Most businesses understand the importance of keeping and maintaining records of their activity. Whether it’s receipts, invoices, contracts, or other business documents, sooner or later the time will come when the business finds the need to produce these records. This may be for an internal or third-party audit, or to settle a dispute. With payroll being one of the largest expenses for many companies, payroll records are some of the most important documents for an organization to retain. The Department of Labor and other government agencies require specific records to be kept for varying lengths of time. In addition to legal compliance, proper payroll recordkeeping can be helpful for tracking finances, working with budgets, and preparing business tax filings.
So, what payroll records should be kept?
The IRS requires the retention of tax documents for four years, including W-4s, payroll tax payments, and any undeliverable W-2s.
The Department of Labor has a fact sheet that provides some general requirements under the Fair Labor Standards Act (FLSA). Required information includes personal information such as name, SSN, address, as well as payroll data including rates of pay, total earnings, and deposits, and play dates.
The FLSA mandates that these records be kept for at least three years. Some records, such as time cards, have a retention requirement of two years.
The Equal Employment Opportunity Commission (EEOC) has similar requirements for the type of records and retention periods. An EEOC audit may require employers to produce records of job evaluations and salary reviews to show the rationale for pay and merit increases.
The Employee Retirement Income Security Act (ERISA), which oversees pension, health, and other employee benefit plans, requires employers to maintain records necessary to determine the benefits due or that may become due to plan participants. ERISA may also require copies of payroll registers and employer’s federal, state and local payroll tax reports for up to six years.
Last but not least, we can’t forget about the rules and requirements of individual states. California, New York, Washington, and others may have separate retention schedules and requirements may be a bit more specific in terms of what information needs to be kept.
How can you stay in compliance?
With all of the different timelines and requirements to remember, some businesses may start to wonder if keeping everything for as long as possible is an effective solution. This is not recommended as a practice and can carry a very high risk due to the private and personal information contained in these records. It is generally advised to destroy information such as bank accounts, social security numbers, and other personal information after the retention timeframe to prevent confidential data from being misused.
Companies may want to develop policies and processes for secure and compliant record-keeping, which also addresses who has access to what, as well as guidance on both paper and electronic documentation. Keeping and maintaining records doesn’t necessarily mean having to store stacks of paperwork. With modern human resources and payroll software, much of the required data can be stored electronically and accessed on-demand. This can be much more secure than a file cabinet full of paper, which may help with secure, quick access to files, and if managed properly, controlled access to ensure sensitive data doesn’t fall into the wrong hands. For larger organizations, finding physical spaces for the storage of paper files may also be an issue. And, as some businesses may have recently discovered, paper files can become an issue if the office or storage facility becomes inaccessible due to unforeseen circumstances (such as a global pandemic). Also, keep in mind that regulations are always subject to change. Working with a partner like Valor Payroll Solutions can help your business stay compliant and ease your mind. Contact us today!