Requirements for Keeping Paycheck Records

What are paycheck records?

Paycheck records are all the documents associated with payroll. They may include onboarding documents, direct deposit authorization forms, pay stubs and documents related to employee benefits. 

Payroll records also include personal employee information, such as pay rates, tax deductions and whether employees are paid hourly wages or a salary.

Why do employers have to keep payroll records?

Employers must keep payroll records for several reasons, including the following: 

• Federal and state agencies require paycheck record storage; they can audit your business and inspect records at any time without notice.
• Paycheck records serve as a paper trail and can protect your company during a tax audit, employee complaint or lawsuit. 
• Employees can access their payroll records to verify information (required in 22 states). They can correct mistakes or update the company about any changes. 
• Payroll records include information that can help you complete business financial documents and tax returns.

Which payroll record items are employers required to keep?

Here are some common payroll record items and their storage requirements:

Other best practices and agency record storage requirements include the following:

Fair Labor Standards Act (FLSA) records storage requirements

The FLSA requires businesses to keep paycheck records and employee information as proof of minimum wages, overtime, equal pay and child labor law compliance. Records should be kept for all nonexempt workers and minimum wage-protected employees. Stored documents can be in paper or electronic form. 

You’ll need to keep basic information, including:

• Personal employee information
• Pay rates, along with overtime pay
• Withholding and deductions (that pertain to gross and net pay)

The above records should be kept for at least three years (some require only two years).

IRS payroll record storage requirements

The IRS requires companies to store current employee payroll records for at least four years for tax purposes. Therefore, any forms you use to track employee pay and payroll taxes should be kept, including an up-to-date W-4 form to show withholdings.

The following information is subject to IRS payroll record requirements:

• Employer identification number (EIN)
• Wage, annuity and pension payments (amounts and dates)
• Reported employee tips and allocated tip amounts
• The fair market value of in-kind wages paid
• Personal employee information, such as full name, home address, Social Security number and occupation
• Start date for each employee (and end date, if applicable)
• Sick pay, workers’ compensation and disability insurance information
• Employee benefits and expense reimbursement
• Family leave tax credits
• Work opportunity tax credits
• Employer and employee contributions to Social Security taxes

Retirement plan record storage requirements

If your company participates in a retirement plan, you must keep an up-to-date record book in case of an IRS audit. Keeping these records is also helpful when you have to field questions from employees who elect to be a part of the company’s retirement plan offerings. In addition, since retirement plans continuously provide benefits for participants, you must store records indefinitely.

However, general plan documents are only the start. You should also keep the following handy in case an issue arises:

• Account balances
• Contributions (amounts and dates)
• Earnings reports
• Loans
• Compensation reports
• Participant statements (especially those that require a signature)

Equal Employment Opportunity Commission (EEOC) and Age Discrimination in Employment Act (ADEA) record storage requirements

The EEOC requires companies to maintain personal and employment records for one year. If an employee is no longer with the company, recordkeeping requirements call for records to be kept for one year from the employee’s termination date. 

The ADEA requires companies to keep paycheck records for three years. In addition, any benefit plan information must be stored while the plan is in effect and one-plus years after the plan has been terminated.

Additional payroll records you should consider keeping

Along with the employee’s paycheck records, you should keep some other documents on file, including the following:

• Any form that lists pay deductions that the employee must authorize, including benefits and retirement plan contributions
• An employee’s application to work for your company, including their resume or transcript

How to manage and store payroll records

There are three primary ways to maintain paycheck records:

• Store the files yourself.
• Pay a company to store the files offsite.
• Invest in payroll software to preserve the files electronically.

1. Store your payroll records yourself. 

While storing paper records in boxes or filing organizers is an option, this self-storage method has several drawbacks:

• Most businesses don’t have the capacity to constantly review the files and may end up mixing outdated files with documents that must be kept. 
• Even if the paycheck records are filed correctly, searching for a copy could take time — a luxury you might not have if you’re dealing with a disgruntled employee, your accountant or the IRS. 
• Guaranteeing 24/7 security of paper files is nearly impossible.

2. Use offsite storage for payroll records. 

Storing paycheck records offsite has several advantages over self-storage, including increased security and more office space. However, keeping your payroll information offsite may not be the best option for your business. Here are some cons of offsite storage:

• Lack of access: Accessing documents from an offsite facility may be difficult. In addition, if your business uses the same forms repeatedly, storing documents offsite could cause a significant pinch point.
• Lack of compliance: The document storage facility you choose might not be 100 percent compliant with federal, state and local laws. Lack of compliance could cause issues with protecting your business’s sensitive information. Additionally, the offsite facility’s temperature and humidity conditions may be a concern when you must guarantee your documents’ long-term safety.
• More expense: Choosing an offsite storage facility far from your main office could drive up costs significantly. You’ll have to pay staff to drop off and pick up documents and compensate them for gas and mileage expenses.

3. Use payroll software to keep paycheck records. 

Manually monitoring paycheck records can sidetrack you from other business tasks. In contrast, the best online payroll services can handle all your payroll processing, payroll tax filing and paycheck recordkeeping needs. 

Payroll platforms allow you to log into your account or access a mobile app to retrieve payroll records for employees, your accountant or the IRS. You won’t have to sift through pages of handwritten calculations. Consider the following options: 

• Gusto: Gusto is an intuitive payroll solution that can handle your payroll, taxes, benefits and payroll deductions. Its affordable lowest-level tier can handle even complex needs like wage garnishments, holiday pay and tip credits. Our Gusto review outlines this platform’s pricing and features. 
• Paychex: Paychex is a scalable payroll platform that can help you comply with federal and state policies and requirements regarding payroll and payroll recordkeeping. Our review of Paychex explains this platform’s impressive integrations and payroll services. 
• QuickBooks Payroll: QuickBooks Payroll integrates seamlessly with the QuickBooks Online accounting solution to transfer and sync your business’s tax and payroll data easily. As a bonus, this platform offers unlimited payroll runs, so you can pay employees, contractors and freelancers as often as you want. Our QuickBooks Payroll review details the features of this robust payroll solution.