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Payroll Record Retention Requirements
Every business must retain certain records on their current and past employees, but which ones and for how long?
On the federal level, there are two agencies that regulate record keeping. First is the IRS, which is responsible for enforcing the Internal Revenue Code. The second is the U.S. Department of Labor (DOL). The Wage and Hour Division of the DOL is responsible for enforcement of the Federal Fair Labor Standards Act (FLSA), the Family and Medical leave Act (FMLA), the Immigration Reform and Control Act (IRCA), and the laws governing wages paid by federal government contractors.
Both of these agencies have separate rules regarding the type of records that must be kept and the length of time you must keep the records. To further complicate your requirements there are numerous state, local and other regulatory agencies that may require additional record keeping. State agencies enforce State Unemployment Insurance Tax Acts, state wage and hour laws, child support and creditor garnishment laws and unclaimed or abandoned wage requirements.
Keeping these records accurate and up-to- date is extremely important to the health of your business. Without the proper records you will be unable to meet regulatory requirements should you be audited by any of various federal state and local agencies. Failing to meet these requirements can mean large penalties and the potential for large settlement awards should you be unable to provide the required information when requested.
Internal Revenue Service
The following records must be kept for four years after the tax due date or the actual date paid.
- Name, address, occupation, and social security number of each employee
Total compensation and date paid including tips and non-cash payments
Compensation subject to withholding for federal income, social security and Medicare tax
- Pay period for each compensation period
Explanation of difference in total compensation and taxable compensation
Employees' W-4 Form
Dates of employment (beginning and ending)
Employee tip reports
Wage continuation made to an absent employee by employer or third party
Details of fringe benefits provided to employee
Copy of employee's request to use the cumulative method of wage withholding
Adjustments or settlement of taxes
Amounts and dates of tax deposits
Total compensation paid to employee during calendar year
Compensation subject to FUTA
State unemployment contributions made
All information shown on 940
Copies of returns filed (941, 643, W-3, Copy A of Form W-2 and returned W-2 forms)
Department of Labor
The following records must be kept for three years after date of last entry.
- Employee's name as it appears on social security card
Complete home address and date of birth if under age 19
Sex and occupation
The beginning of the employee's work week Regular rate of pay for overtime weeks
Hours worked each workday and workweek
Straight-time earnings including the straight –time portion of overtime earnings
Overtime premium earnings
Total wages paid for each pay period including additions and deductions
Date of payment and pay period covered
Records showing total sales volume and goods purchased
Following records must be kept for two years after the last date of entry
Employment and earnings records, employee hours of work, basis for determining wages and wages paid
Order, shipping and billing records showing customers orders and delivery records
Wage rate tables and piece rate schedules
Work time schedules that establish hours and days of employment
Department of Labor
In addition to the general requirements of both the IRS and the DOL mandated by several federal acts. They are:
Family and Medical Leave Act
Basic payroll and employee data
Dates FLMA leave is taken
Hours worked by employee in last 12 months
Hours of FLMA leave for exempt employee
Copies of employee notice to employer
Copies of general and specific notes given to employees
Copies of policy regarding taking of paid and unpaid leave by employee
Documents verifying premium payments of employee benefits
Records of FLMA leave disputes between employee and employer
Title VII of the Civil Rights Act of 1964 and the Americans with Disability Act of 1990 have no general record requirement under the law, but to meet the requirements all records relating hiring, promotion, demotion, transfer, layoff or termination, rates of pay, and selection for training or apprenticeship should be kept for one year from date of action.
The Age Discrimination in Employment Act of 1967 requires that you keep the following records for three years:
date of birth
You also keep the following for one year from the date of action:
- job applications
response to advertised job openings
records related to the failure to hire an individual
You also must keep all records related to
- layoff or discharge of an employee
job orders submitted to a placement agency
employee administrated by employee physical exams used to make personnel decisions
- job advertisements
The Immigration Reform and control Act requires that you must retain copies of the I-9 Form for three years after the date of hire.
About the Author: Charles J. Read, CPA has been in the payroll, accounting and tax business for 30 years, the last fifteen in private practice.
Mr. Read is the author of “How to Start a New Business.”
To find professional payroll service at a budget price go to www.PayrollonaBudget.com a paperless payroll company.
For a full service payroll bureau with CPA’s on staff visit www.CustomPayroll.com .
See an excerpt of Mr. Read’s interviews from William Shatners “Heartbeat of America” television show on the web sites linked above.