Payroll Play 1/10: 5 Ways how People Fail at Keeping Payroll Records [+Checklist]

Let's be real, nobody wants to deal with fraud charges or increased scrutiny when the auditors come knocking, am I right?

So let's tackle this payroll record puzzle together.

Here are five frequently asked questions about payroll records, along with the answers you need.

Scenario

• During audits to demonstrate compliance with legal requirements.
• In cases of disputes or lawsuits with current/former employees.

1. What payroll records should a company maintain?

Each country has its own unique set of requirements for payroll records.

If you're from the United States, you can refer to the checklist below, which includes mandated payroll records, but is not limited to:

‍

Personal Information:

✔️ Full name

✔️Address

✔️Birth date

✔️Gender

✔️Occupation

✔️Social Security number

✔️Employment start date

‍

Work Schedule and Hours:

✔️Time and day of the week when the employee's workweek begins

✔️Hours worked each day

✔️Total hours worked each workweek

‍

Earnings and Deductions:

✔️The basis on which employee's wages are paid

✔️Regular hourly pay rate

✔️Total daily or weekly straight-time earnings

✔️Total overtime earnings for the workweek

✔️Employee and employer contributions to taxes and benefits

‍

Payment Details:

✔️Total wages paid each pay period

✔️Date of payment

✔️The pay period covered by the payment

‍

Tax Forms and Filings:

✔️W-4 forms for withholding allowances

✔️W-3 form, for transmittal of wage and tax statements

✔️W-2 forms for annual wage and tax statements

✔️1099 forms for independent contractors

✔️941 forms for quarterly and annual tax filings

‍

2. How long to keep payroll records?

The retention period varies based on both federal and state regulations. Federal guidelines include:

‍

One year at least

Data type:

• All personnel or employment records
• Personal data of an involuntarily terminated employee (keeping one year from the date of termination)

To learn more, check EEOC requirements.

‍

Two years at least

Data type:

• Records related to the basis for paying different wages to employees of opposite sexes, such as wage rates, job evaluations, seniority, and merit systems

To learn more, check FLSA requirements.

‍

Three years at least

Data type:

• All payroll records (check ADEA requirements)
• Personal employee information and pay rate (check FLSA requirements)

‍

Four years+ (after your last completed tax filing)

Data type:

• Tax documents like W-4s, payroll tax payments, and any W-2s that were returned undelivered

To learn more, check IRS requirements.

‍

as long as it’s possible

Data type:

• Payment records for the retirement plan

To learn more, check FLSA requirements.

It's important to note that federal guidelines may not encompass all state-specific requirements. State laws can mandate different retention periods, such as three years in Massachusetts or up to six years in New York, for tax purposes.

‍

3. How to keep payroll records?

• You may use any payroll records system as long as it's compliantly and accurately maintained.
• For small firms, it’s easier to use paper forms and physically signed timesheets compared to larger companies.
• To prepare for your company's growth, apply payroll software that offers unlimited digital record storage.
• Alternately, utilize secure cloud storage or external hard drives.

4. How to safeguard sensitive payroll information?

• Implement encryption, secure passwords, and multi-factor authentication.
• Regularly update payroll software.
• Ensure regular data backups.
• Provide employee training on data security best practices.

5. How to keep payroll records up-to-date?

Implement payroll software that allows you:

• regularly review and reconcile payroll data
• identify and correct errors promptly

‍