As 2026 draws to a close, employers have an important opportunity to prepare for the year ahead. Just as you shouldn’t leave all your Christmas shopping until December 24th, you shouldn’t wait until January to start preparing your business for the future. Instead, think of the final months of 2026 as your HR and payroll prep season. With a little planning now, your business can run more smoothly and more efficiently in 2027. So before we ring in the new year, give your future self the best gift of all – a fresh and clean beginning to everything yet to come!
HR & Payroll Planning: 8 Steps to a Smooth & Seamless Year
1. Give Your Payroll Process a Thorough Checkup
Before we kick off the New Year, verify that your existing HR and payroll processes are still effective, accurate, and up to date. After all, fixing small problems now will help you avoid bigger (and more expensive!) problems down the road.
- Employee Classification: Ensure that your employees are properly classified as exempt or non-exempt, that independent contractors meet federal and state classification requirements, and that overtime eligibility rules are documented clearly.
- Payroll Tax Setup: Review federal tax tables, state withholding requirements, local tax obligations, and unemployment tax rates. Tax rates and requirements can change from year to year, so don’t assume that last year’s information is still current or correct.
- Timekeeping Controls: Evaluate how your organization tracks hours, calculates overtime, manages meal and rest breaks, and handles PTO and shift differentials. While it’s always crucial to pay employees correctly, accurate timekeeping is also vital in terms of payroll compliance.
2. Build a Payroll Budget That Looks Ahead
As it turns out, budgeting for your business is even more important than budgeting for holiday gifts! And since employee compensation is typically an organization’s largest operating expense, it’s extra important to account for those annual costs. After all, a realistic budget means fewer surprises later on.
- Plan for Wage Increases: Consider anticipated salary adjustments, merit increases, retention-based raises, and changes to minimum wage requirements. Many states increase minimum wage rates each year, so be sure to account for any increases that could affect your payroll expenses.
- Look at Your Hiring Plans: If your business is planning to grow its team or hire seasonal employees, remember to budget for those wages, along with any recruiting, onboarding, or training expenses.
- Get Real About Overtime: Your 2026 payroll records can tell you a lot about what to expect in 2027. Look for patterns in overtime spending, identify departments where extra hours are common, and use actual payroll data to make more accurate projections.
3. Re-Evaluate Employee Benefits
When it comes to employee compensation, wages are only one piece of the pie. Increasingly, benefits are essential in attracting top talent, retaining current employees, and creating a positive workplace environment. So as the year draws to a close, be sure to evaluate how your offerings can benefit both your budget and your employees.
- Health Insurance Costs: Have premiums increased? Are your employer contribution levels still sustainable? Review participation rates and claims trends to better understand how your health insurance expenses may change in 2027.
- Retirement Plan Administration: Retirement contribution limits can change annually, so make sure your payroll systems are prepared to accommodate the latest IRS adjustments. For 2026, the IRS increased the 401(k) elective deferral limit to $24,500, with additional catch-up contribution opportunities for eligible employees. Keep an eye out for future adjustments and make sure employees receive timely information about any changes that affect them.
- Voluntary Benefits: Are employees taking advantage of the benefits you currently offer? Would additional options make your compensation package more attractive? Consider employee interest in life insurance, disability coverage, financial wellness programs, and mental health resources.
4. Get Ahead of Retirement Plan Compliance Changes
As you prepare for the coming year, pay extra attention to new regulations that affect how contributions are processed through payroll. For example, the SECURE 2.0 Act has introduced several changes affecting retirement plan administration. Going forward, employers will need to adapt to stay on top of these changes.
As we close out the year, verify that your payroll systems reflect the correct contribution limits, that catch-up contributions are being administered appropriately, and that required testing and reporting deadlines are recorded on your calendar.
5. Stay Up to Date on State and Local Labor Law Changes
If your organization employs people in multiple states, be sure to review any upcoming changes to federal, state, and local employment laws.
Some areas to focus on include minimum wage increases, paid sick leave and other paid leave requirements, pay transparency laws, employee notice requirements, wage and pay reporting obligations, and final paycheck requirements.
If your organization operates in multiple states, don’t assume that a policy or procedure that works in one location will work everywhere else. A jurisdiction-by-jurisdiction review can help you identify changes that should be addressed before the new year.
6. Review Your Employee Handbook and HR Policies
When was the last time you really looked through your employee handbook? If you don’t know the answer to that, it’s probably been too long. Your business, your employees, and payroll legislation are all changing and evolving each day. Year-end is the perfect time to ensure that your HR & payroll policies are evolving right along with them.
Start by reviewing policies around attendance and scheduling, PTO and other leave benefits, remote and hybrid work arrangements, workplace conduct and expectations, and performance management.
Then, double-check that your policies reflect current federal and state requirements, including changes to leave laws, anti-discrimination protections, and other employment regulations.
7. Payroll Technology that Works for You
Payroll processing can be confusing enough to begin with. The last thing your business needs is a system that complicates tasks for your team! As a celebratory send-off to 2026, assess your payroll system with a keen eye.
Some questions to consider may include:
- Can our system efficiently handle payroll for employees in multiple states?
- Does it automatically incorporate applicable tax and compliance updates?
- Are benefits deductions and payroll records properly integrated?
- Can we easily access accurate reports when we need them?
- Are there manual processes that could be automated?
If your payroll team is spending hours on research, error correction, or manual tasks that could easily be automated, it could be time for an upgrade.
8. Make Compliance a Team Effort
When it comes time to deliver the presents on Christmas, Santa has plenty of help! Similarly, payroll processing and compliance are more successful as a team effort. Instead of depending on a single employee or administrator, be sure to train back-ups and educate other supporting staff.
During your year-end review, prioritize clear, documented procedures for new hire onboarding and employee classification, payroll processing and approval workflows, wage adjustments and salary changes, benefits enrollment and administration, employee records and document retention, and required compliance reporting.
This is also a good time to identify opportunities to improve communication between HR, payroll, finance, and any outside vendors or service providers. For additional assistance, the Department of Labor offers a variety of employer resources and compliance guidance to help you strengthen your internal processes.
Preparing for a New Year with Primepoint
January 1st is just around the corner, bringing new challenges and opportunities your way. So before you raise your glass to toast to the new year, remember to lay the groundwork for progress and prosperity. Your HR and payroll teams are the backbone of your business, so set them up for success in 2027. Start by making sure they’re in the loop with Primepoint Intelligence. It can help streamline the year-end process by running reports, answering employee questions, and more! You can learn more here.
With preparation, support, and the right payroll system, your organization is sure to shine next year.