How long to keep payroll records in 2023

Why Small Businesses Keep Payroll Records At All

Recordkeeping isn’t the most exciting part of running a small business, but it is essential to keep records around payroll and associated taxes. There are various federal laws and state laws that outline recordkeeping requirements for any business that pays employees to keep records for a set amount of time. The amount of time you’re required to keep records varies based on law, but if you hold onto them for at least four years, you’re typically in the clear. Some states and laws require you to keep records for six years, however, so it’s a good idea to consult with a financial advisor before disposing of payroll records.

These records include employee data, like full names and addresses, as well as paycheck and payroll tax records. You’ll also need to keep documents on hiring, pay periods, time cards, pay rates, and more. If your business has a human resources department, it will typically be in charge of maintaining these records. 

Types of Payroll Records

Employment laws at the federal and state levels determine which employment records you need to keep. Some documents have multiple uses since they contain information that multiple government agencies could use. The types of records that you should keep include:

• Hiring documents: An offer letter or employee data sheet shows personal details on employees, including how much they will be paid.
• I-9 documents: Prove the employee is eligible to work in the United States and also include details like the employee’s Social Security number. 
• Pay stubs: Document information like pay period, deductions, and pay rates.
• Electronic or paper time cards: Show total hours worked in an employee’s workweek. You should also keep timesheets if you use them.
• Termination records: Display the last day of work and the last payment made to the employee.
• Employee evaluation: Any review or salary increase documents prove why an employee received a merit increase.
• Paid and unpaid leave records: Prove the dates taken for leave and how much they were paid.
• Retirement plan records: Show how much employees got in retirement income.
• Employee handbook: Explains your business’s policies and, if signed, can show that the employee acknowledged these policies. These should be kept for at least three years.

Keep in mind that your state may have additional records that you’re required to keep, so check with your secretary of state department to make sure you stay compliant. Depending on where you live and what you offer your employees, you may not need to keep every one of these records. It’s a good idea to chat with a financial advisor before deciding what to keep, as they’ll have a better idea of changing regulations. 

Even if you only have one or two employees, the number of records you need to keep track of can get overwhelming. These records may be paper copies or electronic, so it’s essential to come up with a system to manage and organize all these documents. If recordkeeping isn’t your strong suit, consider payroll software to keep your records stashed safely in one place and organized. Also, check out Nav’s payroll software resources for answers to payroll questions from our experts.

Internal Revenue Service (IRS) Requirements for Payroll Record Retention

The Internal Revenue Service (IRS) requires you to keep your personal tax records for at least three years, and it has similar rules for a business’s payroll tax. (The IRS is just one of the government agencies that sets requirements for how long businesses need to keep records.) If the IRS chooses to audit your small business, you’ll be required to produce records related to paying your employees. You must keep employment tax records for a minimum of four years following your last tax filing. 

You’ll need to hold onto records that display:

• Your business’s Employer Identification Number (EIN)
• Your employees’ details, like Forms W-4, Social Security numbers, employees’ full names, and birth dates
• Employee wage totals and dates, including dates of payment, wage rate, overtime earnings, employee tips, benefits plan, sick pay, and pension payments
• Dates of employment
• Total tax deposits and tax withholding made and their corresponding dates
• In-kind wages paid and fringe benefits
• Copies of Forms W-2
• Copies of tax returns

Department of Labor (DOL) Payroll Record Retention Requirements

The Department of Labor enforces multiple employment laws related to payroll record retention for businesses. Here’s what you need to know.

Fair Labor Standards Act (FLSA) requirements for payroll records 

The Fair Labor Standards Act (FLSA) sets overtime and minimum wage requirements for non-exempt employees. Non-exempt employees typically work hourly and are eligible to earn overtime if they work more than 40 hours per week. (Exempt employees are typically paid a salary). The FLSA requires businesses to keep payroll records for at least three years for any non-exempt employee. You should keep these records in a central office or place of employment.

Here are the records that the FLSA requires you to keep:

• Employee’ details, like full name, Social Security number, physical address, date of birth (if they’re less than 19 years old), sex, and occupation
• Details about the employee’s workweek, like start time and date, as well as hours and dates worked each week
• Pay rate
• How often the employee receives their wages (daily, weekly, bi-weekly, etc.)
• Total wages, plus dates of payment and the covered pay period

Also, you need to keep all the records you use to calculate your employees’ wages. These can include wage rate tables, time cards, work schedules, and wage adjustments.

Family and Medical Leave Act (FMLA) payroll record requirements

The Family and Medical Leave Act protects eligible employees when they take a work absence for family or medical purposes. If an employee takes FMLA leave, the employer need to keep the following records:

• Employee information, like full name and address
• Pay rate and hours worked per pay period
• Wage adjustments and total wages
• Dates (or hours) of FMLA leave
• Copies of notices to employees
• Employee benefit payments

The Equal Employment Opportunity Commission (EEOC) requirements

A separate independent government agency — the Equal Employment Opportunity Commission (EEOC) — sets rules for how long to keep records related to wages and evaluations. According to the EEOC, you’ll need to keep records related to wage rates, performance evaluations, merit systems, and collective bargaining agreements for at least two years.

Nav’s Verdict

Small business owners have a lot on their plate, and tracking a large number of payroll records can be too much to handle. If that’s the case, consider turning to payroll software that can also help you with hiring and onboarding. The best payroll software not only ensures accuracy and on-time payment for your employees but provides HR resources that can store employee records. Use Nav to find the best payroll software option for your business today.

Frequently asked questions

What records do I need to keep for payroll?

There are federal and state laws that require employers to keep payroll records for their employees for a specific period of time. You’ll need to be able to show employees’ details like their Social Security number and full name, as well as their wage rate, the number of hours worked, and how much they received in benefits. Documents like employees’ W-2 Forms, I-9 documents, and pay stubs can provide much of this information and are essential to keep.

How long should payroll records be kept for?

The amount of time you need to keep payroll records depends on the law, but four years is typically a safe period of time to hold on to records. Most federal agencies won’t require you to hold onto records older than that. However, there are certain states that require you to keep specific records for six years, so it’s best to check with your state and/or a financial advisor before getting rid of records.

How do you maintain employee records?

The method you use to store employee payroll records depends on your business, how many employees you have, and whether or not you have an HR department. If you have multiple employees, you may want to choose a payroll service that allows you to store records digitally within its platform. Electronic storage is often simpler than keeping paper records, but it may also be a good idea to have a paper back-up. You’ll need to ensure that those records are safe, regardless of how they’re stored, so that private information (like Social Security numbers) can’t be stolen or misused. 

Can payroll records be kept electronically?

Yes. Businesses can keep electronic versions of their employees’ records if that’s what is easiest for their operations. Paper records are often a hassle for employers to manage, especially if they have a large number of employees, and storing electronic records can make things easier.

What are payroll details?

There are a lot of payroll details that you’ll need to keep records of. Payroll details include the employees’ full name and Social Security number, as well as their wage rate and dates of payments. It’s also important to keep track of how much employees earn per workweek and pay period, as well as tax details like tax withholdings. Consider talking with a financial advisor to make sure you’re keeping the right records.