As a business owner, keeping records is one of the most important things to remember. One type of record you need to keep is for payroll. When it comes to federal law, you need to know how long to retain payroll records.
What are payroll records?
Payroll records are documents related to paying your employees. The following are payroll records that you must maintain in your files:
- Names, addresses, and Social Security numbers of all employees
- Workweek information (e.g., start and end dates)
- Hours worked each day/total hours worked each week
- How each employee is paid (e.g., hourly, salary)
- Pay rate
- Overtime earnings (if applicable)
- Additions to or deductions from wages
- Total wages paid each period
- Payment dates and pay periods
- Forms W-2 and W-3
- Forms W-4 and W-5
- Forms 941 or 944
- Records of benefits
You might have other payroll records you are required to keep, like travel vouchers for employee reimbursements.
Keep payroll records for a certain time period to avoid penalties. For example, if you are audited or accused of discrimination, you need to have records.
How long to keep payroll records?
You must keep all payroll records for at least three years, according to the Fair Labor Standards Act (FLSA). And, you need to keep records that show how you determined wages for two years (e.g., time cards that comply with FLSA timekeeping requirements).
Maintain records of employment taxes for at least four years after filing the fourth quarter for the year, according to the IRS. These records include documents like an employee’s Form W-4, personal information, and dates of employment.
Storing payroll records
You can store payroll records via paper or online files. Develop a recordkeeping system that works best for you.
With paper-based recordkeeping, you can store files in locked cabinets. Be sure to label each of your folders so you can easily access your records.
Storing files online is also a viable option. With online files, you don’t need to worry about records getting lost or damaged like with paper files. You can store records in a file on your computer or in an online payroll system.
When you store files online, you might still keep some paper files. Make sure that the recordkeeping system you create makes sense to you. You might consider organizing records by year or category.
Why you must follow payroll record retention requirements
The following agencies require that you keep records:
- Fair Labor Standards Act
- Equal Employment Opportunity Commission
Payroll record retention keeps you compliant with the IRS. And, you must have records if you get audited by the IRS.
The Fair Labor Standards Act also requires that you keep payroll records. You need to keep identifying information about each employee as well as information about the hours they work and their pay.
To prevent discrimination in the workplace, the Equal Employment Opportunity Commission (EEOC) requires you to keep employment records. Records can prove or disprove that there was discrimination involved with an individual’s termination.
On top of being required by the law, keeping payroll records can also help you and your business. With recordkeeping, you can stay organized. Recordkeeping helps you track your business finances, plan budgets, and prepare taxes.
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This article has been updated from its original publish date of June 1, 2011.
This is not intended as legal advice; for more information, please click here.