Payroll Year-End Checklist
As year-end nears, companies, CEOs, HR Directors, and Payroll Managers are all gearing up for a busy season.
Closing the books and catching people between vacation blocks, there’s plenty of opportunities to put off preparation for the upcoming year. However, many mistakes in payroll set up for the new year can be avoided with some knowledge and careful preparation. The head of the Customer Care Team at Thread, shared the top 10 payroll mistakes he finds avoidable.
TEN THINGS TO LOOK OUT FOR & AVOID
Incorrect Payroll Setup
The most important thing to watch is the implementation. This issue isn’t necessarily something you deal with every year because you’re probably not changing payroll companies every year. However, when you do switch, if you do not have correct data that you’re starting from or inputting, it can cause massive headaches down the line.
For example, if you switch companies in the middle of the year, and you don’t start a payroll fresh from 1/1, it’s can be hard to get the implementation right from the start. This issue has a lot to do with keeping records organized. It can fall apart if you have to piece information together, and things are continuously missed and roll over year after year. When a client comes on, we have an implementation process and an outline that we use. We make sure the client understands the deadlines to get all the data in timely.
State Unemployment Insurance Rate
Every year, for the most part, [the government] does increase your rates. Watch in the mail for the new standard because if you had a lot of claims in the previous year, when we start filing taxes we might be underpaying. That will add penalties and interest. As the year winds down, watch for what could be lots of correspondence, and forward to your payroll company.
Running Payroll Late/In a Rush
This is about planning on the client end, which can be challenging to solve sometimes, as the client is busy with plenty of other things. Usually, most people who process late feel like it’s a hassle to gather information from their employees. We tell our clients, this is an online system built for you, we can show you how to use it, we can show you how to start saving reports, so there isn’t a hold up for all the data at the end. From timesheets to imports, anything we can do to help them gather data and make this process smoother, we will.
Our goal is to save you time, and the system should be reasonably user-friendly. If you think it isn’t, there might be something you haven’t learned how to do. Talk to your payroll representative and let them know what your point of frustration is, and they should make sure to help you solve the problem. At that point, you can check once at the end of the day or every three days or so to ensure it’s all sent out, but it shouldn’t take up too much of your time or energy.
Overlooking Bank Holidays
This is important because you are controlling someone’s money, and if this happens it could cause a lot of stress in your company. If you have a check date that falls on a bank holiday or a run date prior that will skew when we can process. At thread, we send correspondence to our clients about upcoming holidays, to alert them of payroll changes that might need to be shifted up. You can also access a calendar of essential payroll dates here.
Forgetting to Record Paper Checks
This one seems natural, but it happens. There are little things that pop up that might require a paper check to be written, and that’s fine, but reconciling your numbers can go a long way to avoid a costly round of changes when scrambling at year-end. Make sure your recordkeeping system is working, and implement a regular reconciliation (monthly) to catch things like paper checks before year-end.
Verifying Employee Information
This is about names, addresses, SSNs, and the like. It can be something as simple as someone moved and forgot to tell you or update their record, or it can be incomplete onboarding. When employees move to a new address, the most significant thing is not just changing their address for accuracy, but tax implication changes. Are they living in one state and working in another? Are they remote?
An error like this could mean a lot of amendments for not only the employee but the company too. Also, check on employees who have left in the last year. Make sure you reach out to them to verify that their information is the same for sending W2s and other correspondence after they’ve left.
In November, start asking your employees to check their paystubs and verify information. We have released a quick five-step check email for you to send to them. There’s certainly more for you to check, but this will take a lot off your plate and help the employees be responsible for their pay and taxes as well.
When hiring a new person, sometimes clients don’t have all the proper documentation in place. This problem can be because of the employee’s lack of knowledge as to what information they need to bring in. Making sure you have a checklist of items you will need before the employee can begin work will be motivating and helpful to ensure proper onboarding with complete information and documentation.
Clients who don’t require employees to bring in all documentation before their start date can get caught with missing information that can quickly fall through the cracks. For example, they might just give the payroll company the pay rate and say, “go ahead and tax them at single zero for now.” But we’ve run a few cases where people have forgotten to correct this, and when the employee does its tax return, there’s missing information. Employers should make it a point to require new hires to get correct information in at the beginning, before the first payroll.
As beautiful as direct deposit is, it can become a nightmare when not set up correctly. When signing up for direct deposit, a lot of times people don’t want to get an official copy of a voided check or "official" item from a bank. It’s either a hassle or the employee may feel insecure about their sensitive information. But there are essential items on the official check or documentation, such as the indication of a checking versus savings account, or if a withholding amount is going into a retirement account which can be handled differently from a payroll and tax perspective. Routing numbers are also critical … one mistake there and the paycheck might go to the wrong person, and getting that back won’t be easy.
Make sure you understand the difference between an employee and an independent contractor. This problem may seem simple, but a few small differences separate the two. Or maybe someone was a contractor and is now an employee or vice versa. It can be easy to forget to change that in the system, but you can see a penalty for not paying taxes on an employee, or they may be stuck with a massive tax bill if they didn’t pay into the system. You can check IRS.gov’s article on the subject, or talk to your CPA or payroll provider if you have any questions.
Payments to Terminated Employees
Sometimes after an employee leaves the company, its file may not be closed completely. It’s not very common, but it does happen and at times has to be chalked up to a loss. If an employee has been terminated for one reason or another, shutting down their payroll isn’t the only thing you need to look for here.
Was the employee being reimbursed for cell phone payments? Was there a remote office you were compensating? Or a subscription stipend refunded to them? Making sure to close out all payments to former employees at the time of their departure and last payroll run will ensure you don’t lose out on cash flow, and is one more way to avoid potential amendments and costs.
A Few Best Practices Can Make All the Difference
Your payroll company is here to help, and while it does a lot of work, there are a few best practices that will make your job easier, and your partnership more beneficial. For more information check out our Year-End Best Practices Guide. To see the difference Thread can make, schedule a demo today!