Year-End

When thinking about creating or updating your HR policies, an HR compliance checklist is a great way to help make sure your bases are covered because there's simply too much at stake. Particularly during year-end, there are many moving parts and critical deadlines your business must meet, otherwise you could face penalties. To help your company stay up-to-date, we've compiled a checklist that identifies some of the most important tasks related to payroll, HR compliance, benefits, and other important HR matters.

What Is an HR Compliance Checklist?

HR compliance is a critical part of business success, but this is a complex area with many moving parts. And with the number of employment laws and regulations on the rise, paired with the risk of penalties for non-compliance, it's important to stay organized with HR compliance matters. That's where an HR compliance checklist comes into play. This resource functions as a compass for businesses and HR teams, helping to guide them through and point them toward information and key dates, important documents, and best practices related to HR — from benefits, payroll, hiring and recruiting, and much more.

How To Keep Track of Compliance Deadlines

An HR compliance checklist is a great way to stay on top of key due dates related to applicable federal, state, and local laws and regulations. Consider that there are certain compliance matters with specific deadlines you can anticipate and will need to handle every year. A few examples of these predictable compliance deadlines include:

• Filing W-2s: Generally, by Jan. 31, employers must provide Form W-2 to employees so that they can file their federal and state taxes. A copy of each employee's W-2 must also be sent to the Social Security Administration (same deadline).
• Affordable Care Act (ACA) reporting: Applicable large employers must furnish Form 1095-C to applicable employees by March 2, 2023. The deadline for filing paper Forms 1094-C and 1095-C with the IRS is Feb. 28, 2023, or March 31, 2023, if filing electronically.
• EEO-1 reporting: Certain employers must report demographic workforce data, including data by race/ethnicity, sex and job categories. The next annual collection of data is tentatively scheduled to open in April 2023, per the EEOC.

Other deadlines may be more unpredictable or triggered by certain events, such as when you bring on a new hire or an employee leaves the organization. In such cases, knowing what's required and what your window of time is to meet your responsibilities is the best way to prepare. Regardless of the type of deadline, an HR checklist is an effective way to have visibility into your business's HR compliance-related tasks.

Taxes and Payroll Compliance

When completing taxes and payroll for year-end, reference the payroll and tax compliance checklist below to reduce the risk of mistakes during year-end:

Verify Employee Information

• Validate employee addresses. Incorrect information could delay receipt of W-2 forms for some workers and create waste for your business with the printing and mailing.
• Check your records for employees who left the company during the year to make sure their employment status was correctly updated.

Double-Check W-2s

• Verify all Social Security numbers or federal employer identification numbers (FEIN). Missing or incorrect numbers could result in a penalty by the Internal Revenue Service (IRS) of up to $50 for each W-2 returned.
• Include any taxable cash or non-cash benefits (e.g., use of a company car) on the W-2.
• If your business doesn't already do so, consider establishing a secure online portal for employees to obtain their check stubs and W-2s. This may help minimize labor and paper waste, and increase security of sensitive information.

Prepare Year-End Documents Required for Tax Filings

• CARES Act Employee Retention Credit: This tax credit was created to support employers who paid their staff throughout the pandemic. If your business didn't claim the credit last year, you may still be able to claim it. Businesses have three years after the program ends to look back at wages paid after March 12, 2020, to determine eligibility. For qualified wages paid from March 13, 2020 through Dec. 31, 2020, a credit of up to 50 percent of $10,000 in wages, annually, that were paid by companies affected by COVID-19 is available. For qualified wages paid from Jan. 1, 2021 through Sep. 30, 2021, a credit of up to 70 percent of $10,000 in wages, per quarter, paid by companies affected by COVID-19 is available.
• FICA and FUTA forms: Make a note of filing deadlines and various tax responsibilities. For example, per the IRS, if your FUTA tax liability is more than $500 for the calendar year, you must deposit at least one quarterly payment. If your liability is $500 or less in a quarter, carry it forward to the next quarter.
• Affordable Care Act requirements: Companies that must comply with the ACA must prepare and distribute 1095-C forms to applicable employees.
• Independent contractor payments: In addition to preparing employee tax forms, make sure that qualifying independent contractors, who earn more than $600 in a calendar year, receive their correct statements for tax purposes. You must now report these amounts using form 1099-NEC.

Employee Benefits Review

Open enrollment will be here before you know it. Ensure you're prepared to refresh your benefits packages and complete the following tasks related to benefits compliance.

Review Coverage Plans and Health Insurance Policies

• Group health plan renewal: Many group health insurance policies renew on Dec. 1 or Jan. 1. Review coverage plans and pricing to determine if changes are needed.
• ACA requirements: Review the provisions of the Affordable Care Act for ongoing compliance, including:
  • Employer Shared Responsibility (ESR) provision under which companies employing an average of 50 or more full-time employees, including full-time equivalents, during the prior year must offer affordable and adequate medical coverage to full-time employees and their dependents or risk a potential assessment.
  • IRS 2022 Employer Health Plan Affordability Threshold change: The tax year 2022 health plan affordability threshold, which is set by the IRS and used to determine if an employer's lowest-premium health plan meets the ACA affordability requirement, is 9.61% of an employee's household income (the tax year 2023 limit will be 9.12 percent).
• Open enrollment: Prepare communications with employees and schedule informational meetings.
• FSAs: If you plan to establish a flexible spending account, allowing employees to set aside pre-tax money for medical or dependent care expenses, your business needs to set up the plan and employees need to enroll before the new year.
• Review healthcare plan filing requirements and deadlines.

Gather Payroll Records

Gather payroll records if your workers' compensation policy mirrors the calendar year. An auditor may want to review payroll records in accordance with its policy period.

Compensation Policy Review

The new year is a great time to review employee compensation to make sure you are competitive with the 2023 hiring market.

Confirm Year-End Bonuses

If your business awards year-end discretionary bonuses, work with your payroll provider to issue the checks, either as a separate line item or in separate checks (additional bonus taxation may apply).

Review Wage and Hour Updates

If your applicable state or local minimum wage rate is increasing as of Jan. 1 or on a different date in 2023, ensure the updated rate is reflected for applicable employees' pay as of the effective date. In addition, review your obligations under applicable state and/or local laws with respect to wage and hour matters. Check out what’s happening in your state.

Review Updates To Wage Base Limits

Resetting wage base limits should also be a part of your year-end business compliance checklist. For the upcoming year, companies should be budgeting for the taxes they may not be paying now if employees have already met wage base limits. Wage base limits start over every Jan. 1, including federal and state unemployment tax, Medicare, Social Security, and state employment taxes. Note the 2022 increase in individual wages up to $147,000 subject to the 6.2 percent Social Security tax, also referred to as the Old Age, Survivors, and Disability Insurance (OASDI) tax.

Staffing and Training Processes

This year brought with it a number of hiring challenges, so ensure employees are trained appropriately and that you are complying with any mandated training moving into the new year.

Create or Update Your 2023 Training Calendar

Start looking ahead to next year. Consider developing a calendar of required training for managers and employees, examples of which include sexual harassment prevention training, hiring practices, workplace safety, and effective management. You may also want to schedule time to update managers and staff on COVID-19 protocols and compliance to ensure continued compliance with OSHA, CDC, and local guidance.

Review Employee Time Off

If you have a self-service portal, remind employees to review their vacation, holiday, sick, and paid-time-off banks, especially if you have a "use-it-or-lose-it" policy (where permitted) or caps on carryover amounts. If your business tracks this for employees, you may wish to notify them about their balances.

Review Your Business Continuity Plan (BCP)

Check your company's severe weather, natural disaster, and health emergency policies, and have a BCP in place in case weather, a natural disaster or health emergency impacts your business operations at year-end and through the first quarter of 2023.

Update Your Employee Handbook

An annual review of your employee handbook should be included in your year-end checklist. All new policy updates should be included in the handbook and communicated to employees. You may also want to review any remote or hybrid work policies that you may have implemented in the past few years.

Start 2023 HR Compliance on the Right Path

Preparing now can help your business run more smoothly at holiday time and beyond. Remember to use resources — including assistance with legislative and regulatory compliance, payroll, human resources, and time and attendance management. It can make preparation much easier.

As the end of the year approaches, it's important to make sure that your payroll year-end information is up-to-date. As you finalize your payroll activities and set compensation and benefits for 2023, use this year-end payroll checklist, which includes numerous steps for year-end payroll reporting and taxation, to help you stay on track.

Even if you're experienced with end-of-year payroll, it can be easy to overlook crucial steps at two critical junctures: the last payroll of the calendar year, and the first payroll of the new calendar year. Using an organized year-end payroll checklist can help make sure you don't overlook any major requirements from a payroll or benefits perspective.

What Is Year-End Payroll?

To prepare your business and employees for tax season, year-end payroll is the careful review and verification of your financial information during the fourth quarter of the calendar year through the first quarter of the following year. Businesses are responsible for year-end payroll tasks related to employee payments and records, including:

• Accurately calculating tax liabilities, employee compensation, and deductions to be withheld from employee paychecks.
• Reviewing relevant tax documents to make sure you track all payments correctly in the new year.
• Completing and filing forms with the Internal Revenue Service (IRS), Social Security Administration (SSA), and any state and local tax departments.
• Identifying and preparing for any changes to local, state, and federal employment regulations that affect your business in the new year.

When Does the 2022 Payroll Year End?

You should do everything possible to not miss important payroll year-end dates for submitting payroll forms and tax information. Business tax obligations for year-end payroll will vary by state, business size, industry, and several other factors, but most businesses will be required to file:

• An annual business tax return, whose filing deadline depends on your business structure (March 15 for partnerships, multi-member LLCs, and S-corporations; April 17 for C-corporations);
• Forms W-2 and W-3 for each employee by Jan. 31;
• Form 1099-NEC for contractors by Jan. 31;
• Form 940 and fourth quarter FUTA taxes deposited by Jan. 31; and
• Quarterly Form 941 tax return or the annual Form 944 by Jan. 31, depending on when you file.

Be mindful of the fact that proper preparation for year-end payroll taxes begins well before the end of the year. It's always a good idea to keep accurate and up-to-date payroll records throughout the year to help you meet required deadlines and make these tasks as straightforward as possible.

What Forms Do You Need for End-of-Year Payroll?

As an employer, you're required to send employees and contractors specific tax forms by the end of January, as well as submit wage and tax information to the SSA and IRS. Specifically, some of the year-end forms include:

• Form W-2: Reports employee wages and withholdings to the SSA.
• Form W-3: Summarizes the information in the W-2. This is submitted with W-2s to the SSA.
• Form 1099-NEC: A statement of income (any wages over $600) for contractors.
• Form 940: Filed with the IRS by businesses with one or more employees, and used to determine the employer's federal unemployment tax (FUTA) which is based on the business's annual payroll.
• Form 941: Due quarterly and used to report wage withholding for income taxes as well as the employees' share of Social Security and Medicare (FICA) taxes, plus the employer's share of FICA.
• Form 944: Applies to employers with annual tax liability who withheld federal income tax, FICA (employee and employer share) totaling $1,000 or less.
• Form 1095: As part of the Affordable Care Act, if you have an average of more than 50 full-time employees, including full-time equivalents, during the preceding calendar year or your business is self-insured, you must file Form 1095 with the IRS. Self-insured small businesses must file Form 1095-B to report information on individuals provided minimum essential coverage, and employers with more than 50 employees must file Form 1095-C on health insurance coverage offered to full-time employees and their dependents and if self-insured, they must also provide information on individuals enrolled in coverage. Failure to file or furnish these forms in a timely manner could lead to penalties.

Payroll Checklist: How To Prepare Before the Last Payroll of the Calendar Year

There are many steps involved in preparing for year-end payroll. Here's a closer look at steps you can take now to prepare for the end of the year, even before your last payroll check is processed.

Verify Business Information

The business information you have on file for tax purposes should always be accurate, so now is the time to verify that all of these details are correct. Specifically, verify your state and federal employer identification number (EIN), as well as your company name and address. You'll want to do the same with your state unemployment account number(s).

Set Compensation for Next Year

As you prepare your budget for the coming year, you may want to factor in any expected pay raises for your staff. Of course, the amount you offer depends on what you can afford after factoring in costs such as employee compensation and payroll taxes.

Keep in mind that the wage base for the Social Security portion of FICA in 2023 will be $155,100, which as an employer will result in paying more FICA taxes, as the 6.2 percent share is applied to this higher wage base. For non-exempt employees, check to see if there are any 2023 minimum wage rate increases for the states and localities in which you operate. Businesses in certain states also need to check if there are any salary threshold changes taking effect that would require adjustments to be made for their exempt employees.

Set Year-End Bonuses

Some companies choose to offer annual bonuses to employees. Bonuses may be tax-deductible, but when do you deduct them? Assuming that you report your income and expenses on a calendar-year basis, then:

• If you are a cash-basis business: Deduct the bonuses in the year in which they are paid. If you pay bonuses in 2022, they're deductible for 2022. If you pay 2022 bonuses in 2023, they're deductible in 2023.
• If you are an accrual-basis business: Bonuses declared (and accrued) before the end of the year are deductible this year if they are paid within 2½ months after the close of the year (provided that the employee is only required to be employed on the bonus declaration date and not on the bonus payment date). However, bonuses paid to S-corporation shareholder-employees are not deductible until paid. For owner-employees in a C-corporation, the bonus is deductible only when paid in the case of a personal service corporation or for the majority (more than 50 percent) owners.

Inform Employees About Unused Benefits

Some of the benefits that employees earned or paid for in 2022 may expire at the end of the year. Consider your company policies for these benefits and advise employees accordingly:

• Vacation, sick days, or personal leave time: Based on company policy and/or applicable law, can unused days be carried over? And if so, are there limits to the amount that can be carried over? Annotate any remaining paid time off and communicate this information to employees so that they can schedule and coordinate leave time accordingly.
• Flexible spending accounts (FSAs) for medical costs and dependent care: Usually, FSAs have a use-it-or-lose-it feature. Generally, amounts remaining in the account at the end of the year are forfeited. However, plans may allow employees to submit claims within a set time (run out period) for expenses incurred in the previous year. For example, an employee may submit reimbursement for a medical expense incurred on Dec. 15, 2022, by Jan. 30, 2023. Typically, a medical FSA can also provide for a grace period of up to 2½ months after the close of the year for new expenses, or the FSA can allow for a carryover of up to $570 (2022). The FSA cannot offer both a grace period and carryover option. Advise employees about the terms of your plans.

Confirm Employees’ Identifying Information

When it comes to payroll, the end of the year is a great time to check for inaccurate or outdated employee information, since these inaccuracies can lead to costly delays and reprints of W-2s, as well as IRS-imposed penalties. Ask employees to confirm their full name, Social Security number, address, and additional contact information to help streamline your end-of-year processes and ensure that vital tax documents get to the correct location. This is also the time to ensure that deceased employees are properly coded and abide by any state laws regarding final pay for deceased employees.

Record All Processed Paychecks

While you won't be able to finalize your annual payroll and tax numbers until after the final pay period, you can certainly get a jump start on recording and verifying everything that has already been processed. Review previous pay periods to ensure that all amounts are logged accurately by verifying:

• Employee wage amounts
• Benefits deductions
• Child support or other miscellaneous deductions
• Disability or other benefits payments
• Special tax exemptions that may have occurred throughout the calendar year

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, eligible employers may have deferred the employer portion of Social Security taxes through the end of 2022. If your company opted to take advantage of this relief measure, you'll also need to verify the deferred amounts, which can affect the amount of taxes due in 2023.

Order W-2s, W-3s, and Other Applicable Tax Forms

As mentioned earlier, you need to provide your employees with end-of-year tax statements via IRS Form W-2. You can get these necessary forms directly from your payroll service provider, printed from your payroll management system, or directly from the IRS. If you plan to obtain blank forms directly from the IRS for manual completion, be sure to order the forms well before the end of the year so you can begin processing them immediately after the final payroll period.

Determine Your Payroll Policies for the New Year

While many businesses follow the same payroll schedule and policies year after year, you may be considering a change to your payroll structure. In the age of more employees expecting quick access to their paychecks, you may want to evaluate whether options such as pay-on-demand make sense for your business. The end of the year is the best time to implement a change, so evaluate those decisions now. Determine the paycheck deposit schedule you plan to use in the new year, as well as what options you'll have for employees to receive their paychecks.

Check for Special Circumstances

While these things may not apply to all businesses in every calendar year, you may have some special tasks to complete if your business experienced any of the following:

• Newly hired employees or employees who didn't complete a W-4 at the time of hire
• Employees with voided or reversed paychecks
• Employees or former employees with active payroll disputes

If any of these situations apply, try to resolve these issues before the end of the year. If that isn't possible, verify how these issues will affect your end-of-year payroll.

Payroll Checklist: What To Do After the Year’s Last Payroll and Before the First Payroll of the New Year

While much of the planning and organization on your payroll year-end checklist can be done in advance, there are several important steps to complete after the final payroll period of the year. Once your final payroll period has been calculated, be sure to do the following.

Finalize Wage, Tax, and Benefits Information

Before finalizing your payroll for the current year, give one last review to ensure everything looks accurate for each employee and your company as a whole. Total each employee's wages, taxes paid, and benefits earned throughout the year, then calculate summary figures for your business to use on the applicable year-end tax forms. This also includes any fringe benefits you offer, which are generally included in an employee's income and can include personal and sick days, partial tuition reimbursement, company car, or stock options. Make sure that you report fringe benefits under employee earnings.

Distribute Forms W-2 to All Employees

Once the final payroll for the year has been processed, you can print and distribute Forms W-2. Some payroll providers will send Forms W-2 directly to your employees. Regardless of delivery method, employees must receive a copy (or have access to download a copy) of their Form W-2 by Jan. 31 of the following calendar year, so these forms must be calculated and distributed quickly.

File Year-End Payroll Tax Forms With the IRS and Deposit Taxes Owed

In addition to the payroll year-end dates mentioned earlier, part of your business tax obligations includes paying taxes owed in a timely manner. If your end-of-year payroll tax return shows that you owe taxes, these must generally be paid online via the IRS business tax website. While individuals generally have until April 15 to file personal income taxes each year, business tax returns and any taxes owed are generally due by March 15. Keep these important filing dates in mind as part of your year-end payroll tax checklist.

Review the Coming Payroll Year and Initiate Next Year’s Payroll Schedule

After you have wrapped up this year's payroll, review your payroll schedule for the next fiscal year. Check all period-ending dates and quarterly closing dates to make sure they do not fall on any major holidays, weekends, or other dates that would make it extremely difficult to process in a timely manner. Make any necessary adjustments to your schedule, then set up your new payroll plan for the coming year.

Review Applicable State/Local Minimum Wage Changes

As of the time of this writing, many states and localities have announced minimum wage rate increases, many of which are in response to inflation rates that continue to impact individuals and businesses nationwide. Scheduled increases are planned in numerous states and localities with additional increases likely to be announced before the end of the year. Since many wage increases become effective Jan. 1, 2023, it's important to take this into account when determining compensation for the upcoming year.

Ensure You Start 2023 Payroll Strong

With a bit of advanced planning and this helpful end-of-year payroll checklist, you can successfully wrap up this year's payroll requirements and set a smooth foundation for the year ahead. Consider these factors as you finalize your payroll activities for this year, and work with a payroll provider to help you avoid fines and penalties for non-compliance, meet all required deadlines, and establish sound payroll practices.

Check out business tax-saving tips that employers can utilize in 2023 to reduce their taxes and help guide their employees. Stay informed with Paychex.

With the new year underway, the inevitability of taxes may be top of mind for you and your employees. While you may be wondering about small business tax saving tactics, your employees may be wondering how to save on taxes themselves. For employers, options include maximizing deductions and credits, sheltering revenue, and contributing to employee benefit plans. Planning ahead with the following business tax-saving tips may help you and your staff yield savings this year.

8 Tax Saving Tips for Your Business

Throughout the year you may wonder, "How do I maximize my business tax return?" It's possible to rein in your tax expenses in with a number of strategies. Note that you may want to consult your company tax expert for more information.

• Ensure that you're taking every deduction and using every tax credit available. If you don't already use an experienced tax preparer — one who keeps abreast of complex and fluid tax laws — it's likely a worthwhile business expense.
• Shelter revenue from profits in a qualified retirement plan that gives a tax deduction for your contributions, and defers taxes on earnings until you withdraw from the plan.
• Consider an accountable plan to save the company and employees on taxes if you reimburse staff for using personal vehicles for company business and other business-related expenses (e.g., internet access for remote employees). IRS Publication 463 describes accountable plans and their use.
• Ensure that your business is structured properly. Can you gain tax advantages as a C corporation or another structure? Your company's structure determines the tax rates paid on profits.
• If possible, increase your contribution to workers' health insurance premiums. Doing this in lieu of salary raises means that you and your employees save the attendant income, FICA, and additional Medicare taxes on bigger paychecks.
• Offer to match a percentage of employee contributions to the company 401(k) plan — the business's share is deductible. You'll save on taxes and your workers will have increased financial security.
• If it fits your company, establish a section 125 benefit plan, which allows employees to pay medical and dental premiums with pre-tax dollars and set aside pre-tax funds for qualified medical and dependent-care costs. A section 125 flexible spending account saves both employees and employers FICA taxes that would otherwise be due on wages contributed to these accounts, plus employees may save federal, state, and local taxes.
• Review tax elections that can be made after the year ends to minimize taxes. A business that purchased equipment has a number of choices on how to write-off the cost on the business tax return; the decision must be made when the return is filed. The cost of business driving can be deducted using the actual costs involved or relying on an IRS-set rate.

Important Dates in 2023 for Taxes

In addition to maximizing tax deductions, stay on top of tax filing and other important deadlines throughout the year. Keep in mind the following dates as you plan and look for tax savings in 2023:

How Can Business Owners Help Employees Save on Taxes?

Employers want to help their employees in every way possible, including assistance with tax savings. Consider helping workers to reduce what they owe the IRS throughout the year by:

• Adopting automatic enrollment for 401(k) plans. Their pretax contributions reduce reportable income, which means they have a potentially lower income tax bill. Employers may be eligible for a tax credit for using this plan arrangement.
• Offering deferred compensation arrangements. They enable employees to postpone the receipt of bonuses or other designated amounts—and the income taxes on them—until retirement.
• Reminding employees to use up flexible spending account funds (FSA). These accounts let employees set aside pretax money to offset healthcare or childcare expenses. As an employer, you can opt for the IRS-permitted grace period, allowing workers to spend their 2022 accounts balances up to March 15, 2023. Alternatively, you can offer a limited healthcare FSA carryover of unused amounts from 2022 to 2023.

Tax Law Changes for 2023

While you may be focused on preparing your 2022 return, many people will want to understand tax changes that have occurred as a result of legislation as well as expiring rules, and how this could impact their 2023 returns that are filed in 2024 as well as 2023 estimated taxes (the first installment of which is due April 18, 2023). A few notable items include the following:

• Inflation adjustments: Income tax brackets, eligibility for certain tax deductions and credits, and the standard deduction have adjusted to reflect inflation. This means that the standard deduction on the 2023 return is:
  • $27,700 for married couples filing jointly and surviving spouses
  • $13,850 for individual taxpayers and married individuals filing separately
  • $20,800 for taxpayers filing as head of household

There's an additional standard deduction amount for those age 65 and older and another for those who are blind.

• Green energy actions: Provisions in the Inflation Reduction Act continued the tax credit for making certain energy improvements to a residence as well as retaining a higher credit for adding solar panels or other alternative energy property. The measure also introduced a "final assembly requirement" for claiming a clean vehicle credit when buying an electric vehicle on or after August 16, 2022.
• Retirement plan distribution changes: Provisions in the CARES Act allowed individuals impacted by COVID-19 to withdraw up to $100,000 of retirement assets in 2020 without penalty. Taxpayers who opted to spread it equally over three years (i.e., 2020, 2021, and 2022 tax returns) must include the final portion on their 2022 return. If some or all of the distribution was repaid in 2022 and the three-year spread was used, amended returns for 2020 and 2021 are needed to obtain a refund of taxes paid for those years. For those who must take required minimum distributions (RMDs), new IRS tables reduce the amount that must be taken. Reminder: Those attaining age 72 in 2022 and did not take their RMD by December 31, 2022, must do so by April 1, 2023, to avoid a penalty.

Plan for Ways To Save on Taxes for Small Business in 2023

Waiting until to the last minute to focus on year end business tax planning and tax saving strategies can bring stress to you and your employees. Fortunately, the start of the year is a great time to consider the many small business tax strategies as well as individuals that are available. New tax rules that become effective this year can mean even greater business tax savings. Work with a tax services expert to help identify and maximize opportunities to save money.