Understanding Federal Regulations for Retaining Payroll Records

Understanding Federal Regulations for Retaining Payroll Records

As a business owner, the Internal Revenue Service (IRS) expects you to keep hard copies of certain records for several years in case it needs to see a copy of something again. Fortunately, you can scan the original item and store it on a computer to save space if necessary. From the standpoint of the IRS, payroll records are some of the most important types of business documentation to keep.

What Makes Up Payroll Records?

A payroll record is any document or piece of personal data related to paying employees for their work with your company. Some common examples of payroll records include:

  • Record of voluntary benefits the employee chose
  • Form W-2 or another form that properly identifies an employee and indicates his or her number of exemptions
  • Pay periods and payment dates
  • Total wages paid before and after taxes and voluntary deductions
  • Overtime earnings if appropriate
  • Number of hours worked each day and week
  • Start and end date of each reporting period
  • Personal data on each employee such as full legal name, social security number, and mailing address  

Not only can saving payroll records help you in case of an audit, but you can also use the records to defend your company if anyone ever accuses it of discrimination in hiring, firing, or promotion.

Record Retention Requirements

The United States Department of Labor and the United States Equal Employment Opportunity Commission each require employers to retain payroll records for a minimum of three years. This is under the guidelines of the Age Discrimination in Employment Act and the Fair Labor Standards Act. At Palmetto Payroll, we recommend that your business keep payroll records for at least that long to ensure that it never runs afoul of federal regulations.

You should also plan to hold onto records of employment taxes for a minimum of four years once you file your company’s returns for the last quarter of the year. Employment tax records typically include dates of employment, personal data for each employee, and W-4 forms. Lastly, hold onto any records that outline how your company determined pay rates for employees in case it’s ever in a position to need to justify wages. You should only include the date of birth in personal information if the employee is under 19 years old.

Need More Help with Payroll Records?

We understand that just keeping track of the various state and federal regulations related to payroll is enough of a challenge without throwing records retention on top of that. Palmetto Payroll has experience with every aspect of paying employees, making payroll deposits, and managing records. We invite you to learn more about outsourcing to us, whether that’s the entire function of your payroll department or a one-off task to save you time and money.