Year-End Accounting & Payroll Guide
As the year comes to a close, make sure that you are ready to end the year on a high note.
Year-End Accounting & Payroll Guide
The end of the year always brings a wave of questions, but with a bit of guidance, you can finish out the year with confidence. To prepare for the 2022 tax season and create a plan for next year, follow this guide to ensure your client’s financial success.
Before you begin with year-end tasks, ask yourself the following question about each: “Will I have all of the information I need to complete this task before the last payroll of the year, or do I need to wait until after the last payroll disbursement for the year?”
Dividing tasks according to deadlines gives you the ability to prioritize tasks and keep them organized. Rather than looking at everything all at once, dividing the tasks will ease stress and make it possible to thoroughly accomplish each task before progressing to the next objective.
When preparing for end-of-year objectives, ensure that you have collected all of the employee data possible to maximize your potential for efficiency and success. Five major areas to address when completing end-of-year tasks are — employee tax deductions, time off balances, company benefits, minimum wage increases, and employee handbook adjustments.
Update Employee Deductions
Before running payroll for the last time in the calendar year, ensure that you have the correct data for employee deductions. Key components to focus on are medical expenses, life insurance premium costs, 401(k) contributions, and other employee deductions that need withholding from the final paycheck.
- Double-check that you have the correct deferred compensation plan type for each employee and verify their contribution amounts.
- Verify your client’s state unemployment insurance tax rate and wage limits for their location.
- Total the amount of uncollected Social Security and Medicare taxes for retirees and former employees.
- Make proper adjustments and submit Group-Term Life Insurance information.
- Verify that you have appropriately withheld and accounted for taxable fringe benefits, such as — personal use of a company vehicle, non-accountable business expense reimbursements, non-cash payments, etc.
- Update and submit other special tax items, including but not limited to — third-party sick pay, employee business expense reimbursements, tip allocation information, and dependent care benefits.
After you verify this information and disburse the last paychecks of the year, you can then narrow in on verifying the final end-of-year data. Pay close attention to Social Security, Medicare, unemployment, and other areas of qualified deductions.
- Test and verify if Social Security tax withholdings are reasonable — multiply total wages with excess wages removed by 6.2%.
- Verify that the employer has matched the employee’s Social Security tax contribution.
- Test and verify Medicare withholdings by multiplying the employee’s total wages by 1.45%
- Verify that the employer has matched the amount of Medicare tax withheld from the employee.
- Confirm that the employer’s unemployment insurance tax rate is recorded correctly in each state that they have employees.
- Check for child care and medical care reimbursements from Section 125, also known as the “cafeteria” plan.
- Double-check employee records for excess contributions to retirement plans such as 401(k).
After running through employee tax data, double-check it one last time for proper calculations and withholdings. Then follow appropriate procedures for filing employee taxes according to state and federal laws. Once you file, pay attention to any other adjustments you need to make after the government reviews the information.
Update Time Off Balances
Before the year comes to a close, review the paid time off each employee has available. It is a recommended best practice to notify employees of the PTO they have accrued throughout the year so they know the time they have available to them. It would be best if you asked these questions before notifying employees of their PTO balances:
- Is the PTO system cumulative or traditional — does the employer combine all of the time off together, or is it divided into separate categories like sick, vacation, personal, etc.?
- How do employees accrue PTO — do they earn PTO over time, or is it given to them in one lump sum on a specific date?
- How is extra PTO handled at the end of the year — do employees get to roll time over to the following year, or is it paid out in hourly compensation when the new year begins?
Once you have asked these questions, you will equip yourself with the information to inform employees of their benefits adequately. You want to make sure employees maximize their PTO potential in the best way they see fit, which could look different for different people. Some prefer to work instead of taking time off if the option is available to them.
After you have notified employees of their options and time runs out to claim their PTO, be sure to update their time off balances appropriately. If the company rolls paid time off to the following year, be sure to log it into the company’s PTO bank properly.
Another critical thing to remember when analyzing a company’s PTO at the end of the year is if employees have left the company. In many states, employers must compensate terminated employees for their PTO when the employee leaves the business. If there is any outstanding discrepancy in PTO compensation, be sure to resolve it before the year turns over.
Update Company Benefits
The economic climate constantly changes and an important topic to address is always employee benefits and what businesses need to offer to attract and retain employees. Two core benefits employers always need to consider as the year winds down are retirement options and healthcare.
Depending on the size of your clients’ businesses, retirement options may be limited. Two of the most common options for businesses to offer regardless of company size are 401(k)s and IRAs. Each plan has different ramifications for employer contributions, contribution limits, and flexibility in withholding employee income. Before the next year starts, it is essential to hammer out the details of retirement plans to maintain employee happiness and keep benefits packages as transparent as possible.
Different regulations, especially where the Affordable Care Act is concerned, make healthcare benefits a yearly conversation that needs addressing. Take the time to discuss with your clients the particulars of healthcare and what they need to know moving forward based on their revenue, company size, and desired contribution to health benefits. The time you spend exploring health benefits before the end of the year will prepare you and your clients for the future.
Once you discuss benefits packages with clients and decide what options to utilize, record their chosen changes for their businesses. Keeping a record of benefits packages in simple and easy-to-understand terms contributes to employee retention and happiness. When you can effectively inform employees about the changes coming to their benefits packages, your clients benefit from a loyal team.
Check for Minimum Wage Increases
The federal minimum wage has not increased in the United States for the past eleven years, but that does not mean the minimum wage has remained the same in your state. Minimum wage varies from state to state, so it is vital to keep up with changes in minimum wage laws based on the locations of your clients — an excellent tool for accessing high-level information is the EPI Minimum Wage Tracker.
Many businesses prefer to pay employees above the minimum wage based on experience, skill level, risk, etc., so take the time to discuss the wage ceiling they want at their business. Having these discussions before the end of the year allows you to prepare for the year to come by knowing what you want to pay your employees. Benefits for paying employees above the minimum wage include:
- Advertising for their businesses — employees spread the word about companies based on how their work treats them; the better the pay, the better the reputation.
- Increased team loyalty and retention — employees will be more eager to work and willing to stick around when they feel well-compensated for their effort.
- Improvement of the surrounding community — when companies pay employees higher than minimum wage, employees have more spending power to benefit their surrounding communities.
Whether your clients decide to offer the minimum wage or increase their wages, it is crucial to be on the same page as them when the new year starts. Setting wage guidelines and making plans to implement them for the next year puts you a step ahead when the new year begins.
Make Employee Handbook Adjustments
End-of-year is the perfect time for reflection and review. Employee handbooks may not be at the forefront of every employer’s mind. Still, they are necessary tools for communicating a company’s policies and practices, as well as its values, culture, and vision. Company handbooks can also protect companies from employment lawsuits and investigations when adequately implemented.
2020 changed the face of social guidelines with the rise of the COVID-19 pandemic. Since the initial spread of the pandemic, legislation such as the NYS HERO Act has been put into place to protect workers potentially exposed to the virus. These new regulations outline how workers should act around each other and customers concerning the spread of COVID.
Spending the proper amount of time with clients discussing handbook policies is vital to creating an appropriate guideline for workplace behavior and using it as a tool to promote a positive corporate culture. Appropriate implementation of employee handbooks gives employers confidence in how they run their business, inform their employees about policies like benefits packages, and defend them in case of the unfortunate event of a lawsuit.
People Solutions for People People
The end of the year does not need to be a stressful time for you and your clients. When you take the proper steps and accomplish each significant year-end task individually, you will set yourself up for success. Creating a great plan makes it possible to finish the year out strong and focused for the future.
Complete Payroll helps employers all over the country with payroll, timekeeping, human resources and a variety of other services related to managing your workforce. Request a quote to get in touch with a member of our sales team and learn more about how we can help.
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Finger Lakes Wrestling Club Inc
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ROMOLD Inc.
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Norco Farms
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Elite Roasters
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Mack's Body Shop, Inc.
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H Clarke Services
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Antonucci Law Firm
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Olean Wholesale Grocery Coop., Inc.
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Financial Service Company
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Brian Horn's Auto Repair, Inc.
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Peregrine Walton LLC
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Jack of All Trades
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JD Burkhardt, Inc.
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Attica Auto Supply Inc
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Eden Ale House
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Stowe Potato Sales
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These little articles are great for managers to learn more about HR needs and requirements!
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Revive Buffalo, LLC
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N&G Broadway Inc
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LeRoy Country Club
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N&G Broadway Inc
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Pittsford Realty Corp
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