While there are a few payroll records you can offload at the two-year mark—including records that pertain to pay grade increases, timecards, schedules and wage rate tables—you will need to keep the majority of your payroll records on hand for at least three years.
As the years pass and you hire more hourly employees, those payroll records can quickly become a lot to keep track of. So, the question is, what are the specific record keeping requirements? And which records can you take off your hands (and out of your office)?
Let’s review how long you need to keep different types of payroll records—and when it’s safe to clear them out.
Why Is Keeping Payroll Records Important?
First things first—before we jump into how long to keep your payroll records, let’s talk about why proper record keeping is so important in the first place.
Federal, state, and local laws require you to keep your payroll records. If you don’t keep them, not only are you breaking the law, but you’re putting yourself at serious risk. If you were to ever get audited, sued, or have any other type of legal action brought against you or your small business, you wouldn’t have the records to defend yourself—and you could lose a lot of time, money, and energy as a result.
Clearly, payroll record retention is a must for protecting your business. But again, the question is—how long do you need to retain those records?
Payroll Records To Keep For Two Years
Different types of payroll records have different retention requirements—or, in other words, you can get rid of some of your payroll records sooner than others. But the very soonest you can get rid of any payroll records? Two years—and even at the two-year mark, there are very few payroll records you can get rid of:
The first type of payroll record you can get rid of after two years are any records concerning pay grade increases. According to the United States Equal Employment Opportunity Commission (EEOC), “employers must keep for at least two years all records (including wage rates, job evaluations, seniority and merit systems, and collective bargaining agreements) that explain the basis for paying different wages to employees of opposite sexes in the same establishment.”
According to the US Department of Labor (DOL) Wage and Hour Division, you can also offload records on which wage computations are based at the two-year mark, including timecards, work and time schedules, and wage rate tables.
Payroll Records To Keep For Three Years
While there are a few records you can offload at the two-year mark, you’ll need to keep the majority of your payroll records on hand for at least three years.
Under the Fair Labor Standards Act (FLSA)—and as summarized by the Department of Labor (DOL)—employers must keep the following employment records and payroll information on all non-exempt employees for at least three years:
- Employee’s full name and social security number
- Address, including zip code
- Birth date (if younger than 19)
- Time and day of week when employee’s workweek begins
- Hours worked each day
- Total hours worked each workweek
- Basis on which employee’s wages are paid (for example, “$10 per hour” or “$500 per week”)
- Regular hourly pay rate
- Total daily or weekly straight-time earnings
- Total overtime earnings for the workweek
- All additions to or deductions from the employee’s wages
- Total wages paid each pay period
- Date of payment and the pay period covered by the payment
The FLSA doesn’t require employers to use any particular form in their record keeping; how you track this information.
n is up to you. Just make sure to keep payroll records with all the required identifying information for each employee on hand for at least three years to comply with the FLSA record retention requirements.
According to the US Citizenship and Immigration Services (USCIS), you’ll also need to keep I-9 forms for three years after the date of hire or one year after the date of termination—whichever is later.
How Long Does The IRS Require You To Keep Payroll Tax Records?
Any records having to do with payroll taxes, you’re going to need to keep on hand for longer—more specifically, for four years.
According to the Internal Revenue Service (IRS), you’ll need to keep all records of employment taxes (and, if necessary, make them available for IRS review) for at least four years, including:
- Your employer identification number (EIN)
- Amounts and dates of all wage, annuity, and pension payments
- Amounts of tips reported
- The fair market value of in-kind wages paid
- Names, addresses, social security numbers, and occupations of employees and recipients
- Any employee copies of Form W-2 that were returned to you as undeliverable
- Dates of employment
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them
- Copies of employees’ and recipients’ income tax withholding certificates (Forms W-4, W-4P, W-4S, and W-4V)
- Dates and amounts of any tax deposits you made
- Copies of returns filed
- Records of allocated tips
- Records of fringe benefits provided, including substantiation
Want To Play It Safe? Keep All Your Records For Six Years
When you have a lot of employees, keeping track of payroll records—and how long to keep them—can feel overwhelming. And while the time companies keep records on file varies between two and four years (depending on the record), the Small Business Association (SBA) recommends businesses keep their payroll records for six years.
Because different federal government agencies, states, and local municipalities may have different requirements, keeping your records for six years (instead of four) will ensure you’re in compliance with all relevant employment laws—and that your business is protected if anyone requests those records.
Article Originally posted at Hourly
For More Information
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