Year-end payroll for a construction company isn't one task. It's about 30 of them, spread across three months, and missing any of them turns into IRS notices, state penalties, or workers comp audit balances next year. This checklist is built so you can work backward from January 31 deadlines without scrambling.
The short answer: start in October, finish in January
Year-end payroll for contractors covers four big buckets: federal tax filings (941, 940, W-2, W-3, 1099-NEC, 1096), state filings (unemployment, withholding, sometimes separate W-2/1099 filings), workers comp audit prep, and operational closeout (final bonuses, classification review, new-year rate cards). Start in October, push hard in December, file in January. Contractors who wait until January almost always regret it.
My background is roofing - running crews, plus gutters, soffit and fascia, and some siding work. I'm not a CPA. The checklist below is the practical workflow most small and mid-size contractors run; your accountant or payroll provider should be the one signing off on the actual filings. If you don't have one and you're past 5 employees, that's the first item to fix.
October: get your house in order
Two months out feels early. It isn't. October is when you find the problems you can still fix.
Reconcile quarterly 941s to your payroll register
Pull each quarter's Form 941 (federal payroll tax return) and compare:
- Total wages reported vs. total gross wages in your payroll register
- Federal income tax withheld
- Social Security wages and tax (6.2% employee + 6.2% employer, capped at the annual wage base)
- Medicare wages and tax (1.45% each, no cap; 0.9% additional on employees over $200K)
If your Q1, Q2, and Q3 941s don't add up to your payroll register through September, you have a reporting problem. Fix it now. The W-3 (annual summary that goes with your W-2s) has to match your 941s. If they don't match, the IRS sends a CP-251 or similar notice in spring asking why.
Verify worker classification
Pull your 1099-NEC list. For every name on it, ask:
- Did this person work primarily for me this year?
- Did I direct how, when, and where they worked?
- Did they use my materials, my truck, my tools?
- Did they have their own insurance, business license, and other clients?
If most answers favor "employee," you have a classification problem. The DOL and IRS use the economic reality test, and most piece rate field workers don't pass as 1099. Better to fix it before W-2/1099 deadlines than after a DOL investigation. Read W-2 vs 1099 piece work crews for the breakdown, and if you want the math, run scenarios through the 1099 vs W-2 calculator.
Pull your workers comp policy
Find your declarations page. Note:
- Class codes used (roofing is typically 5551 in NCCI states - one of the most expensive)
- Estimated annual payroll per class code
- Audit window (most policies audit 30-90 days after expiration)
Compare estimated payroll to actual through September. If you estimated $400K and you're already at $500K with three months left, expect a big balance at audit. Now is the time to call your agent and adjust. It's also when you should be running real numbers through a workers comp estimator so next year's policy starts at a realistic number.
Confirm employee data
Send every employee a quick form: name as it appears on Social Security card, current address, dependents on W-4. About 1 in 10 has moved or had a name change you didn't catch. Wrong name on a W-2 = SSA mismatch letter = corrected W-2 = headache.
November: clean up the books
Review piece rate compliance for the year
Pull a sample of pay periods and verify:
- Piece rate earnings divided by hours worked >= applicable minimum wage (federal, state, or local - whichever is highest)
- Overtime calculated correctly (regular rate = total piece earnings / total hours, half-time premium on overage hours)
- Nonproductive time paid separately at applicable minimum wage or higher
- Pay stubs included required itemization for your state
If you find systematic problems (e.g., no overtime calculated for any piece rate worker, missing rest break pay), talk to a payroll attorney before year-end. Voluntary back-pay is often cheaper than discovered back-pay. The overtime calculator and articles on common piece rate payroll mistakes and FLSA requirements for piece rate employers cover the details.
Confirm subcontractor information
For everyone you'll issue a 1099-NEC to (paid $600+ in a tax year for services), confirm you have:
- Completed W-9 with correct legal name and TIN
- Mailing address
- Total paid year-to-date
If a subcontractor is missing a W-9, send it now. December is too late to chase. If they refuse to give you one, you may be required to do backup withholding (24% as of recent guidance) - talk to your accountant.
Reconcile state unemployment filings
Each state has quarterly unemployment filings. Confirm Q1-Q3 are filed and paid. Total wages should match your federal 941s. Mismatches between state SUTA filings and federal 941s are a flag for state auditors.
Plan year-end bonuses
Decide now what bonuses are happening, and structure them so they don't blow up payroll math.
- Discretionary bonus (you decide who, how much, when): does NOT need to be added back into the regular rate for overtime calculations. Cleanest path for holiday/thank-you bonuses.
- Non-discretionary / production bonus (tied to hitting production goals, attendance, etc.): MUST be added back into the regular rate, which means recalculating overtime for the period the bonus covers. If you promised "$500 if you hit 200 squares this month," that's non-discretionary. Plan accordingly.
If you're paying year-end bonuses tied to the year's production, ask your payroll provider to allocate them across the workweeks they cover and recalculate overtime. Most software can do this; manual is a nightmare.
December: execute
Final payroll runs
For most contractors, the last payroll of the year falls in late December. Two things to nail:
- Final bonuses processed correctly (see above).
- Final piece rate reconciliations - any production from December that was paid in early January gets attributed to the January W-2 year, not December's. Confirm your payroll system handles this consistently with last year, especially if you switched providers.
Run final earnings through a payroll calculator if you want to spot-check before processing.
Build next year's rate card
Don't wait until January. While the year is fresh:
- Which piece rates produced the take-home you wanted at your target speed?
- Which were too tight and caused turnover, callbacks, or disputes?
- Which were too loose and ate margin?
Adjust. Print the new rate card. Effective January 1 (or the first pay period of the new year). Communicate it before the holidays so workers don't show up January 2 surprised.
If you want to back into rates from a target hourly equivalent, run scenarios through the piece rate calculator for each scope.
Update bid models
Your bid model uses last year's labor rates and last year's productivity assumptions. Update both. If burden is up (workers comp went from 28% to 33%, for instance) and your bids haven't reflected it, you're losing margin on every job. Re-run a representative job through the bid calculator and see if your numbers still make sense.
Confirm filing method
W-2s and 1099-NECs can be filed paper or electronic. The IRS now requires electronic filing if you have 10 or more information returns combined (W-2s + 1099s + others) under recent rule changes. Most payroll providers handle this automatically; if you're doing it yourself, get a Business Services Online account with the SSA and an IRIS or FIRE account with the IRS now.
January: file, audit, close
January 1-15: pull year-end reports
- Annual payroll register, by employee
- Annual subcontractor payment register
- Workers comp payroll by class code
- 401(k), HSA, or other benefit contributions if applicable
January 15-31: file everything
| Form | Recipient | Deadline |
|---|---|---|
| W-2 (employee copy) | Employees | Jan 31 |
| W-2 (SSA copy) | SSA | Jan 31 |
| W-3 | SSA (with W-2s) | Jan 31 |
| 1099-NEC (recipient copy) | Subcontractors | Jan 31 |
| 1099-NEC (IRS copy) | IRS | Jan 31 |
| 1096 | IRS (with paper 1099s) | Jan 31 |
| Form 940 (FUTA) | IRS | Jan 31 |
| Form 941 (Q4) | IRS | Jan 31 (or Feb 10 if all deposits made on time) |
| State withholding reconciliation | State | Varies, often Jan 31 |
| State unemployment Q4 | State | Varies, often Jan 31 |
| State 1099 filing | State | Varies - some Jan 31, some later, some not required if combined federal/state filing |
If you're using a payroll service, most of these are automatic. Confirm anyway. The penalty for missed or late W-2s is per form and stacks fast - $60 to $660 per return depending on how late, with higher penalties for intentional disregard.
Workers comp audit
Most policies audit 30-90 days after the policy period ends. The auditor will ask for:
- Full-year payroll register, broken out by class code
- Federal 941s for the policy period
- State unemployment filings
- 1099-NECs and W-9s for any subcontractors
- Certificates of insurance for subcontractors (if you don't have these, the auditor will treat the sub's payments as your payroll for premium purposes - which is brutal)
Have these ready before the auditor schedules. The audit goes faster, and you spot mistakes before they're locked in.
Verify W-2 distribution
By February 1, every employee should have their W-2. If a worker says they didn't get one, reissue immediately. Don't wait. The IRS gets called, and now you're in correspondence purgatory.
Operational close-out
Beyond filings, year-end is the right moment for a few operational resets:
- Old rate cards - archive them, don't leave them on the wall. Workers will reference an outdated rate the first chance they get.
- Time-tracking review - if you're a piece rate shop, you still need to track hours for minimum wage and overtime. Read do you have to track hours for piece rate if you've been told otherwise.
- Payroll process review - did anything take longer than it should have? Were there repeat errors? December is the cleanest time to fix process for the new year. The piece rate workflow itself is covered in how to run piece rate payroll.
- Job costing review - which jobs hit margin, which didn't, which scopes were consistently under or over bid. Use a job profit calculator on a sample of completed jobs to spot patterns. More on the framework in job costing for contractors.
Disclaimer: This article is for informational purposes only and is not legal, tax, or insurance advice. Consult a qualified professional before making decisions for your business.
Closing
Year-end isn't the time to find out your 941s don't reconcile, your 1099 list is wrong, or your WC payroll estimate was 30% under. Start in October, build a checklist you reuse every year, and lean on your payroll provider, accountant, and insurance agent - they exist for this.
Sign in at app.pieceworkpro.com/signin to keep your piece rate payroll, hours, and production data clean year-round, so year-end is just exporting reports instead of reconstructing them.
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