Year-End HR & Payroll Compliance Checklist

Introduction

As the fiscal year draws to a close, ensuring the perfect order of payroll processes becomes essential. Understanding and implementing year-end payroll compliance is undoubtedly vital for any organisation. Therefore, to keep this important task in check, many companies opt for audits. Before starting the audit, companies need to ensure process driven approach and set of data prepared in advance to run the audit without any disrupts.

A meticulous year-end payroll compliance will reinforce the integrity of the company’s financial reporting and safeguard the organisation during internal, external or governmental audits.

This comprehensive article provides a detailed and actionable checklist to help businesses navigate the complexities of year-end compliance effectively and avoid costly penalties.

What is Year-End HR & Payroll Compliance?

Before commencing with the process, let’s understand what constitute of year-end HR and payroll compliance.

Year-end HR & Payroll Compliance is a critical process that organisations must undertake to ensure adherence to legal and regulatory requirements and that an organisation’s human resources practices and payroll calculations align with applicable laws as the financial year concludes.

Year-end HR & Payroll compliance involves various tasks, such as updating employee records, required filings are done on time and reviewing company policies to align with any recent legal changes.

On the other hand, year-end payroll compliance involves the process of compiling and verifying all payroll data and calculations for the year under consideration to ensure accurate reporting and adherence to tax laws. This includes preparing necessary documents which summarise employees’ wages, tax withholdings, contributions deduction.

Apart from the accuracy in payroll data, and compliance with relevant laws and regulations, timely reporting is also one of the primary goals of year-end compliance. Timely reporting helps in maintaining a smooth audit process and avoiding last-minute rushes that may lead to discrepancies.

Below can be found a list of areas where compliance needs to be monitored, along with detailed actions for each department.

1. HR Compliance

Employees are the backbones of every company, therefore aligning internal policies with local labour law is as important as complying to tax laws.

HR compliance will put the break on legal risks, wage disputes, discrimination claims and employee dissatisfaction. The fair treatment will boost employee productivity and make them feel empowered. Here are the key pointers for HR compliance:

• Confirm personal information such as address, identification number etc. to be correct and updated.
• Verify that tax information such as residential and marital status are updated.
• The classification of employment is a critical aspect which not only impacts the employee compensation but also the statutory obligations. Therefore, the categorisation of all active employees must be correct. Any mistakes at this stage will compromise the process, ultimately resulting in non-compliance.
• All former employees must have been omitted from the list. Achieving precision in this step is vital to avoid excess payments.
• Salaries, bonuses, and benefits paid must match as agreed in the employment contracts.
• Ensure all statutory filings for new joiners and leavers have been made as per due date.
• The mandatory training programs, such as data privacy training, workplace safety and anti-harassment programmes should be completed and documented before the year ends.

2. Compliance with Taxation, Social Security & Regulatory Reporting

A non-negotiable aspect of year-end compliance is taxation. Missing deadlines or submitting inaccurate reports can result in the worst nightmare for the organisation. Find the checklist of important factors below to tick off and ensure tax compliance:

• Ensure correct tax treatment for different category of employees such as nationals, expatriate including tax withholding, or providing exemptions.
• Ensure proper tax treatment of allowances, bonuses, and non-cash benefits.
• Calculate and report taxable benefits and perks provided to employees.
• It is crucial for employers to submit annual return forms on time. For instance, in Malaysia, employers must submit Form E by 31st March of the following year along with CP8D by 25th February of the following year, summarising the total remuneration paid to all employees to IRB.
• Distribute annual tax statements to employees, ensuring compliance with local regulations. For instance, in the Philippines, it is mandatory to issue the certificate of compensation (BIR Form 2316) to employees by 31st January of the following year. Similarly, in Malaysia, the EA Form must be provided, detailing employee’s salary, including annual income, pension, and deductions by the end of February of the following year.
• Meet the social security and pension obligations such as EPF in Malaysia and SSS, PhilHealth etc. in Philippines.
• Check that all the mandatory reports for social security, pension contributions, and health insurance schemes has been submitted.

3. Financial Compliance

Financial compliance is a foundation of effective payroll management, especially during year-end activities when accuracy and transparency are critical. Organisations must ensure that payroll operations align with financial reporting standards, regulatory requirements, and internal controls to mitigate risks. Proper financial compliance enhances audit readiness and reinforces trust with stakeholders, making it an indispensable aspect of payroll management. Follow these vital steps to ensure your organisation remains financially compliant:

• Ensure correct posting of payroll data to the books of accounts for accurate disclosure of financial reports to the shareholders.
• Review year-end payroll expenses to align with organisational budgets. This review helps in forecasting payroll costs for the upcoming fiscal year, allowing the company to anticipate and plan for any changes in payroll expenses.
• Verify that all payroll expenses match the financial records, and any required rectifications are made before closing the fiscal year.
• Settle any outstanding payments, such as accrued bonuses, leave payouts, or severance payments, if applicable, to ensure that the organisation closes the fiscal year without outstanding obligations.
• For financial reporting and budgeting, accurately allocating payroll costs across departments, projects, or cost centres is also another important task to consider.
• If planning for an external audit, ensure all the mentioned documentations are ready in advance to provide the auditors to facilitate a smooth process.

4. IT and Data Compliance

In today’s digital era, IT and data compliance have become essential components of payroll management. As organisations handle sensitive employee information, ensuring the security, accuracy, and integrity of payroll data is crucial. This is not only a matter of operational efficiency but also a legal requirement under various global and local data protection laws.

To draw this on an example, General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) can be examined. While GDPR enforces strict rules on data protection and privacy for individuals of European Union applicable across globe, the CCPA offers similar protections for residents of California.

For violating GDPR organisations may face up to 20 million Euros or 4 % of their total global turnover. On the other hand, failure to comply with CCPA may can result in a fine of 7,500 dollars and more.

Given the importance of this matter, the following aspects should be taken care of:

• Scrutinise the process of collecting, storing and processing of employees’ sensitive data such as personal details, Identification details, salary data etc. in the company is compliant with local data privacy regulations.
• Use payroll systems with robust security protocols, such as encryption and multi-factor authentication.
• Develop a routine for backing up payroll data to ensure their security and availability.
• Access to these sensitive data must be restricted. Access permissions should be granted on a need-to-know basis.
• Update user permissions periodically to ensure no former employees has access to the data.
• Implement secure data disposal methods to safely eliminate data that is no longer required.
• Keep the digital security on check by updating of firewalls, antivirus software, and encryption protocols. It will help to identify vulnerabilities and address emerging threats.

5. Operational & Other Compliance

The area of operational compliance often overlaps with compliance of other departments. Here the focus needs to be kept on compliance with both internal standards and external regulations. The key elements of this compliance maintenance are as follows:

• Conduct regular reviews of payroll operations to ensure compliance with internal standards and identify areas for improvement.
• For global organisations, ensure payroll operations comply with laws in all jurisdictions where employees are based.
• Prioritise the integration of Diversity, Equity, and Inclusion (DEI) and Environmental, Social, and Governance (ESG) practices within payroll management, not only to enhance brand reputation but also to be compliant with anti-discrimination laws of different countries.For instance, a report by EDGE, a global assessment certification standard for DEI, mentions that France, Germany, Austria, and Belgium prohibit the collection of personal data on race and ethnicity to avoid any discrimination in the workplace.a global assessment certification standard for DEI, mentions that France, Germany, Austria, and Belgium prohibit the collection of personal data on race and ethnicity to avoid any discrimination in the workplace.
• Test the organisation’s emergency response plan and modify it as per the need to ensure that the HR and payroll operations of the business can function during any potential crisis.
• Regulations can change frequently, and staying updated with them is not a choice but a compulsion. Therefore, revise standard operating procedures (SOPs) to incorporate any changes in regulations introduced during the year.
• Provide training as per the requirement to payroll and HR teams on new regulations and operational standards.

6. Additional Tips for Effective Year-End Compliance Management

Be mindful of these common pitfalls to have an unhindered year-end compliance:

• Develop a Compliance Calendar: To avoid last-minute hurdles, create a calendar highlighting tax and reporting deadlines. Assign responsibilities across the teams to ensure accountability.
  Starting preparations early is crucial for a successful year-end compliance. An effective timeline will help to gather all the required documents and data on time for the audit process.
• Set Key Milestones: All the data combined can overwhelm the process and the operation may not be as fruitful as anticipated. To avoid this issue, key milestones should be set to track progress and ensure that all tasks are being completed on time.
  These milestones might include dates for reconciling accounts, gathering documentation, conducting internal reviews etc.
  The segregation of the tasks into small parts and put them in fixed timeline will ensure better results. The discrepancies can be identified on time and allowing enough time for corrections.
• Ensure Effective Communication: If communication channels between different departments are not seamless, strategies and information may not be transmitted effectively. This can lead to incomplete goals and unsatisfactory results.
  Therefore, confirm that all the involved departments are on the same page and aware of the escalation of the ongoing projects.

7. Strategic Planning for the Upcoming Years

While the year-end HR and payroll compliance is about meeting legal obligations of the current year, the assessment of this can be helpful for the upcoming year as well. It is a chance to identify all the shortcomings and planning a more successful future. The following points outline key strategies to plan for the upcoming years:

• Assess the year-end evaluations to identify and mitigate risks, such as underpayment penalties, or audit observations.
• Collaborate with legal advisors to develop comprehensive solutions for the identified gaps.
• Use insights from these partnerships to adopt scalable payroll technologies and implement best practices that enhance operational excellence and organisational growth.
• Develop contingency plans for scenarios such as a sudden increase in workforce size or a shift to remote work, ensuring compliance remains seamless.
• Conduct regular audits on stress tests and DEI surveys etc. to gather feedback from employees about their experiences. This will help determine whether the implemented policies are functioning effectively or if they require further attention.

Conclusion

The activities of the year-end HR and payroll checklist are more than a box-ticking exercise. They are essential to ensure regulatory adherence and operational efficiency of an organisation. By addressing key areas such as taxation, financial reporting, IT and data security, and operational standards, organisations can close the year on a strong note while its impact extends beyond a single year.