is the time to get these forms in so you can get them completed and sent to your employees and contractors by the end of January. Considering the delays in shipping and mail processing over the past year, make this a top priority if you haven’t taken care of it yet.
2. Calculate remaining PTO. If you provide paid time off for your employees, run a report before the end of the year so you can see who hasn’t used all of their remaining time. They may simply be unaware that they have any left, so reminding them that they can begin their Christmas vacation a few days early could be a great bonus gift!
   
   If your company’s PTO policy includes the option to roll time over into the new year or cash out unused days, you’ll want to find out how they’d like to handle that as well.
3. Follow up on checks that haven’t been cashed. If you paid an employee or contractor with a check earlier in the year but they still haven’t cashed it, try to contact them before the end of the year. Be sure to send a certified letter so that you will have a record of your attempt. Once you have done all you can, you’ll need to turn the situation over to your state revenue board. They will then take responsibility for locating the individual, and you will have met your requirements.
   
   Before you reconcile the unpaid check in your accounting system, however, talk with one of our tax and accounting experts to make sure you record it properly.
4. Plan for bank holidays. Your final payroll of the year will most likely fall on or near the end of December. If it happens to land directly on December 25th or January 1, you’ll need to adjust that payroll date to make sure those paychecks get processed on time. Now is a great time to double-check before that pay period actually gets here!
5. Process holiday bonuses correctly. Extra money in the form of a holiday bonus at the end of the year can be a great way to say “thank you” to your team, especially if it is unexpected. As the employer, however, there are a couple of things to keep in mind to make sure these gifts are taxed properly:
   1. If it is an actual holiday bonus (i.e. – a pure gift not tied to performance), it is considered “discretionary” and is not included in the employees’ wages on their W-2. They still pay taxes on it, but it keeps you from having to apply wage and overtime rules to it.
   2. If it is connected to the employees’ performance in any way, it is considered “non-discretionary” and must be included in their wages on their W-2.

Add CRS and Peace of Mind to Your Year-End Checklist

Mountains of complicated laws and regulations can make HR services and payroll some of your most time-consuming nightmares. At the end of the year, you’ve got enough to do without getting bogged down with payroll too.

CRS CPA believes you deserve to enjoy your holidays! We have a team of dedicated tax experts who have been helping small business owners just like you find a little bit of “peace on earth” for over 40 years.

Schedule a call today before 2021 slips away!