CPE Professional Resources | Post
How Long Do You Have To Keep Payroll Records?
Proper recordkeeping is a must for your business—especially when it comes to payroll. In other words, how long do you have to keep payroll records? In addition, payroll records help keep you organized. After that, payroll records ensure you have any information you may need about your employees, past or present. Above all, payroll records track work and pay history with your company.
Why is payroll recordkeeping essential?
Payroll records are obviously important information to have on hand. But as the years pass and you hire more hourly employees, those old records can quickly become a lot to track.
So, this question is, how long do you need to keep your payroll records? What are the recordkeeping requirements? And when can you get those years-old records off your hands and out of your office?
Let us look at how long you need to keep different types of payroll records—and when it is safe to clear them out:
Why is keeping payroll records critical?
First things first—before we jump into how long to keep your payroll records, let us talk about why proper recordkeeping is so critical in the first place.
Federal, state, and local laws require you to keep your payroll records. Above all, if you do not keep them, you are breaking the law. Above all, you are putting yourself at serious risk. If you were ever to get audited, sued, or have any other type of legal action brought against you or your small business, you would not have the records to defend yourself. Therefore, you could lose a lot of time, money, and energy as a result.
Above all, payroll record retention is a must for protecting your business. But again, the question remains. How long do you need to retain those records?
What to keep for two years
Different types of payroll records have various retention requirements. In other words, you can get rid of some of your payroll records sooner than others. But what is the very soonest you can get rid of any payroll records? Two years. However, 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. That would include timecards, work and time schedules, and wage rate tables.
What to keep for three years
While you can offload a few records at the two-year mark, you will need to keep most of your payroll records on hand for at least three years.
Under the Fair Labor Standards Act (FLSA), 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
- Birthdate (if younger than 19)
- Time and day of the week when employee's workweek begins
- Hours worked each day
- Total hours worked each workweek
- The 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 does not require employers to use any specific form in their recordkeeping. Similarly, how you track this information 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.
What to keep for four years
For any records having to do with payroll taxes, you are going to need to keep on hand for longer. More specifically, payroll tax records must be kept for four years.
According to the Internal Revenue Service (IRS), you will need to keep all employment tax records. Above all, you must 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 payroll records for six years
When you have many employees, keeping track of payroll records—and how long to keep them—can feel overwhelming. And while the federal government recommends keeping your payroll records for between two and four years (depending on the record), if you want to play it safe? Keep them a bit longer.
The Small Business Association (SBA) recommends businesses keep their payroll records for six years. Because different agencies, states, and local municipalities may have other requirements, keeping your records for six years (instead of four) may be safer. The more extended retention period will ensure you comply with all relevant employment laws. In other words, the six-year retention period will ensure your business is protected if anyone requests those records.
So, How Long Should I Keep Payroll Records?
Manually managing and maintaining your payroll records on your own can take a lot of time, energy, and resources. Many small businesses keep their records in a combination of electronic files and paper records. Payroll information can be hard to access outside of the office.
In other cases, you may contract for payroll services trying to avoid some of this record keeping. Unfortunately, as you can see from the records retention lists above, there are various records outside of the payroll system that must be maintained. So, how long do you have to keep payroll records?
For simplicity, consider following the SBA regulation of six years. Structure your paper or electronic files logically, so it is easy to dispose of records that are older than six years. If you have many employees, take SHRM or HR courses to improve your skills.
Do you have other HR and payroll questions? Consider our K2 article on HR Checklists. If you are looking for HR and payroll software, Accounting Software World provides a comprehensive list of vetted options. Unfortunately, fraud in small businesses is common. Perhaps our Continuing Professional Education (CPE) Course on Small Business Internal Controls could help you prevent a significant loss. If you decide a paperless recordkeeping system is in your future, consider our Totally Paperless website or consider our Paperless Office course.
Let Hourly Keep Track Of Your Payroll Records For You
With Hourly, you do not have to worry about how, where, or how long to keep your payroll records. Hourly will take care of organizing your employee information and preserving all relevant files on record. And if you ever need employee payroll information—whether from last month or last year—you can easily access your records through the Hourly mobile app.