One of your most important tasks as an employer is to keep records on employee pay and benefits, as well as payroll taxes paid by your business and your employees. These records are required by federal and state agencies. Payroll and payroll tax documents are necessary for a variety of reasons.
Why Employers Must Keep Payroll Records
Both federal and state agencies require employers to keep records on employee pay and on payroll taxes.
You must keep records for several purposes:
- Accurate records are necessary for completing your business financial statements, tax returns, and reports to employees and government agencies.
- Federal, state, and local agencies may audit your business and inspect your employee records at any time without notice.
- If an employee has a complaint or files a lawsuit against your company, the more complete your records, the better you can support your defense.
Another reason to keep payroll records on employees is to allow them to view their files. You must give them access to these documents, as required by laws in 22 states.
What Payroll Records Are Employers Required to Keep?
Federal agencies have different requirements for what payroll records to keep and for how long. See below:
|Federal Agency||Type of Documents||How Long to Keep|
|Dept. of Labor||Pay records to support minimum wage, overtime, other||3 years for most, 2 years for wage computations and schedules|
|IRS||Payroll forms and all pay and benefits information||4 years for employment taxes|
|Retirement Plans||Plan participant, and beneficiary information||While the plan is in effect and paying benefits|
|EEOC||All personal and employment records||1 year, for current employees, or 1 year after termination|
|ADEA||Payroll records and records on benefit plan participants||3 years; while the benefit plan is in place, and a year after it ends|
Fair Labor Standards Act Recordkeeping Requirements
The Department of Labor mandates that businesses keep paycheck records and other employee documentation to show that they are complying with Fair Labor Standards Act provisions on minimum wages, overtime, equal pay, and child labor.
Records can be maintained in any form, including electronically. For all non-exempt employees and those covered by minimum wage requirements, you must keep:
- Personal information
- Pay rates, including overtime pay
- All information used to calculate gross pay and net pay, including withholding and deductions.
You must keep most records for at least three years, but you only have to keep some calculations and schedules for two years.
Records required for exempt employees differ from those for non-exempt workers, and special information is required for household employees, for employees working under uncommon pay arrangements, for employees to whom lodging or other facilities are furnished, and for employees receiving remedial education. If any of your workers fall into these categories, consult with an attorney.
IRS Records Requirements
The Internal Revenue Service (IRS) requires that you keep all payroll records for all current employees for a minimum of four years, for employment tax purposes. For all employees, keep all forms relating to employee pay and payroll taxes, including the employee's current W-4 form for withholding purposes.
Your records should include:
- Your employer tax ID number (EIN)
- Amounts and dates of all wage, annuity, and pension payments
- Amounts of tips reported to you by employees and records of all allocated tips
- The fair market value of in-kind wages paid
- Name, addresses, SSNs, and occupations of employees and recipients
- Dates of employment for each employee
- Periods when 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 (for workers' compensation or disability insurance, for example)
- Records of employee benefits and expense reimbursement given to employees, including substantiation (proof)
- Documentation of any credits claimed by your business (for family leave tax credits or work opportunity tax credits)
- Documentation of the amount of any employer or employee share of social security tax that you deferred and paid
Retirement Plan Record Requirements
If your company has a retirement plan, you must keep your books and records available for review by the IRS and to answer questions from participants. Keep these records until all benefits have been paid and enough time has passed that the plan won't be audited. Because retirement plans may pay benefits for decades, you will have to keep all records indefinitely.
In addition to all plan documents, for each participant and beneficiary keep:
- Account balances
- Contributions and earnings
- Loan documents and information
- Compensation data
- Participant statements and records
EEOC and ADEA Recordkeeping Requirements
The Equal Employment Opportunities Commission (EEOC) requires that employers keep all personal and employment records for a year. If an employee is fired or laid off, their records must be kept for a year from the date of termination.
The Age Discrimination in Employment Act (ADEA) requires employers to keep payroll records for three years. If your company has a benefit plan, you must keep records of plan participants and files on written seniority or merit systems while the plan is in effect and at last one year after it ends.
Other Payroll Forms You Should Keep
In addition to paycheck records, you should keep a few other documents on file for each employee.
- A copy of any form on which an employee has authorized pay deductions, including benefits and special deductions like United Way or retirement plan contributions. You must have a written consent on file for any deduction from an employee's pay with the exception of FICA taxes and garnishments.
- A copy of the employee's original application form and any supporting documents such as a resume or transcripts.
If you're confused about which records to keep and for how long, it's best to keep every payroll and personnel record on all employees and terminated employees as long as possible. Some records, like retirement plan documents, must be kept indefinitely.