Top Payroll FAQ's at Year-End

There are many important payroll and tax items to be aware of wrapping up the year and starting the new year. Below we have the five most common payroll FAQ’s that pop up at the end of the year, and the answers to help you.

Q #1. Why does my employee’s first check of the calendar year have different wages, taxes or net pay when no changes were made to the employee profile?

A. The reason is likely one or more of the following:

• The employee may have previously met a federal or state tax wage limit which resets in the new calendar year and the taxes are now being withheld.
• Federal or state agencies made a change to a tax rate, wage base limit, withholding table, or added new taxes. Please visit federal or state websites to review any changes.
• The employee previously met a limit to a specific earning or deduction which starts over in the new calendar year so the earning or deduction is reflected on their paycheck.

Q #2. Do I need to update and/or reset my employees’ time off benefits?

A. Many employers set up time off benefits as “use them or lose them,” which means employees must use their time off or risk losing the available days at the end of each year. If you offer specific time off benefits within the calendar year, you’ll want to set them up so that those time off accruals will change based on your policy at the beginning of a calendar year.

Q #3. Do I have to reset my payroll schedule for the new year?

A. The good news is if you use a payroll service, you are likely covered when it comes to resetting your payroll schedule for the new calendar year. Most services will automatically reset your payroll schedule based on the frequency you have decided to pay your employees. The four most commonly used pay frequencies are: weekly, bi-weekly, semi-monthly, and monthly. Depending on where you conduct business, you may get to choose your pay frequency, but your state may make that decision for you. The other important thing to consider with payroll schedules, especially at the end of the year, is bank holidays. Bank holidays mean financial institutions are closed, so direct deposits will not be processed that day. Keep an eye out for bank holidays in your payroll schedule so you can plan accordingly if one falls on your designated payday.

Q #4. When do I need to distribute W-2s / 1099s to employees?

A. When it comes time to file taxes, your employees will need to have their W-2s and 1099s in hand. There are requirements around when you must issue these forms: employers need to provide W-2s / 1099sto employees before January 31.

Q #5. I got a Notice of Unemployment Rate change – what do I do?

A. While agencies can send out rate notices throughout the year, many do so as one year closes and a new one starts. Common agency notices to look out for are a Notice of Unemployment Rate Change, Notice of Filing Frequency Change, and a Deposit Requirements Notice. These changes will affect your payroll, so it’s important to share with your payroll provider if you have one.

Bottom Line

With payroll and taxes changing every year, it can be confusing and time-consuming to keep up. Spending a few minutes evaluating your payroll processes and employee information can ensure that you’re starting the year on the right foot. Additionally, this preparation helps alleviate the need for adjustments and corrections throughout the year. We’ve also put together a list of the top year-end payroll mistakes so you can prevent those.