The Production Accountant’s Guide to Year-End Payroll

The end of the year is a relaxing time for many, but things tend to get a bit hectic for production accountants. In addition to closing out the budget, teams must verify earning details for all their employees and beat payroll processor deadlines to make any necessary adjustments. Luckily, you’ve got EP in your corner. Throughout this article, we will review every step you need to take to sail through year-end payroll this year.

Step 1: Make note of EP’s payroll deadlines

The end of the year always sneaks up! Be sure to add these important dates to your calendar:

• Last day to submit an adjustment to EP to be completed by year-end: Friday, December 2, 2022
• Last day EP will process payroll this year: All payroll must be submitted before 12:00 p.m. PST on Thursday, December 29, 2022
• First day of 2023 payroll: Tuesday, January 3, 2023, starting at 12:00 p.m. PST

These deadlines are not movable, so please be proactive and submit any change requests as soon as possible. Setting deadline reminders can be a great tool to help you stay on track.

Step 2: Run a detailed earnings report

The most time-consuming portion of running year-end is verifying key details before you call it a wrap. To make sure you have all the necessary data to do this efficiently, you need a detailed 2022 earnings report.

If you have SmartAccounting, you can run a detailed earnings report yourself by logging in and navigating to Payroll → IPS Reporting. If you don’t have SmartAccounting, you can request this report from Client Services. If you have access to our Payroll & Labor Insights (PLI) solution, you can run reports at anytime. To learn more about PLI, contact your Account Manager or check out the information on the Payroll & Labor Insights page.

At a minimum, your earnings report should include: 

• Names and address information for all employees who received a paycheck in 2022
• Employee work state
• Pay rates and hours worked
• Pay codes
• Taxes withheld (state and federal) 
• Pension, health, and welfare hours (union workers)
• Workdays (union workers)
• Sick and vacation balances

This report will allow you to verify tax liabilities and cross-check all earning and withholding entries to make sure your ledger is accurate. So, what, exactly, are you looking for?

Step 3: Verify key employee details

There are a handful of common errors that lead to adjustment requests as we approach year-end. Before you hit crunch time during the holidays, it’s a good idea to proactively audit these details to avoid common mistakes.  

Here’s what we recommend: 

1. Double-check work state entries (especially for loan outs) – State withholdings vary significantly, so it’s important to verify that each employee’s work state is accurately recorded on your earnings report. Be sure to double-check work states for any loan outs as well. Why is this important? Taxing the wrong state can cause all sorts of issues for employees (and for your budget) come tax time. It can also negatively impact film incentives, so it’s critical to verify work states in any incentive states.
2. Verify that PTO accrual is set up for all eligible employees – There’s a lot happening during new employee onboarding, and it’s easy to forget to set up vacation and holiday accruals. Once you have your earnings report, it’s a good idea to verify that these accruals were set up for all employees. If any were missed, you can request an adjustment before year-end to avoid any issues.
3. Review pay codes used to calculate special pay – Pay codes are used as multipliers when calculating overtime and certain types of time off (meal break penalty pay, etc). Miscalculating multiplier pay can get expensive, fast, so it’s a good idea to double-check that all your pay codes are accurate, and hours are input correctly before you close your 2022 payroll.
4. Double-check workday entries for union employees – Workdays are tracked to determine whether union employees qualify for pension, health, and welfare coverage. Days worked this year count toward coverage in the following year. It’s important to make sure workdays are recorded properly to ensure union members can take advantage of the benefits they earned.
5. Verify all pension hours are accurate for union employees – Look at all your union member employees and verify that all their pension, health, and welfare (PHW) hours are properly recorded. Missing hours need to be corrected before payroll is closed for the year to ensure you don’t invite a union audit. 

This process can be tedious, but correcting a mistake before the end of the year is much easier than scrambling to make an adjustment after we roll into 2023!

What’s at stake: How payroll adjustments impact your production budget

All of the mistakes listed above impact your employees. However, taxing the wrong work state or country, or neglecting to withhold tax, can also wreak havoc on your production budget when it comes time to rectify these errors.

Here are a few common issues you may encounter:

• When the wrong resident state is taxed, workers’ comp rates change, and productions are either refunded or billed for the difference.
• If incentive or foreign withholding is taken for the wrong state or country, loan outs or productions may have to file a return to receive reimbursement.
• When incentive or foreign withholding is not withheld, loan outs or employees may have to reimburse the production, or the production may have to ‘gross up’ the tax payment.

While these issues are all ultimately correctible, it’s not ideal to have to ask an employee to reimburse you for a payroll mistake. Also, not all incentive jurisdictions allow for corrections later or at year end. That’s why verifying all your earnings details along the way is so important.

Employee tax withholding issues: Triggers to watch for

Productions employ lots of part-time workers who work less than five days a week, work for multiple employers at one time, or both. Unfortunately, taxes are always calculated based on annual tax tables, which assume employees work one job, full-time, all year. Payroll systems calculate tax rates based on each employee’s W-4 election, but in many cases, employees don’t make an election because they don’t understand how to calculate it.

To avoid facing employees' frustration at tax time, check your earnings report for any entries with zero tax days. This indicates no election was made, meaning the employee is taxed at a default tax rate of 22%, which is typically high. Identify these employees now and encourage them to consult a tax advisor to determine an accurate W-4 election to help avoid future headaches and excessive tax withholding.

Taxes are complicated, and an accurate withholding election ensures that the right amount of tax is taken out of each paycheck. As a general rule, it’s a good idea to regularly prompt employees to check in with a tax advisor throughout the year to make sure their withholdings are on track, and their W-4 elections are accurate. Employees can change their W-4 anytime and can change it as many times as they’d like throughout the year.

The bottom line

Ultimately, it’s best to never make a mistake, but that’s not entirely realistic. The next best thing is putting a proactive year-end earning details audit in place to make sure your payroll is in tip-top shape by year-end. And don’t forget, the EP team is here to support you! If you have questions or run into any hiccups along the way, send us a message or give us a call, and we’ll help you get it sorted.

EP is pleased to provide our clients with generalized information regarding year-end tax deadlines. As always, please consult with your tax or legal advisors regarding your production and how to best handle your specific circumstances.