Year-End Payroll Readiness: 5 Things Employers Should Check Before 2027 

As 2026 ends, employers should start preparing for year-end payroll to ensure accurate employee pay, tax reporting, and a smoother start to the new year. Reviewing payroll records now helps businesses spot discrepancies, address outstanding issues, and avoid last-minute corrections during an already busy holiday season. 

Key Takeaways 

• Verify employee information: Review names, Social Security numbers, addresses, and tax withholding information before preparing W-2s. 
• Review wages and additional compensation: Check holiday pay, overtime, bonuses, commissions, and taxable benefits for accuracy. 
• Reconcile payroll records: Compare year-to-date wages, deductions, tax withholdings, and balances to identify discrepancies before year-end. 
• Prepare for tax-filing deadlines: Confirm reporting requirements and coordinate with your payroll provider to prepare for W-2 distribution and filing. 
• Plan around holiday closures: Establish payroll processing deadlines, confirm approval responsibilities, and communicate schedule changes in advance. 

1. Verify Employee Information Before Year-End 

Accurate employee information is essential for payroll processing and year-end tax reporting. Even a small error in an employee’s legal name, Social Security number, or mailing address can create problems when preparing and distributing Form W-2. 

Before the final 2026 payrolls, employers should review employee records and confirm that the information on file is current and accurate. 

Key details to verify include: 

• Legal names and Social Security numbers: Confirm that employee information matches applicable Social Security Administration records. 
• Mailing addresses: Ask employees to update their addresses if they have moved during the year. 
• Tax withholding information: Review current Form W-4 information and process any employee-submitted updates. 
• Employment classifications: Confirm that employee records reflect the correct classification and that any changes have been properly documented. 

Employers should also review payroll records for missing information, duplicate entries, and outdated employee details. Addressing these issues before W-2s are generated can reduce the need for corrected forms and additional administrative work in the new year. 

2. Review Holiday Pay, Overtime, and Additional Compensation 

Holiday schedules, seasonal staffing changes, and year-end bonuses can complicate payroll. Employers should review how these payments are calculated and recorded to help ensure employees receive accurate pay and payroll records reflect the appropriate amounts. 

Understand Holiday Pay and Regular Pay 

Holiday pay policies vary by employer. Some businesses provide paid holidays, while others operate on modified schedules or offer additional compensation for working on a holiday. 

Under the Fair Labor Standards Act (FLSA), employers generally do not have to pay private-sector employees extra for working on a holiday or for holidays not worked. However, employer policies, employment agreements, and applicable state or local laws may establish additional requirements. 

Employers should review their holiday pay policies and confirm that payroll practices align with those requirements. They should also ensure that holiday hours, regular hours, and any applicable premium pay are recorded correctly. 

Plan for Overtime During Holiday Staffing Changes 

Increased customer demand, employee vacations, and reduced staffing can lead to additional overtime during the holiday season. Employers should review staffing plans and monitor hours worked to help ensure overtime is calculated correctly. 

For covered, nonexempt employees, the FLSA generally requires overtime pay at one and one-half times the regular rate for hours worked over 40 in a workweek. Paid holiday hours that are not actually worked generally do not count toward that federal overtime threshold, although employer policies or applicable laws may provide otherwise. 

Employers should consider the following steps: 

• Review anticipated staffing needs and overtime hours. 
• Confirm that employee time records are complete and accurate. 
• Verify that overtime calculations account for the appropriate regular rate of pay. 
• Ensure managers understand timekeeping and overtime approval procedures. 

2026 reporting consideration: Employers should also review the IRS requirements for reporting qualified overtime compensation. For tax years 2025 through 2028, eligible individuals may qualify for a federal income tax deduction for certain overtime compensation. The 2026 Form W-2 instructions include reporting requirements for qualified overtime compensation, so accurate payroll records are especially important. 

Account for Bonuses and Commissions 

Many employers distribute year-end bonuses, sales commissions, or other incentive payments before year-end. Review these payments to ensure they are calculated, approved, and recorded in the appropriate payroll period. 

Before processing additional compensation, employers should: 

• Confirm bonus and commission amounts against approved plans or agreements. 
• Verify that eligible employees are included. 
• Determine the appropriate payroll date and tax treatment. 
• Review whether additional compensation affects overtime calculations for nonexempt employees. 
• Confirm that applicable withholding and reporting requirements are followed. 

Employers should pay particular attention to timing. Compensation is generally reported for the calendar year in which it is paid, so a bonus earned in December but paid in January may be reported in the following tax year. 

3. Reconcile Payroll Records, Deductions, and Balances 

A year-end payroll review lets you compare payroll records and identify discrepancies before you close the books. Waiting until W-2s are prepared can make corrections more time-consuming because employers may need to investigate prior payrolls, adjust records, and issue corrected forms. 

Employers should review year-to-date payroll totals and confirm that wages, tax withholdings, deductions, and other payroll amounts are consistent across their records. 

Important areas to review include: 

• Wages and tax withholdings: Compare payroll registers with applicable payroll tax filings and deposits. 
• Employee deductions: Confirm that benefit premiums, retirement contributions, and other deductions have been recorded accurately. 
• Paid time off balances: Review accrued, used, and remaining leave balances according to company policy and applicable law. 
• Taxable benefits: Verify that applicable fringe benefits and other reportable compensation are included in payroll records. 
• Employee classifications: Review employee records for potential classification or overtime issues that need to be addressed. 

Employers should also confirm that they made payroll tax deposits on time and properly maintain payroll records. The Internal Revenue Service (IRS) generally requires employers to retain employment tax records for at least four years. 

4. Prepare for W-2 and Tax-Filing Season 

Year-end payroll preparation should include a plan for the reporting and filing responsibilities that follow the final payroll of 2026. Employers should identify upcoming deadlines, confirm their payroll information is complete, and coordinate with their payroll provider or tax professional as needed. 

Form W-2 reports employee wages and applicable taxes withheld during the calendar year. Employers must generally provide employees with copies and file the required forms with the Social Security Administration by the applicable deadline. 

For the 2026 tax year, the general deadline is February 1, 2027, because January 31 falls on a Sunday. 

Before preparing W-2s, employers should: 

• Confirm employee names, Social Security numbers, and addresses. 
• Confirm and review year-to-date wages and tax withholdings. 
• Verify bonuses, commissions, taxable benefits, and other reportable compensation. 
• Review applicable state and local payroll reporting requirements. 
• Confirm that payroll records align with the required employment tax filings. 

Employers should also review current-year IRS instructions for any reporting changes that may affect their workforce. For example, the 2026 Form W-2 instructions address reporting qualified overtime compensation and other items that may require additional attention. 

5. Plan Payroll Around Holiday Closures and the New Year 

Holiday closures can affect payroll processing, approval workflows, and payment schedules. Employers should confirm final payroll dates well before year-end to avoid delays caused by office closures, bank holidays, or unavailable approvers. 

A clear year-end payroll calendar can help keep payroll operations on track. 

Employers should: 

• Confirm final payroll processing and pay dates for 2026. 
• Account for bank holidays and payroll provider processing deadlines. 
• Establish deadlines for submitting employee hours, approving timecards, and authorizing payments. 
• Identify backup approvers in case key employees are out of the office. 
• Communicate payroll deadlines and schedule changes to employees and managers. 

Employers should also distinguish between the year’s last pay period and the last paycheck issued during the year. Because W-2 reporting generally follows the calendar year in which wages are paid, a paycheck issued in January 2027 for work performed in December 2026 will generally be reported on the 2027 Form W-2. 

Why Employers Should Start Preparing for Year-End Payroll Now 

Payroll software can automate calculations, organize records, and streamline processing. However, accurate payroll still depends on correct employee information, complete time records, appropriate classifications, and timely review. 

Employers who wait until January to identify problems may face additional work correcting payroll records, addressing employee questions, and preparing amended tax forms. Starting in the fourth quarter gives businesses more time to resolve discrepancies and coordinate with payroll, HR, and accounting. 

A proactive approach also helps employers begin the new year with more reliable records and a clearer understanding of their payroll processes. 

GMS Is Here to Help with Year-End Payroll 

Year-end payroll preparation can be complex, but reviewing records and addressing potential issues early can help employers avoid unnecessary corrections and start the new year with confidence. From verifying employee information to preparing for tax-filing deadlines, a proactive approach can make the year-end process more manageable. 

GMS helps businesses navigate payroll and HR responsibilities with support designed to simplify day-to-day processes and keep employers focused on running their business. Learn how GMS can support your business by exploring our HR and payroll solutions.