How to Keep Payroll Records Compliant

Payroll Records Retention

Whether you are a payroll services company or the payroll administrator for a business, keeping your payroll system compliant with applicable laws is crucial to business health and avoiding audits and/or stiff penalties. Using direct deposit or payroll calculator software will not relieve you of any legal duties of accuracy. The following outlines the various requirements for payroll forms and records required by the payroll provider.

State Laws

Laws vary by state, but a business and any payroll provider must usually retain payroll records of the employee's name, address, job position, hours worked on a weekly and daily basis, pay rate, total wages earned, net pay, paycheck additions, and any payroll deduction for each pay period. Businesses must typically retain these payroll forms for at least three years and provide copies of such records available upon request by the employee within a reasonable period of time.

State regulations also cover paycheck unemployment insurance payroll taxes, state wage and hour laws, creditor garnishment laws, payroll deduction for child support, and unclaimed paycheck requirements.

U.S. Department of Labor

Many workers paid by salary are considered exempt employees and not subject to overtime requirements by the payroll calculator, but the FLSA still requires records of the basis for payment of salary or wages to be kept in the payroll system by the employer or payroll provider.

The following records must be kept for three years after date of last entry:

  • Employee's name appearing on social security card
  • Complete home address
  • Date of birth if under age 19
  • Gender and occupation
  • The beginning of the employee's work week
  • Hours worked each day and week
  • Regular wages or salary, including the regular time portion of overtime earnings
  • Overtime wages
  • Total wages paid for each pay period, including additions and deductions
  • Pay date and pay period covered
  • Total sales volume and services and goods purchased
  • These payroll records must be kept by the payroll services or system for two years after the last date of entry.
  • Orders, billing, and shipping records detailing customers orders and delivery records
  • Employment and earnings records, work hours, payroll calculator basis for determining compensation and wages paid
  • Work time schedules showing days and hours of employment
  • Piece rate schedules and pay rate tables

Internal Revenue Service

The following payroll tax records must be kept for at least four years after the payroll taxes due date or the actual date paid:

  • Name, address, job position, and social security number of each employee
  • Total wages and pay date, including tips and non-cash payments
  • Pay period
  • Details about any difference between total and taxable wages or salary
  • Wages subject to payroll tax withholding for federal income, Medicare tax and social security
  • W-4 Form
  • Beginning and ending employment dates
  • Employee tip reports outside paycheck and direct deposit
  • Continuing wages made due to absence or illness of an employee by employer or third party
  • Fringe benefits, reimbursed expenses, and non-cash earnings
  • A request by an employee for wage or salary withholding using the cumulative method
  • Tax settlement or adjustments to payroll taxes
  • Amounts and dates of tax direct deposits
  • Total yearly compensation paid
  • Compensation covered by FUTA
  • State unemployment contributions
  • All information shown on 940
  • Copies of 941, 643, W-3, Copy A of Form W-2 and returned W-2 forms filed

Family and Medical Leave Act (FMLA)

  • Standard payroll forms and employee data
  • Copies of employee notice of leave
  • Dates of taking FLMA leave
  • Hours worked by employee over the last 12 months
  • Hours of leave by an exempt employee under FLMA
  • Copies of any notes to employees
  • Copies of employer policy regarding taking of paid and unpaid leave
  • Documents showing employee benefit and insurance premium payments
  • Records regarding any leave disputes

Title VII of the Civil Rights Act of 1964 and the Americans with Disability Act of 1990

These acts don't have any specific records requirement, but to prove compliance, any records relating hiring, layoff, transfer, promotion, demotion, or termination, rates of pay, and choosing employees for training or apprenticeship are recommended to be retained for one year from the date of the event.

The Age Discrimination in Employment Act of 1967

This act has a three year retention requirement for the following records:

  • name
  • address
  • date of birth
  • pay rate
  • total compensation, wages, or salary paid
  • job title

The following records should also be retained for one year from the date of event:

  • job applications
  • replies to job opening advertisements
  • records related to the a decision not to hire an applicant
  • resumes received

You also must keep all documents related to:

  • employee layoffs or terminations
  • job orders sent to an employment agency
  • medical exams used to make hiring and discharge decisions
  • job advertisements

The Immigration Reform and Control Act requires copies of the I-9 Form to be kept for three years after the date hired.

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