Spring is here, and so is one of the best opportunities of the year to make sure your payroll is running the way it should be. A lot can change in the first quarter of the year. New hires, benefit updates, shifting tax rules, and business growth can all introduce variables that are easy to miss when you’re heads-down running a business. Q2 is a natural checkpoint, close enough to the start of the year to catch anything that slipped through in Q1, but with plenty of runway left to correct it before year-end deadlines close in. In this article we’ll cover the key areas a payroll expert would advise you to review in Q2, from tax deposits and employee classifications to contractor tracking and benefits deductions, so you can keep things accurate, compliant, and stress-free for the rest of the year. 

Your Q2 Payroll Checklist: What to Review Right Now 

Before you run your next payroll, here are the key areas a payroll expert would want you to review to make sure everything is running accurately and compliantly heading into Q2. 

Employee Information 

Start with the basics. Confirm that new hires, terminations, and employment status changes are all reflected accurately in your payroll system. Outdated information is one of the most common causes of year-end headaches, so it’s always a good idea to double-check employee addresses, Social Security numbers, and W-4s. And make sure that exempt and non-exempt classifications are correct. Under the Fair Labor Standards Act, exempt employees aren’t entitled to overtime pay, while non-exempt employees are. If someone has been misclassified as exempt, you could be on the hook for months of unpaid overtime, plus potential penalties. Catching and correcting misclassifications now is a much smaller lift than correcting it down the line. 

Payroll Taxes 

Make sure you are up to date on both federal and state payroll taxes. Q1 wrapped up at the end of March, which means Form 941 is due soon. Form 941 is the Employer’s Quarterly Federal Tax Return, and it is due on the last day of the month after the quarter ends (Apr 30, July 31, Oct 31, Jan 31). Filing this form should be your first priority.  

In addition, check whether any tax rates or local taxes rules have changed in your municipality. For federal updates, the IRS newsroom publishes rate changes, legislative updates, and employer guidance throughout the year. For state-level changes, your state’s department of revenue website is the most reliable source of information. If you operate in multiple states or cities, it is especially worth reviewing, since local tax rules can vary significantly and be changed without a lot of fanfare. 

Finally, confirm that your deposit schedule still matches your current payroll volume. The IRS determines whether you deposit payroll taxes monthly or semi-weekly based on the total employment taxes you reported during a 12-month lookback period. As your business grows and your payroll increases, you may cross into a different threshold without realizing it and end up depositing on the wrong schedule. Even if you pay the full amount owed, depositing on the wrong schedule can trigger IRS penalties, so it’s worth double checking. 

Overtime and Bonuses 

Verify that your reporting is aligned with any new rules around tips and overtime deductions. The One Big Beautiful Bill introduced some changes to how tips and overtime pay are treated for federal tax purposes, and guidance on implementation is still being rolled out. This means that the rules that your payroll software was set up under may need to be revisited. Again, check the IRS newsroom for the most current federal guidance, and your state’s department of labor website for state-level guidance and changes.  

Benefits and Deductions 

Take some time to walk through your benefits setup to ensure that health insurance, retirement contributions, and other deductions are all pulling at the right amounts. Confirm that your pre-tax limits (like 401k contributions) and after-tax amounts are set correctly, and check whether any HSA, FSA, or dependent care account limits need to be adjusted. These amounts and limits are set by the IRS and typically change from year to year. If your payroll system hasn’t been updated to reflect the current year’s limits, employees could be over- or under-contributing without either of you realizing it, which will create major compliance headaches down the road. 

Year-to-Date Totals 

This is a good time to compare your payroll reports against your ledger. Review all wages, taxes, and deductions from Q1 and look for anything that doesn’t line up. Some things to flag include total gross wages that don’t match what was reported on Form 941, tax withholdings that seem off relative to employee elections, or deductions that are inconsistent from pay period to pay period. Catching a discrepancy now, when there’s still plenty of time left in the year, is much easier than discovering it later when you’re preparing for year-end and working against a deadline. 

Reporting Prep 

If you pay 1099 contractors, accurate tracking throughout the year is what makes year-end reviews and tax season much more manageable. At a minimum, you should be logging each payment as it goes out, collecting and storing a current W-9 for every contractor before you pay them, and keeping a running total of what each contractor has been paid so far in the year. At the end of each quarter, pull a contractor payment summary and compare it against your records. Ask yourself: are all payments accounted for? Do I have complete W-9 information for everyone? Is anyone approaching or past the $600 threshold that triggers a 1099-NEC?  

Small gaps compound over time, and by the time tax season arrives, you may be chasing down payment records, requesting W-9s from contractors who are hard to reach, or filing corrections on 1099s that went out with wrong information. Catching those gaps quarter by quarter keeps the process clean, reduces your risk of IRS notices, and makes tax season more of a verification of information that you have already gathered and organized, rather than an excavation process. 

Employee Communication 

It doesn’t hurt to send out a quick reminder to employees to submit updated W-4s if their situation has changed. A new dependent, a second job, a spouse returning to work, or a major life event like a marriage or a divorce can all affect how much tax should be withheld from each paycheck. When withholding is off, employees may end up with a surprise tax bill at filing time, or conversely, be over withholding all year without realizing it. Sending this reminder to employees is low hanging fruit that takes minutes on your end and can save your employees (and you) a real headache when tax season rolls around. 

Look Ahead 

Do a quick search to check if any minimum wage increases or local ordinance changes are taking effect in your area in Q2. Minimum wage rates vary significantly by state and city, and some localities update them mid-year rather than waiting until January, so it’s worth verifying rather than assuming nothing has changed. Your state’s department of labor website is the most reliable place to check, and the Department of Labor’s website at dol.gov also maintains a current map of federal and state minimum wage rates. 

And while you’re at it, put a mid-year payroll review on your calendar now. Taking 30 minutes to an hour to work through the items on this list again in July or August can save you hours of cleanup as you approach year-end, when deadlines are tighter and the cost of catching errors late is much higher. 

Find a Payroll Expert that Rewards Proactivity 

The truth is that most payroll problems aren’t dramatic. They’re small, they go unnoticed, and then they quietly build into a much larger issue. And they compound over time. By the time they surface, they have usually grown into something much bigger than they needed to be, and lead to headaches that could have been avoided. 

Payroll can be relatively painless for those who stay on top of it, but it has a way of catching up to the ones who don’t. As a business owner, you already know that. You also know that payroll is rarely the only thing on your plate. When things get busy, it’s one of the first things that gets pushed to the back burner. 

That’s why it’s a great idea to have a payroll expert in your corner. A payroll expert will do the heavy lifting of tracking rule changes, catching mismatches, and making sure everything is running smoothly. With a trusted professional by your side, you are freed up to focus on all the other aspects of running a business that are competing for your time and attention and can rest assured that nothing is slipping through the cracks. 

At PaulHood, our Accounting and Payroll team is built to do exactly that. We offer comprehensive bookkeeping, financial reporting, payroll processing, tax planning, and compliance monitoring, all under one roof. We integrate directly with your business, providing regular updates, detailed reports, and hands-on support so nothing slips through the cracks. And because we work with you as a year-round partner rather than a seasonal resource, you get the kind of consistent, proactive attention that keeps small issues from becoming big ones. 

If you’re ready to partner with a payroll expert, we’d love to connect. Learn more about PaulHood’s Accounting and Payroll services here.