How Long Should You Keep Payroll Records?
July 22, 2020
As a business owner, keeping tight payroll records is imperative. However, can you confidently say which records your business needs to keep and for how long? While your company grows and you hire more and more employees, you likely will run out of room (physical and/or virtual) to house each employee’s individual paperwork. After awhile, you’re forced to decide whether to keep certain payroll records, but what exactly should you keep? DM Payroll Solutions further explores why you need to keep detailed records, what you should keep and for how long to ensure you’re compliant.
Why Keep Records?
As with any important financial transactions, your business should keep records in order to account for its past. No matter if laws change (think Affordable Care Act (ACA)) or your employees leave, you must show you were compliant with requirements at the time if you’re being audited. Penalties could include fraud and increased scrutiny in other areas of your business, so keeping good records is not to be taken lightly.
You may be surprised to know it’s not just the government that can ask for payroll records; if any of your former or current employees need access to these records in the event of a compensation-related lawsuit, keeping good payroll records means your business will be safeguarded from false accusations.
What Should You Save?
While it’s better to be safe than sorry and record as much as you can, employers are recommended to save tax forms, retirement documents, ACA documents and payroll records. Some of these documents include:
- Forms W-2, W-3 and W-4
- Forms 941 or 944
- Form 5305-SEP
- Form 5305A-SEP
- Form 5304-SIMPLE
- Form 5305-SIMPLE
- Retirement plan documents, agreements and any plan amendments for 401(k), profit sharing or other benefit plans
- Form 1095-B
- Form 1094-B
- Form 1095-C
- Form 1094-C
- Employee names, addresses and Social Security numbers
- Work start and end dates
- Exemption status
- Pay rate or salary
- Hours worked per day and total hours worked per week
- Any applicable overtime earnings
- Pay dates and periods
- Wages paid each pay period
- Additions or deductions from pay (including garnishments)
How Long Should I Keep My Business Records?
There are numerous federal and state laws that govern retention of employment records. Employers must ensure all records are maintained, either in hard copy or electronically, for the minimum period of time required. The IRS recommends businesses keep employment tax records for at least four years after the date that the tax becomes due. However, often employers will use a 7-year rule for retaining tax and payroll records as this typically covers state and federal statutes of limitations.
The Optimal Way to Keep Payroll Records
Keeping effective payroll records presents a couple of challenges: the volume of documentation required for each employee and accessing this information at a moment’s notice. Paper documentation and physically signing timesheets make sense for a small company, but as more and more employees come on board, soon enough you’re lost in a mess of paperwork. Consider the costs of printing out all the above tax documents and payroll records for each of your employees, not to mention the square footage of storage you’d need to house all of this information!
By automating your payroll recording process with a payroll provider, like DM Payroll Solutions, that offers electronic time tracking, document storage, electronic signatures and more, the opportunities for human error are greatly diminished. Instead of spending time looking for an employee’s folder in a room of documents, easily produce the document right when you need it, wherever you are. This not only is efficient for your day-to-day operations but also in the event you are audited.
DM Payroll Solutions prides itself on simplifying all aspects of payroll recording for our clients. To learn more about how we can help you effectively store your payroll records and our retention policies, contact us today.