Anticipating Mistakes Can Save Time, Money at Year-End

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By Michael Baer

When faced with year-end mistakes and timing challenges, employers should try to answer three questions: How did it happen? How do we fix it? How can we prevent it from recurring?

The last question often can be solved by putting the task on a checklist for more effective monitoring, said Lori Brown, CPP, payroll director at the government contractor CACI International Inc. of Arlington, Va.

Brown, who spoke Dec. 18 at a meeting of the Washington Metropolitan Area Chapter of the American Payroll Association meeting, offered other solutions to payroll professionals to help make the year-end payroll process as mistake-free as possible.

Oops and Uh-Oh

During the session, Brown reviewed more than two dozen errors that she said she knew about but had not necessarily experienced during her career. Basic issues, such as knowing that employers should not issue a zero-dollar Form W-2, Wage and Tax Statement, or report negative wages, were identified. Failing to audit employer identification numbers, especially state and local ID numbers, and errors in the official company name and address, generally can require the filing of Forms W-2c, Corrected Wage and Tax Statement, she said.

Not having the latest address for employees can delay issuing W-2s to employees. Brown said her payroll staff contacts employees at least twice a year to ensure that the employer's payroll records are current and that any status changes are reflected at year-end.

Other problems that Brown said could surface when completing Forms W-2 include:

• Review the Box 13 requirements for retirement plans, Brown said. The Internal Revenue Service has improved its guidance on when and how to use the boxes, Brown said. If the retirement-plan box is checked, special limits may apply to the amount of traditional individual retirement account contributions that may be deducted.

• Deferred-compensation plan taxable amounts are sometimes confused when there are standard Section 401(k) arrangements vs. Roth deferrals, which are not tax-free but nevertheless need to be counted toward the annual limit, Brown said.

• Monitor for system changes and blackout periods for information from providers, such as 401(k) vendors, Brown said.

• Ensure that entire amounts for dependent care are included in Box 10, Brown said.

• Taxable fringe-benefit information needs to be gathered from all sources, Brown said. Ideally this should be ongoing but it is important that it occurs before year-end to gather all the necessary Federal Insurance Contributions Act taxes withheld on those values, she said.

• Identify employee transfers between companies under the overall group, Brown said. Reconcile properly so there is no overreporting or underreporting on multiple Forms W-2. Employers also should ensure that state-to-state transfers are properly handled for state tax purposes, she said.

• For executives and some of their special benefits, Brown has developed a checklist to ensure these fringes are taken into account. For stock transactions, payroll should pay close attention to settlement dates, she said.

• For those out for extended periods under a third-party sick-pay plan, Brown said vendors should be contacted so critical information to account for required amounts can be compiled for Forms W-2, depending on the arrangement.

• Reporting in states with disability payments can be tricky, especially in New Jersey, Brown said. Employers should ask New Jersey for a report to use when recording such payments, she said.

Measures for Prevention

Understanding the many processes needed to complete year-end reconciliation and reporting is the foundation for making the work timely and free of errors, Brown said. She addressed several steps in the process to establish appropriate controls, including documenting processes and using the documentation.

Regarding staffing changes, Brown said employers should ensure that there are workers who can back up one another. And it is important that those in the backup positions stay updated on processes through occasional training, she said.

Planning for next year starts almost immediately after the year-end process ends, Brown said. After recognizing those who participated in the year-end process, she and her staff attend to:

• new requirements to consider for the next year,

• updates to laws and regulations,

• new rates and tables,

• how to implement improved processes,

• deduction setups,

• properly resetting accumulators in systems and

• payroll policies for reviewing and updating. 

Payroll calendars, which contain key dates for holidays and other payroll-related deadlines, should be established early and shared with other departments, Brown said.

“Talk and communicate early” with other departments about payroll needs and remember what happened last year, Brown said.

To contact the editor on this story: Michael Trimarchi at