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, need to be kept for four years. States such as New York, and agencies such as ERISA (governing private retirement and health plans), require you to keep some records for six years.
Disclaimer: Fit Small Business does not provide legal or tax advice. Please confirm document retention requirements with HR, payroll, legal, and/or tax professionals in your state.
Rules for Retaining Different Types of Payroll Records
Candidate’s job applications and interview records, you keep for only one year, but when hiring a candidate, keep payroll documents for three years. A best practice for employers is to keep copies of all hiring documents that provide the employee’s full name, address, and Social Security number as well as time cards, pay stubs, and pay registers that you use when doing payroll.
Payroll Record Retention Best Practice—What to Keep & For How Long
Types of Payroll Records
More than 3 Years
Merit Increases and Pay Grade
FMLA Leave Details
Tax Documents Like W-4s
Retirement Income and 401(k) Plan Details
Any Documents Relating to a Payment or Employment Dispute
Last updated on 04/30/2020
There are some exceptions, such as tax documents that you should keep for four years and retaining retirement income documents for six, which we will describe in more detail below. In addition, 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 DOL and other federal agencies. However, a few states, California, New York, 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.
- New York has a Wage Theft Prevention Act that increases the requirement to retain payroll records from three years required by DOL to six years.
- California employers must retain payroll records for four years— eight years if the employees are exempt.
- Illinois requires employers to retain payroll records for five years.
- Washington State 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.
Because state laws may change, be sure to confirm any unique payroll document retention requirements in your state.
Types of Payroll Records NOT to Keep
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 being misused.
For example, I-9 forms, typically kept in a separate folder by date, should be kept three years, but no longer.
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 crafting payroll templates to use within your business. 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 IRS.
- Hiring 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 and includes 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.
- Time cards: 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.
- 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 EEOC.
- Leave documentation: Showing leave dates and any leave amounts paid as an FMLA requirement.
- Retirement income statements: With payment amounts and plan documents as required by ERISA, including 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 maintaining 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.
If you’re a recipient of the new Paycheck Protection Loan, payroll software like Gusto would be a great way for you to keep track of how you’re spending the funds. You can use its built-in codes to identify any paid sick or emergency leave you’re required to pay per the Families First Coronavirus Response Act (FFRA) and later pull reports showing the amounts you paid are eligible for forgiveness. Gusto keeps all of your files in one place and makes document retention easy. Sign up for a free trial today.
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 Equal Employment Opportunity Commission, are more specific and govern record retention for documents it uses exclusively to serve their mission.
DOL Wage and Hour Division, Fair Labor Standards Act (FLSA)
The FLSA 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 time cards, including:
- Full employee name
- Social Security number
- Full residence address with ZIP code
- Job role (Job Title or Function)
- Pay type (Hourly, Salaried, Commission)
- Hours worked
- Pay rate
- Earnings by type (Regular, Overtime and Additional)
- Total net earnings
- Date of payment
- Work period (Pay Period)
Internal Revenue Service (IRS)
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. While the DOL requires payroll information to be retained for only three years, since you need to keep payroll tax deductions for four years. You may want to hold on to paper pay stubs for four years unless you have the data stored electronically.
Equal Employment Opportunity Commission (EEOC)
The EEOC requires employers to keep payroll information from one to three years and includes information such as 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.
- Pay Scales
- Pay Increases (and Rationale)
Federal Acts Governed By Multiple Agencies (IRS, DOL)
There are some federal acts with payroll document retention rules that are governed by multiple agencies:
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
- Payroll Deductions Taken
The FMLA requires payroll information such as the leave policy documents, requests for leave, and leave payments to be retained for three years, consistent with the DOL payroll record retention requirements. This information is typically available in your employee handbook or on employee pay stubs.
How to Destroy Payroll Documents
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.
Other Documentation Retention Considerations
Although three years is sufficient for payroll record retention in most states, SHRM errs on the conservative side to accommodate variations between state and federal agencies and suggests the following guidelines for employee personnel records in general:
- Keep hiring records at least two years after their first day of employment
- Store I-9 records for at least three years due to confidential information
- Keep all records related to medical benefits, plans, and deductions, for at least six years
- Maintain termination records for a minimum of seven years
In addition, the Lilly Ledbetter Fair Pay Act allows workers to examine their own personnel file for up to two years after termination. The National Women’s Law Center advises employers to keep payroll and employment records up to five years after the employee has terminated in case you need to defend yourself from a Fair Pay Act claim.
The Bottom Line
You’ll need to follow DOL 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. And once the “destroy after” date has passed, be sure to shred all documents to prevent unwanted access to confidential information. If you don’t want to worry about payroll record retention, all-in-one payroll software provides electronic document storage.