Payroll records are documents with any information about a company’s payroll, including data about employees, paychecks, and taxes. These include hiring documents, pay stubs, timecards, and leave documents, among other items.
Key Takeaways:
- Keep payroll records for at least three years
- Certain states (like New York) and certain laws (like the Employee Retirement Income Security Act) mandate a longer retention period
- Prioritize digital storage solutions to ensure data protection and limited access
- Keep I-9 documents separate from any other payroll record
If you don’t want to worry about payroll records, consider using a full service payroll software like Gusto. It’s an all-in-one service that calculates payroll, files taxes and forms, and even offers HR tools. It’s easy to navigate platform makes it quick and simple for you to access all of your employee records, payroll data, and so much more. Click below to start your 1 month free payroll (this offer will be applied to your Gusto invoice while all applicable terms and conditions are met or fulfilled).
Types of HR & Payroll Records
Many agencies have specific payroll compliance requirements on what types of data each payroll record should show, and there is an overlap among the agencies. It saves time when records have sufficient information to meet multiple agencies’ requirements—for instance, having pay stubs that contain important hours, earnings, and tax data that satisfies both the Department of Labor (DOL) and the Internal Revenue Service (IRS).
Need help creating your own payroll records to start? Check out our guide and download our free payroll templates.
- Hiring documents: New hire documents, such as an offer letter, include DOL-required data about the employee, their residential address, job title, and pay rate. You can also create an employee data sheet that includes required information, such as the employee’s gender.
- I-9 documents: Include information about the employee’s eligibility to work in the US on the I-9 form. It’s best to also insert DOL-required information, such as the employee’s full name and Social Security number. It’s important to keep I-9 documents separate from any other payroll records and personnel files, because they contain protected information.
- Pay stubs: Show information like the pay period, pay rate, and deductions. These also typically display hours worked each workweek and the basis for which wages are paid, as well as regular hourly or salary pay rates, overtime, and deductions. If you need a pay stub, download our free pay stub template to give you a head start.
- Timecards: Display hours worked, including unpaid lunch breaks and overtime hours. These can be paper or electronic, as long as the required data is retained for three years. If you still need a time sheet, download one of our free time sheet templates to get started and use our free timecard calculator to calculate total work hours.
- Termination documents: Show the last date worked and any final payments, such as unused paid time off or severance pay.
- Job evaluations and salary reviews: Include rationale for pay increases and merit increases as required by the Equal Employment Opportunity Commission (EEOC).
- Leave documentation: Show leave dates and any leave amounts paid as an FMLA requirement.
- Retirement income statements: Include payment amounts and plan documents as required by ERISA, with 401(k) savings plan enrollment and statements that show employee contributions.
- Employee handbooks: They describe everything from pay dates and holidays to termination and severance pay. It’s a best practice to hold on to your employee handbook for at least three years.
Tip: Personnel files often contain much of the documentation listed above. Therefore, a simple way to remain compliant is to box personnel files after an employee leaves the company and retain them for the appropriate period, which we discuss later on below.
The Importance of Payroll Records
Payroll records are more than just a legal requirement—these are vital for effective business management. These provide essential insights for financial planning, enabling informed decisions about hiring and compensation.
These records also serve as an indispensable resource during wage disputes, offering concrete evidence to support or refute claims. Having these on hand can protect your business from costly legal issues and reputational damage.
In the face of audits or regulatory reviews, comprehensive and accurate payroll records demonstrate compliance with tax and labor laws. Diligent record-keeping is crucial for financial foresight, legal protection, and fair employee treatment, and can ultimately help avoid substantial fines, penalties, or even criminal charges.
How Long to Keep Payroll Records—Best Practices
Though you may only be required to hold on to most documents for three to four years, we’ve gathered what we believe to be best practices for payroll records retention—keeping in mind not only federal regulations but also state guidelines.
2 years | 3 years | 4 years | 6 years |
|---|---|---|---|
Merit Increases and Pay Grade | Hiring Documents | Pay Stubs | Retirement Income and 401(k) Plan Details |
I-9 Documents | Employment Tax Documents like W-4s | ||
Time Cards | Documents Relating to a Payment or Employment Dispute | ||
Employee Handbook | |||
FMLA Leave Details | |||
Termination Information |
Job applications and interview records only need to be kept for one year, but once you’ve hired a candidate, their payroll documents need to be kept for three years. A few exceptions are employment tax documents, like W-4 forms, which need to be kept for four years, and retirement income documents, which need to be kept for six.
A best practice for employers is to keep copies of all hiring documents that include the employee’s full name, address, and Social Security number, as well as time cards, pay stubs, and pay registers that are used while doing payroll.
Tip: Any time you have a termination dispute with an employee, it’s a best practice to hold on to payroll documents until you resolve the dispute.
State-specific Laws About Retaining Payroll Records
Most states abide by the federal payroll document retention guidelines. However, a few states—like New York, California, and Washington—have enacted legislation that affects what payroll records to keep and how long to keep them. For more information about local laws, click on the map below for state-specific payroll guides that include the legal nuances of each state:
State Payroll Directory
Who Determines What Payroll Information to Keep
Federal agencies, like the DOL and IRS, determine how long to keep payroll records and which ones to keep. Other agencies, like the EEOC, are more specific and govern record retention for documents it uses exclusively to serve its mission.
How to Store Payroll Records
In most cases, you have three storage options for payroll records that you need to keep. You can keep the paper files yourself, box and store the paper files off-site, or maintain the documents and data electronically.
Here are some considerations for paper versus electronic payroll file storage:
Managing Privacy & Security of Payroll Records
In the digital age, data privacy and security are nonnegotiable. Payroll records contain sensitive employee information that must be protected from unauthorized access. Here’s how to address these concerns:
- Secure Storage: Whether you’re storing physical documents or digital files, they must be securely stored. Use locked cabinets for paper records and encrypted storage for digital ones.
- Access Control: Limit access to payroll data to only those who absolutely need it. This reduces the risk of information falling into the wrong hands.
- Regular Audits: Regularly review your data security policies and conduct audits to ensure compliance. Make changes as necessary to keep up with evolving threats.
- Employee Training: All staff members who handle payroll records should be trained on your company’s data security protocols. They should understand the importance of these measures and how to correctly implement them.
- Cloud Storage: Consider using secure cloud storage options for digital records. They often come with built-in security features such as encryption and multi-factor authentication.
How to Destroy Payroll Documents
Some business owners wonder if there’s a risk to keeping documents longer than required. The answer is yes. Financial or personal information related to payroll—such as bank account information, credit reports, or photocopies of a Social Security card—should be destroyed after the retention timeframe to prevent confidential data from being misused.
The most important thing to remember when destroying files after their retention date is that you should destroy all files securely. You can shred files in your office, or if the volume is large, you may want to use a company that picks up and shreds business documents at your location or off-site.
Tip: You’ll also want to keep a log of what documents were destroyed. It can be as simple as a spreadsheet that lists the documents and how and when they were destroyed. It’s also best to add a signature and date so if questions arise, you can contact the person who destroyed them.
Payroll Records Frequently Asked Questions (FAQs)
What if an employee disputes the accuracy of their payroll records?
If there is a dispute, review the disputed records and compare them with your own. If an error is found, rectify it immediately. If there’s no error, provide the employee with a detailed explanation. Having accurate and comprehensive records can help resolve these issues quickly.
Can I switch from paper to digital records?
Absolutely. Switching to digital records is advisable to enhance efficiency and security. Ensure you choose a secure platform that complies with data protection rules and remember to back up your data regularly to prevent loss.
What should I do in case of a data breach?
Act immediately. Notify affected employees and relevant authorities, then review your security measures, identify the cause of the breach, and take steps to prevent future incidents.
Bottom Line
You’ll need to follow the DOL’s rules, as well as state and other federal agency requirements, when retaining documents. Keep payroll documents as long as needed but no longer than reasonable to prevent confidential information from being released. Once the “destroy after” date has passed, be sure to shred or incinerate all documents to prevent unwanted access to confidential information.
If you don’t want to worry about payroll records, consider using a full service payroll software like Gusto. It’s an all-in-one service that calculates payroll, files taxes and forms, and even offers HR tools. It’s easy to navigate platform makes it quick and simple for you to access all of your employee records, payroll data, and so much more. Click below to start your 1 month free payroll (this offer will be applied to your Gusto invoice while all applicable terms and conditions are met or fulfilled).
