It’s the most wonderful time of the year, right? Well, maybe for some, but for HR and payroll departments everywhere, the end of the year is likely a little less than wonderful. That’s because, between all of the office holiday parties and year-end bonuses, there is a whole host of tasks that need to be done before the year finally comes to a close, as well as an assortment of things that need to be done to prepare for the upcoming year. Keeping track of what needs to get done and making sure it all gets done isn’t easy, and many businesses may find themselves in a situation where their business’s compliance is on the line because of a missed step or overlooked process during year-end.
At Payday HCM, we’re very familiar with both the importance and the stress of year-end. We have plenty of clients ask us questions about the kinds of steps they can take to not only stay ahead of the curve when it comes to year-end, but also better prepare for the year ahead once year-end is all said and done. Luckily for us, there is a lot of overlap between what needs to happen at the end of the year and the kinds of things to look out for in the new year, especially when it comes to compliance.
That’s why, in this article, we’ll be going over what businesses need to know about compliance heading into year-end and what they can do to prepare for the new year. We’ll start by covering the kinds of things businesses need to ensure they are compliant with when it comes to HR and payroll during year-end. Then, we’ll move into the trends that HR and payroll departments can expect to see heading into the new year. Finally, we’ll cover some common mistakes that businesses can avoid during year-end and heading into the new year.
In this article, you will learn:
- Ensuring a Compliant Year-End for HR and Payroll
- HR, Payroll Compliance Trends in 2026
- Common Mistakes to Avoid, Tips for 2026
Ensuring a Compliant Year-End for HR and Payroll
Before you head into 2026, you’ll need to finish out 2025. We go over what HR and payroll departments need to do to ensure a smooth year-end.
Year-End Audits and Payroll Accuracy
A compliant year-end begins with a detailed review of payroll and employee data to ensure accuracy before final payrolls are processed. HR teams should verify employee names, Social Security numbers, addresses, and employment status to prevent issues with year-end tax forms.
HR departments should also take the time to review any benefit balances or accruals for things like sick time and paid time off (PTO). Ensure all balances are correct and are in-line with any internal policies or procedures. You’ll also want to ensure to communicate whether certain benefits will roll over to the next year or will need to be used prior to year-end.
Final Payroll, Benefits, and Year-Ahead Preparation
The final payroll of the year often presents unique compliance challenges, particularly around things like bank holidays and your own organization’s holiday schedule. Payroll teams should plan for bank closures and processing deadlines to ensure wages are paid on time—bonuses, commissions, and other supplemental wages must be taxed correctly and included in year-end reporting.
Payroll teams should also review commonly missed items such as fringe benefits and third-party sick pay to ensure they are properly reflected in taxable wages. On top of this, you’ll also want to check in on any benefits deductions for things like 401(k)s and health savings accounts (HSAs) to ensure no one has exceeded any annual limits.
HR, Payroll Compliance Trends in 2026
With a clearer picture of how to finish out the year in a compliant manner, we can look ahead to 2026 to see what HR and payroll departments can expect to see in the coming year.
Potential Increased AI Regulation, Pay Transparency Expansion
One of the defining compliance trends for 2026 is increased regulatory oversight, particularly around the use of artificial intelligence in HR processes. As AI becomes more prevalent in hiring and performance management, employers are expected to maintain transparency, document decision-making processes, and ensure human oversight to mitigate bias.
Pay transparency laws are also expanding across jurisdictions, requiring employers to disclose salary ranges and maintain compensation documentation that supports pay equity. For organizations operating across state or international borders, aligning compensation practices with varying legal requirements will be an ongoing compliance challenge.
Evolving Leave and Tax Requirements
Paid and protected leave laws continue to expand, with more states introducing or enhancing mandates related to family and medical leave. States like Maine, Minnesota, and Delaware will begin paying family leave benefits starting in 2026, joining a growing list of 13 states that currently have paid family leave laws.
Payroll departments will also need to continue to keep an eye on the overtime and tips tax deductions that were introduced with the “One Big Beautiful Bill Act” that was passed back in July of 2025. While these deductions largely left things like tax forms unchanged for 2025, the door is still open to potential changes heading into the new year.
Common Mistakes to Avoid, Tips for 2026
Of course, nobody’s perfect—mistakes are bound to occur. Luckily, there are some common ones that, with the right steps, you can avoid.
Common Compliance Pitfalls
Given the number of tasks HR and payroll departments need to do heading into year-end, on top of all the usual duties they're expected to perform as part of their job, it’s possible that some things might slip through the cracks. Even still, you’ll want to ensure that you’re taking steps to minimize the number of mistakes when it comes to year-end tasks.
Things like fringe benefits and third-party sick pay are opportunities for mistakes to occur. For fringe benefits, this starts at the beginning of the year; be sure to track any and all benefits provided to employees. When it comes to third-party sick pay, be sure to designate either one person or a team of people specifically in charge of reporting and tax recording to avoid any possible mistakes.
Best Practices for a Compliant 2026
To avoid these pitfalls, HR and payroll teams should focus on documenting their processes, ensuring consistency, and promoting proactive communication. Maintaining accurate records, standardizing processes, and conducting regular compliance reviews can help businesses reduce risk exposure. Modern HRIS and HR software can help HR departments stay ahead of the curve when it comes to documentation and updating information.
Payroll departments can also benefit from not only a capable HRIS, but also working with a third-party payroll provider. The right payroll software can help make updating employee information and benefits deductions a breeze, while having a third-party provider on hand can give employees access to resources and minimize potential mistakes.
Make Compliance Your Business’s New Year Resolution
While the end of the year may feel like the ramping down of a year’s worth of events for some, for others, it can often feel like the year has only just gotten started. The transition between year-end and the new year is one of the most important times for a business, especially for HR and payroll departments that are navigating new regulations, benefits balances, year-end bonuses, open enrollment, and much more. Ensuring that your year-end processes are done right not only helps you to finish out the current year on a high note, but it will also help to usher in the new year in the right way. With the information provided in this article, you’ll be able to do just that: close out the current year and look forward to the new year, remaining compliant all the while.
Compliance is the backbone of your organization, and it’s arguably the most important function of any HR department. Ensuring your business is compliant with any and all rules and regulations—whether that be the FMLA or FLSA—is essential to running a successful business. It can be a job in and of itself just keeping track of all the different things your business needs to remain compliant with, though. Luckily, with a little extra help, compliance can turn from an HR headache to an HR breeze. Learn more about how Payday’s HR compliance services can help your business stay ahead of the game when it comes to compliance.