Everything You Need to Know About End-of-Year Production Payroll Cleanup

The December 15th deadline for W-2 adjustments is rapidly approaching, and it’s time to tackle your end-of-year accounting to-do list! As Certified Payroll Professional with 22 years of experience, I’ve been through a payroll clean up or two. Below, I’ll share actionable steps you can take to successfully reconcile your 2021 production payroll.

In this post, we’ll discuss:

• Why year-end payroll cleanup is important
• Common payroll issues to watch for 
• How errors are corrected (and what happens if one goes undetected)
• Proactive steps you can take to minimize payroll issues

Watch the Master Series webinar: Best Practices for Year-End Payroll Cleanup

Why Payroll Cleanup is Important

Here’s a frustrating but inevitable truth; payroll errors happen. Especially in a year like 2021, when production has been at an all-time high, and accounting teams are feeling the effects of seemingly endless long days. 

Production workers expect a perfect W-2, even though they rarely (if ever) scrutinize their own pay stubs to verify their tax deductions and direct deposits are accurate. So, when payday errors go undetected, your team is left scrambling to report issues to ensure the cast and crew members get an accurate W-2 at the end of the year.

Payroll issues that occur due to an inaccurate withholding or even a simple clerical error can significantly impact production workers. Worst case, they can even result in big-time issues for the production itself. 

What’s the best way to avoid all these challenges? Be proactive.

Common Payroll Errors to Watch For

As you conduct your year-end payroll review, watch for these common issues:

1. Pre-filled timecard mistakes: If you’re filming in multiple locations, pre-filled timecards can make things much easier on you. Unfortunately, it’s very easy to accidentally pick up a paper from the wrong pile and inadvertently tax someone in the wrong work state.
2. Missed withholdings on mid-production incentive state loan outs: This happens most often during a hasty one-or-two week stop on location, and it can wreak havoc on your reconciliation process. Be sure to pre-plan for any mid-production loan outs.
3. Escrow and advance withholdings: It’s easy to forget withholdings on escrow funds and advances, especially if EP didn’t do the initial payout and tax calculation. When this happens, you may have to do a gross-up, which is a cost to production.
4. Depositing tax in a state that doesn’t allow you to: In some states, your accounting team can’t deposit payroll tax; your payment processor has to do it. Make sure you verify state tax rules before you initiate a deposit.

Other things that can throw your books out of alignment are late charges for pension, health, and welfare tax, assuming a box rental doesn’t have a withholding when it does, and confusion around the application of ridiculously complex state tax laws.

These issues don’t just impact individuals; an entire production may suffer from an accounting error. For example, an erroneous state tax calculation could result in a lower film incentive payout than anticipated. Film productions count on incentive money, and mistakes like this can throw their budget off balance.

Successfully avoiding these common payroll pitfalls comes down to cast and crew accountability and having good processes and checks and balances. 

What Happens When a Payroll Issue Inevitably Arises?

Here’s what goes on behind the scenes at EP when a payroll error is reported:

• EP receives a call from a production worker who reports an error
• Our team verifies the crew member’s report with their production accounting team
• In some cases, EP requests a new timecard to make sure there’s an accurate paper trail
• Our team keys an adjustment within our system
• EP generates the appropriate paperwork (W-2 or W-2C) to reflect the adjustment

Once the issue is addressed, trust but verify. If you've asked us to fix something, check and make sure we keyed exactly what you wanted us to key, and the edit you requested is what you expected to see.

Due to high volume, EP has issued a December 15th, 2021 deadline for W-2 adjustment requests. As long as you request any changes by this date, we’ll be able to make the correction before we cut W-2s. If you send in requests after December 15th, the adjustment may not be keyed prior to the creation of the W2 and your crew member may end up with a W-2 and a W-2C.

Understanding W-2Cs

A W-2C, or corrected W-2, gets created based on an adjustment. Though these two forms have deceivingly similar names, they’re actually quite different. 

• A W-2 lists out all your earnings and deductions for the year
• A W-2C exists for the solitary purpose of documenting a correction made to a W-2

Note: EP does not upload the W-2C to our electronic W2 website; it has to be delivered through the mail or encrypted email.

If an error is discovered, it’s important to let your crew know that they need to hang on to their original W-2. A W-2C is not a replacement for that form; it’s an addendum. The only information listed on a W-2C form is the adjustment - or what’s wrong with the original form. All the other information on the W-2 is still needed to file taxes accurately.

As long as your crew member receives a W-2 and a W-2C by the tax filing deadline, they can file their taxes as usual. They’ll just need to use the corrected information (found on their W-2C) when they fill out their return.

What Happens if an Error Sneaks Through to 2022? A missed payroll error can result in a production worker needing to file an amended return, which could result in added costs if the worker uses a CPA to update their filing. The worker may also experience tax refund delays.

Proactive Steps You Can Take to Avoid Payroll and W-2 Issues

The best way to avoid payroll issues is to be curious and vigilant. Your production accounting team should get into a habit of checking every little detail twice before payments are processed. It’s also important to get buy-in from your crew and transfer some of the responsibility for ensuring accuracy to loan out owners and production staff.

For example, you can send an internal communication to make your team aware of film incentive requirements. Provide details and explain exactly what they need to verify on each paystub (ie. confirm is that the incentive state withholding is correct). Be sure to emphasize that every payment issued needs to be double-checked for accuracy.

Team members should verify the following:

• Is all their personally identifying information (PII) correct? 
• Did they work or live in the states that have withholding?
• Did they pay local taxes? Should they have paid local taxes?

Having crew members review these details on every check will dramatically reduce your likelihood of having to reconcile year-end errors. Ten extra minutes today can save you a massive headache brought on by hours of future work.

Payroll Tools For Your Crew

Make sure your production team is using the tools available to them to verify their paychecks. In minutes, anyone on your team who gets paid by EP can sign up for MyEP and run payroll reports to check for any issues. Here's how you do it. 

If anything seems off, encourage your crew to ask questions and try to instill a ‘see something, say something’ mentality. It’s to their benefit to be proactive, and it’s far easier for you to field in-the-moment questions than to retroactively reconcile a missed error.

If loan out withholding errors are found in post, call EP as soon as possible. We’ll talk to the actor’s CPA and will work the problem to get everyone to a speedy solution. You can also contact taxsupport@ep.com.

Most importantly, lean on your partnership with EP. Our goal is to offer as much proactive support as possible to help you streamline your payroll and minimize errors.

It takes a village, and we’re a team, working together for accurate payroll.