Whether you own a two-employee business or have grown to a team of 15, recordkeeping is a must. But having accurate payroll records is only part of the process — business owners must keep them in a secure place and for varying amounts of time to ensure compliance with federal, state and local laws. With the extensive amount of records, forms and laws that seem to continually change, it’s hard to know what to keep and what to toss.
In this Ask the Payroll Expert, Herman McDaniel, one of our experienced Payroll Administrators, answers one of the most asked questions — “Which payroll records do I need to keep and for how long?” Herman brings 30 years industry experience and has been part of our professional payroll team at Axcet HR Solutions for more than 12.
Payroll Records to Keep Two Years
Merit Increases & Pay Grade: According to the Equal Employment Opportunity Commission (EEOC), employers must keep all records on employee 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 for two years.
Payroll Records to Keep Three Years
All Payroll Records:
Under the Fair Labor Standards Act (FLSA), you must keep all documents related to compensating your employees for at least three years. According to the DOL and under the FLSA, payroll records include the following documents:
- Employee’s full name and Social Security Number
- Address including zip code
- Birthdate (if younger than 19)
- Sex and occupation
- Start and end dates to workweeks
- Daily and weekly hours worked per pay period
- Rate or basis of pay (i.e. per hour, per week)
- Regular hourly pay rate
- Total daily or weekly straight-time earnings
- Total overtime earnings for the workweek
- Additions to or deductions from wages
- Total wages paid each period
- Payment dates and pay periods
- Fringe benefit payments
Find out the top eight payroll mistakes small businesses make in this blog post.
Family and Medical Leave Act (FMLA) Documents:
When it comes to the FMLA, the number of records to retain can be daunting. The Government Publishing Office lists the following documentation that must be retained for three years:
- All basic payroll records
- Dates FMLA leave is taken as documented through written requests or time records
- If leave is in increments of less than one full day, the hours of the leave
- Copies of employee notices of leave furnished by the employer
- Documents describing employee benefits or employer policies and practices with regards to taking paid and unpaid leave
- Premium payments of employee benefits
- Records of a dispute regarding designation of leave as FMLA
Employers must retain original I-9 forms for three years after the date of hire, or one year after the date employment ends, whichever is later. It is recommended all I-9s be kept in a separate folder from other employee files and should be either password protected or secured by a lock.
Payroll Records to Keep Four Years
All records of employment taxes must be retained for at least four years after filing the fourth quarter for the year. According to the IRS, this includes the following documents:
- Your employer identification number
- 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 allowance certificates (Forms W-4, W-4P, W-4S and W-4V)
- Dates and amounts of tax deposits you made
- Copies of returns filed
- Records of allocated tips
- Records of fringe benefits provided, including substantiation
Records to Keep Six or More Years
Under the ERISA, COBRA, ADEA, HIPPA and other laws, documents pertaining to employee benefits plans must be kept for a considerable amount of time, if not indefinitely.
- Employee Benefit Plan: Plan governing documents for 401k, pension, and health and welfare plans, along with the corresponding summary plan descriptions and notices must be kept indefinitely.
- Fiduciary Information: Evidence of fiduciary must be kept indefinitely.
- HIPAA: HIPAA privacy records should be retained for six years from the date created or the date it was last in effect, whichever is later.
- COBRA: While there are no requirements by law, it is strongly advised businesses keep COBRA notices for at least six years from the date they were given.
Records NOT to Keep
With the abundant list of records to keep, you may be wondering if there’s anything you don’t need to keep or if there’s any risk involved in keeping certain documents longer than required by law. Here’s what you should get rid of:
- Employee banking information, such as routing and account numbers used for direct deposit, credit reports and photocopies of social security cards should be properly destroyed after the required retention period to prevent sensitive data from being leaked in the event of a data breach.
- I-9 Forms should be securely destroyed after the required three years.
Axcet HR Solutions is unique among HR service providers. We store all employee records “on premises” to avoid the risks of hacking or corruption in the cloud. That said, our clients have peace of mind knowing even if a disaster occurred at our physical headquarters, we wouldn’t lose a beat. We also have everything at our fingertips digitally. Our advanced recovery plan includes additional offices, remote servers, and continuously backed up data allowing us to continue with our business and yours without interruption. All of our clients' employee pay stubs, payroll history and pay records are kept online and are accessible 24/7 through our Instant Axcet portal.
Related Reading: Find out the top three security measures that ensure your payroll partner treats your data like it’s theirs in this blog post.
To find out more about what human resources paperwork to keep, for how long, and the risks of not saving it, download our free white paper.