For most in-house payroll professionals, year-end is the bane of your existence. While most of the world looks forward to the Thanksgiving holiday for food, fun, family, and a much-needed break, we “payroll-ians” dread it — we know what’s quickly approaching on the horizon. Often times, it’s filled with payroll adjustments, manual calculations, bonuses, group-term life insurance and third-party sick pay additions, and much more. Year-end cannot be averted; you are not allowed to “abort mission.” Our company’s employees are counting on us to be sure that their W-2’s, 1099’s and other end-of-year reports are spot on. Although it can seem like an overwhelming task, it’s absolutely do-able.
Of course, gearing up for this time of year should be an ongoing process throughout the year. But that may be easier said than done. If you’re able to audit your company’s information once a quarter, do it! But, if October 1st sneaks up on you like a cheap bottle of wine, you’ll want to pay close attention to my tips. So, roll your sleeves up, grab that large pumpkin spice latte with an extra shot of espresso, open up your laptop, and let’s get to work!
- Set up “office hours” for your colleagues and STICK TO THEM. This allows you to be available for your internal/external associates, while still being able to get your work done in a timely fashion. For me, I schedule office hours for year-end updates on M-W-F from 10am – 1pm. Updates can be sent via email (preferred) or phone. If there is an issue that requires a conference call, it needs to be scheduled on a Tuesday or Thursday during the hours of 9am – 12:30 pm. This way, employees and vendors receive the information they need without being rushed, your colleagues are able to “pick your brain” when they need you, and you still have time to complete your assignments.
- Send out an email/snail mail blast to all of your employees and vendors at the end of Quarter 3. In your correspondence, verify that pertinent information (for employees: full name, address, and social security number; for vendors: the business legal name, physical address, mailing address, and telephone number) is correct. If your company utilizes the services of a CPA, verify their information, as well. This would also be a good time to reference the “office hours” mentioned in #2.
- Go over any year-end reports from the previous year. This will give you a fairly accurate “guesstimate” of what to expect in the coming year. Now… don’t get carried away. Last year’s reports are not The Bible of Year-End Data. But, it’s a great starting point for what may be this year. If you see Personal Use of Company Car in 2013, chances are it will be reported again this year.
- Run an audit report to be sure that every employee and contractor has a valid social security/TIN number in your system. As of January 1, 2011, the IRS imposes a $50 penalty for information returns for each missing/incorrect social security/TIN number. Make it a practice not to pay an employee/contractor without this information. Trust me, staff/vendors will thank you later. While you’re doing this, run another report showing any employees that are missing any SS/MED/FIT wages (wages that are reported in Boxes 1, 3, and 5 of the Form W-2). If wages are nonexistent in these boxes, 99.999% of this time this is WRONG! Don’t be the payroll specialist that gets stuck on December 31st trying to correct wages for that one employee that has been marked as EXEMPT for the entire year. That happened to me, once. Once.
- Keep in mind any wage base limits for the current year with regard to SS/MED and State Unemployment Insurance, along with some common pre-tax deductions. This allows you to be able to answer some basic-level questions your employees may ask about their W-2. And yes, I’ve created a list for you right here. You’re welcome!
2014 — Tax Rate and Wage Base Tax Federal or State ER EE Wage Limit Max Tax ER Max Tax EE Social Security Federal 6.2% 6.2% $117,000 $7,254 $7,254 Medicare Federal See table below. NO MAX NO MAX Federal Income Tax Federal N/A Varies NO LIMIT N/A NO MAX FUTA Federal 0.6% N/A $7,000 $42 N/A State Income Tax State N/A Varies NO LIMIT N/A NO MAX State Unemployment State Varies Varies Varies Varies Varies Medicare Employee Medicare Wages Employee Tax Rate Employer Tax Rate Wages equal or less than $200,000 1.45% 1.45% Wages greater than $200,000 2.35% (1.45% = 0.9%) 1.45% Defined Contribution Plan Limits
For 401(k), 403(b), and most 457 plans, the COLA increases for dollar limits on benefits and contributions are as follows:
2014 Maximum elective deferral by employee $17,500 Catch-up contribution (age 50 and older during year) $5,500 Defined contribution maximum deferral (employer and employee combined) $52,000 Employee annual compensation limit for calculating contributions $260,000 Annual compensation of “key employees” in a top-heavy plan $170,000 Annual compensation of “highly compensated employees” in a top-heavy plan (“HCE threshhold”) $115,000 HSA Contributions 2014 HSA Contribution limit (employer + employee) Individual: $3,300
HSA catch-up contributions (age 55 or older) $1,000 HDHP minimum deductibles Individual: $1,250
HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) Individual: $6,350
FSA Contributions 2014 FSA (including limited) Minimum – $25; Maximum – $2,500 Dependent Care Minimum – $25; Maximum – $5,000
- If you’re unsure about information that you’ve received from an employee or vendor, ask questions. Better yet, get in contact with your company’s accountant (see #3). Sometimes, employees or vendors are trying to explain what their accountant shared with them. And we all know that much can be lost in translation. Your accountant will be able to speak Payroll-ese, and offer you sound advice. If that doesn’t help, ask which boxes the amount should be reflected in on the W-2. More often than not, you can work backward to discover what this mystery earning really is.
- When in doubt, make it taxable. It is more difficult to collect under-withheld taxes from an employee than to refund over-withheld ones. Making an earning/deduction taxable allows you the peace of mind that, if it’s wrong, the employee will receive money back. That’s always a good thing!
- Set up deadlines for staff and vendors to report information. If your company plans on processing year-end reports on December 31st, have your clients provide all necessary information by December 22nd. Remember, year-end processing is just one piece of your payroll life. You’re probably still processing normal weekly, bi-weekly, semi-monthly, and/or monthly payrolls. Plus, there are always a few emergent “hiccups” that need to be handled immediately. Creating deadlines allows you to preview the information in the system before the final process is initiated. If something doesn’t seem right, you have an opportunity to fix it. It also allows you a few seconds to refer back to breathing (see #1).
- ASK FOR ASSISTANCE! Year-end requires a lot of patience and dedication. It also may require some extended hours. Make sure that your supervisor is always aware of your workload and schedule. If you’re feeling overwhelmed, speak up! Ask for help, if needed. Our staff and vendors are depending on us to provide superior service and error-free information. Year-End (or anytime, for that matter) is not the time to let them down. It can be done.
With proper preparation and a little “know-how,” the Year-End Beast can be conquered. Every year will get a little easier, but every year will bring on new challenges and changes. Make this process a living, breathing, and ongoing task so that you can actually enjoy that delicious fried turkey on Thanksgiving rather than suffering from indigestion and headaches because “it” (year-end) is looming over your head.
There is another way to avoid year-end hassles… AcroTime Payroll. Our payroll experts can shield you from the headaches and indigestion, as our secure cloud-based service accurately processes your payroll all year long and easily produces all the reports, forms and filings you need. If you’re ready to move up to a virtually pain-free year end (and faster, easier processing every pay period), contact us today.