Running a business, you know that compliance isn’t just about being compliant—you also need to prove it. You never know when the IRS, the DOL or the EEOC will demand to see your paperwork, which is why it’s so important to retain payroll records. To make things more complicated, each agency has its own rules for which documents you have to keep and for how long. The good news is, you don’t have to buy more filing cabinets. HR software can automatically store everything you need, with the added benefit of simplifying the whole payroll process.
Why You Need to Retain Payroll Records
At a federal level, you’re keeping payroll records primarily for three agencies:
- The IRS
- The Department of Labor (Wage and Hour Division)
- The EEOC
These organizations are tasked with enforcing legislation to make sure you pay employees fairly, get your tax calculations correct and avoid discrimination. Watch out: some legislation can be enforced by multiple agencies.
What Payroll Records the IRS Requires You to Keep
The IRS wants you to keep payroll records relating to employment taxes for at least four years. This period begins after you’ve filed at the end of the year. Here’s when having online data storage pays dividends—there’s a lot of information to maintain. If audited, you could be asked for:
- Employer Identification Number
- Total amounts and dates of all wages, annuities and pension payments
- Total amounts of reported tips
- Fair market values of all in-kind wages
- Employee (and recipient) Names
- Employee (and recipient) Addresses
- Employee (and recipient) Social Security Numbers
- Employee (and reception) Occupations
- Dates of Employment
- Copies of all Employee W-2 forms returned as ‘undeliverable’
- Copies of W-4, W-4P, W-4S and W-4V for employees and recipients
- Form 8922 (when applicable)
- Periods of employee and recipient paid sick leave with amounts and weekly rate of payments by you or a third-party
- Dates and amounts of tax deposits
- Copies of Tax Return Forms 941 or 944
- Records of allocated tips
- Records of fringe benefits provided, including substantiation
- Retirement Plan Documentation—Forms 5305-SEP, 5305A-SEP, 5304-SIMPLE, 5305-SIMPLE
- Profit Sharing, 401 (k) and defined benefit plan documentation, adoption agreements and plan amendments
- Affordable Care Act Documentation—Forms 1095-B, 1094-B, 1095-C and 1094-C
- Records showing FUTA tax calculations
- Proof of state unemployment calculations and tax withholding
- Form 940
What Payroll Records the Department of Labor Requires You to Keep
The Wage and Hour Division (WHD) of the Department of Labor enforces employee rights as detailed in the Fair Labor Standards Act (FLSA). Payroll records related to this must be retained for at least three years and related records showing how you determined wages (e.g., time cards, schedules and wage rate tables) must be kept for at least two years. The WHD can ask for employee’s personal information, how long they work and their pay. Though there’s no specific documentation listed, it’s best practice to keep the following, for all non-exempt employees:
- Name
- Birth date (if employee is 18 or younger)
- Social Security Number
- Sex
- Occupation
- The starting time of the employee’s workweek
- Hours worked per day and workweek
- Total wages per pay period
- Period covered for each pay period
- Date of payment
- Payment basis (i.e., whether an employee is paid by the hour or by piece)
- If applicable, hourly rate
- Daily and weekly earnings (excluding overtime)
- Overtime earnings
- All wage additions and deductions
What Payroll Records the EEOC Requires You to Keep
It’s the job of the Equal Employment Opportunity Commission (EEOC) to fight against discrimination in the workplace. To make sure that you aren’t paying certain groups of workers less, the EEOC can ask for payroll records and related documents. The following records should be kept for between 1 and 3 years:
- Pay Scales
- Pay Adjustments (increases or deductions)
- Reasoning behind pay adjustments
- Job Evaluations
Laws Governed by Multiple Agencies
To make things even more complicated, some federal acts are jointly governed by the IRS and the DOL. For FMLA compliance, all relevant documentation (including pay stubs, if applicable) should be retained for at least three years. The Employee Retirement Income Security Act (ERISA) mandates that documentation related to retirement and 401 (k) plans be retained for at least six years. This may include enrollment documents, proof of payments and payroll deductions.
State Laws on How Long to Keep payroll Records
Employers also need to be aware of state-specific rules. In New York, the Wage Theft Prevention Act mandates that payroll records be kept for at least 6 years, double the length of standard DOL guidelines. In California, records for non-exempt employees must be kept for at least four years, while for exempt employees this extends to at least eight years. In Illinois, payroll records must be kept for at least five years.
The Bottom Line
Knowing what documentation to store and keeping track of complex, ever-changing legislation just isn’t practical without a little help. The good news is, Paycor offers the technology and expertise business leaders need to save time and stay compliant. Our Human Capital Management (HCM) platform modernizes every aspect of people management, from the way you recruit, onboard and develop people, to the way you pay and retain them. ,000 organization are partnered with Paycor by talking with a representative today.