Year-end is approaching, and payroll, reporting, and HR compliance deadlines are piling up fast. Are you ready?
Year-end payroll is the process of reconciling employee wages, taxes, and benefits for the prior year so that W-2s, tax filings, and compliance reports are accurate before submission deadlines.
Year-end tends to expose every weak link in a company’s HR compliance infrastructure. Payroll data that hasn’t been reconciled, outdated employee classifications, and incomplete benefits records all seem to hit in the same few weeks every year.
The result can be errors, missed deadlines, and penalties that could have been avoided with earlier planning. In fact, more than half (53%) of companies have been penalized just for payroll noncompliance in the last five years.
If nothing else, it means HR spends a few weeks every year stressed out and in a constant rush. Another survey found 85% of businesses encounter limitations or challenges with their payroll technology, typically because it lacks the features they need or requires too much manual work.
Those findings underscore an important truth: year-end problems usually start with process and infrastructural weaknesses that go unaddressed all year.
The good news: a strong year-end payroll checklist helps businesses proactively find those weaknesses and offers an opportunity to fix them once and for all.
Use this quick year-end payroll checklist to avoid last-minute payroll and compliance issues:
For a complete year-end roadmap, including benefits, HR data clean up, workers' comp, and 2026 planning, download our End of Year HR Checklist.
Few HR compliance issues cause more confusion (or costlier penalties) than employee misclassification. Whether a worker is an employee or an independent contractor determines tax obligations, benefits eligibility, and overtime pay.
The IRS has a 20-factor test to determine worker status, but the Department of Labor’s “economic realities” test remains the core principle: a worker is an independent contractor only if, as a matter of economic reality, they are in business for themselves. Yet misclassification remains widespread. The National Employment Law Project estimates that 10% to 30% of employers misclassify workers, affecting several million people nationwide.
A thorough year-end payroll checklist should include a review of each worker’s classification, especially if business operations or job roles changed during the year.
The end of the year is an ideal time for a pay equity review, which is increasingly a hot button topic at the state and local level. The key is to verify whether compensation decisions are based on objective, well-documented criteria.
Employers should confirm that only legitimate factors like experience, education, or performance justify any pay disparities between employees performing substantially similar work.
Relatedly, pay transparency adds another layer. Aon’s 2025 Global Pay Transparency Study found that only 19% of organizations worldwide are fully prepared for emergency pay transparency laws, another hot button area, despite these laws expanding rapidly.
“Pay transparency is no longer a buzzword. It’s a baseline expectation from employees and a regulatory imperative across an increasing number of jurisdictions,” says Lisa Stevens, chief administrative officer at Aon. “Yet our data shows a concerning lack of progress.”
Adding a pay equity review to your year-end payroll checklist can help catch inequities, build documentation, and prepare for future transparency mandates.
The W-2 process is deceptively simple yet filled with potential pitfalls. Ernst & Young highlights 10 common W-2 errors, including:
Each mistake can cause reissued forms, additional IRS filings, and employee frustration. Year-end is the time to cross-check every employee’s identifying information, confirm withholding totals, and validate employer tax IDs. Errors caught now save far more time than those discovered after forms are distributed in January.
The ACA reporting deadline is another key element of HR compliance that sneaks up on many small employers. Fortunately, employers have a little more leeway here. Forms 1094-C and 1095-C, which document health coverage offered to employees, must typically be filed with the IRS by the end of February if filed on paper or by the end of March if filed electronically. Failure to meet the ACA reporting deadline can result in per-form penalties that add up quickly.
Employers should confirm that all employee coverage data is accurate and complete before year-end, and that they understand the electronic filing requirements. Adding a specific ACA reporting deadline reminder to the year-end payroll checklist helps prevent costly oversights.
Federal requirements are only the start. Every employer must also contend with state and local compliance requirements as well. “Make sure you have people tracking what is happening at the federal level, and also at the state [level],” says Paola Cecchi-Dimeglio, chair of the Executive Leadership Research Institute for Women and Minority Attorneys at Harvard Law School.
Second, once employers begin expanding their workforce across state lines, they become subject to all the requirements in all jurisdictions in which they operate. For example, new state leave laws taking effect in 2025 include New York’s Paid Prenatal Leave Law, Maine’s Paid Family and Medical Leave, and Michigan’s Earned Sick Time Act.
Employers with workers in multiple jurisdictions must account for these updates in their HR compliance programs before year-end. For more information about navigating multistate employment issues, view our guide “Hiring Across State Lines? Here’s What Employers Need to Know About Multi-State Compliance.”
Even well-run businesses can struggle with outdated payroll systems. Manual entries and fragmented software integrations increase the risk of error.
For small businesses in particular, outsourcing payroll can be transformative. Professional Employer Organizations (PEOs), for example, combine advanced payroll systems with dedicated compliance experts who manage filings, tax deposits, and benefits administration. They help ensure HR compliance year-round, not just during crunch time.
Partnering with a PEO or payroll provider offers the best of all worlds: technology plus human oversight without the administrative burden falling on owners or leaders, who can continue to focus on their core business: growth and revenue generation.
For a guide to finding a reliable payroll solution, read our guide “What Should You Look for in a Payroll Service?”
A well-executed year-end payroll checklist does more than just close the books on one year; it also sets the stage for the next. Particularly if your organization ran into compliance or data issues this year-end, that just means you should make it a New Year’s Resolution to capture lessons learned, identify process improvements, and revamp the compliance function for next year.
“The important thing to remember is that time should be recorded contemporaneously with the work being performed to ensure the accuracy of the records,” Dena Sokolow, an attorney with Florida-based Baker Donelson, told the Society for Human Resource Management (SHRM). In other words, accuracy in payroll and recordkeeping begins with habits practiced all year.
For small and mid-sized businesses, the most efficient way to make HR compliance routine is to partner with a PEO. These organizations manage everything from payroll processing to tax filings, employee benefits, and even ACA reporting. They also maintain technology and compliance systems that keep pace with changing regulations, which can be prohibitively difficult for smaller employers to do alone.
As the year winds down, the most successful employers aren’t the ones working late to fix problems. They’re the ones who prepared early, built compliance into every process, and surrounded themselves with the right partners.
CoAdvantage, one of the nation’s largest PEOs, helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our Professional HR Administration Services, contact us today.
**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances. Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.