Payroll records are documents with any information about a company’s payroll, including data about employees, paychecks, and taxes. Per federal law, you should retain payroll records for three years and payroll tax records, such as unemployment taxes, for four years. States such as New York and laws such as the Employee Retirement Income Security Act (ERISA, governing private retirement and health plans) require you to keep some records for six years.
If you don’t want to worry about payroll records, HR software like Bambee can provide you with electronic document storage. You can create compliant policies with the help of its HR experts and invite your employees to e-sign all of their important employee documents using secure technology for just $99 per month.
Rules and Best Practices for Retaining Different Types of Payroll Records
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.
Merit Increases and Pay Grade
Retirement Income and 401(k) Plan Details
Employment Tax Documents like W-4s
Documents Relating to a Payment or Employment Dispute
FMLA Leave Details
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 to this are employment tax documents such as W-4s that need to be kept for four years and retirement income documents that 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 payroll document retention guidelines provided by the U.S. Department of Labor (DOL) and other federal agencies. However, a few states—New York, California, Illinois, and Washington—have enacted legislation that affects what payroll records to keep and how long to keep them. Here are those state’s specific requirements, with links to more information.
The Department of Labor and Industries matches the DOL in terms of requiring payroll records to be maintained for three years; however, the requirements for what to retain are more specific. They include penalties of $250 for each non-compliance offense.
Disclaimer: Fit Small Business does not provide legal or tax advice, and state laws change often. Please confirm document retention requirements with HR, payroll, legal, and/or tax professionals in your state.
Important Information on Each Type of Payroll Record
Many agencies have specific payroll compliance requirements on what types of data each payroll record should show, and there is overlap among the agencies. Keep this in mind when choosing a payroll template to use for your employees. It saves time when records have sufficient information to meet multiple agencies’ requirements—for instance, pay stubs that contain important hours, earnings, and tax data that satisfies both the DOL and the Internal Revenue Service (IRS).
- 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 and include DOL required information such as the employee’s full name and Social Security number.
- Pay stubs: Show information such as pay period, pay rate, and deductions and typically display hours worked each workweek, 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. They 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 last date worked and any final payments such as unused paid time off or severance.
- 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.
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 save those files for three years. However, if you store employee tax documentation in the employee personnel file instead of separate payroll and tax files, then you’ll want to retain them for four years.
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 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.
Store Required Payroll Information on Paper Documents Off-Site
There are storage companies that will maintain your paper documents securely if you don’t have room to keep them on-site. The benefit of a secure off-site storage facility is that you don’t have to worry about storage space or keeping confidential health information such as leave request forms, from being accessible to staff in violation of HIPAA law.
Store Required Payroll Information Electronically
There are companies like DocuSign that store electronic data for you. However, you’d need to verify the online data storage account is secure because payroll data contains sensitive information like birth dates, bank accounts, and Social Security numbers.
Most HR and Payroll software have document storage capabilities, allowing you to upload scanned copies of employee documents like the W-4 and I-9 forms. You can typically also input employee data directly into the system.
Who Determines What Payroll Information to Keep
Federal agencies like the DOL and IRS determine what payroll records to keep and how long to keep them. Other agencies, like the EEOC, are more specific and govern record retention for documents it uses exclusively to serve its mission.
The DOL’s Fair Labor Standards Act requires you to keep payroll information for three years. It doesn’t specify any particular document you need to keep, but does require specific information such as employee name, address, Social Security number, and pay rate. Most of this information can be found on hiring docs, pay stubs, and timecards, including:
- Full employee name, gender, and Social Security number
- Full residence address with ZIP code
- Job role (job title or function)
- Pay type (hourly, salaried, commission)
- Hours worked and pay rate
- Earnings by type (regular, overtime, additional)
- Total net earnings
- Date of payment and work period (pay period)
In addition, the ERISA requires that you retain retirement plan documents like premium payments and 401(k) plans for six years. However, it also states that you should keep payment records for as long as it’s possible for the retirement plan to be audited. These records include enrollment documents, payment documents, and payroll deductions taken.
The IRS requires that you retain employee/employer tax documents for four years, including W-4s, payroll tax payments, and any W-2s that were returned undelivered.
Since you need to keep payroll tax deductions for four years, you may want to hold on to paper pay stubs for four years (rather than three) unless you have the data stored electronically.
The EEOC requires employers to keep payroll information from one to three years and includes information such as pay scales, merit increases, and rationale for pay rate changes to prevent discrimination.
For example, job evaluations you need to keep for two years, which is the length of time a current or former employee has to review their personnel folder and dispute a salary increase, according to the Fair Pay Act.
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.
Keep a Log of What You’ve Destroyed
You’ll also want to keep a log of what documents were shredded and when. It can be as simple as a spreadsheet that lists the kind of documents destroyed, how they were destroyed—shredded, incinerated—and when they were destroyed. It’s also best to add a signature or initial and date so that if you have questions about destroyed documents, you can contact the person who destroyed them.
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 record retention, all-in-one HR software like Bambee often provide electronic document storage. Bambee gives you a dedicated HR manager who helps you to craft compliant HR policies and allows you to invite your employees to e-sign all of their important employee documents using secure technology for just $99 per month.