Requirements for Keeping Paycheck Records

Paycheck records include all documents related to your company's payroll. Federal law requires employers to keep payroll records for three years and payroll taxes for four years. However, depending on your state, you may be required to keep payroll records for up to six years.

Paper records are an option, but they're cumbersome to organize and store. Storing payroll records electronically is usually a better choice. The best online payroll companies can store your records and even let your employees e-sign documents so that you always have a meticulous paper trail.

We'll walk you through the different types of paycheck records, state and federal storage requirements, and the different ways your business can manage records to avoid unnecessary employee issues, awkward meetings with your accountant and IRS audits.

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What are paycheck records?

Paycheck records encompass all documents associated with payroll. For example, payroll may include onboarding documents, direct deposit authorization forms and pay stubs. Payroll records also include employee personal information, such as whether they're paid hourly wages or on a salary, pay rates, tax deductions, and benefits.

Why do employers have to keep payroll records?

There are several reasons employers must keep payroll records. First, storing paycheck records can protect your company during an audit or lawsuit. Employees can view records to spot and correct any mistakes proactively or update the company about any changes. Here are some other uses for stored payroll records:

• Payroll records can be a source to complete business financials and tax returns.
• Federal and state agencies require storage of paycheck records and are allowed to audit your business and inspect records at any time without notice.
• Employees can access their payroll records to verify information (required in 22 states).
• Payroll records serve as a paper trail to support the company if there's an employee complaint or lawsuit.

Which payroll record items are employers required to keep?

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

Fair Labor Standards Act record storage requirements

The Fair Labor Standards Act 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 income)

The above records should be kept for at least three years (some have only a two-year requirement).

Consider consulting legal support services if you have employees who fall into particular categories, such as exempt employees, employees who receive complimentary housing or those who receive remedial education.

IRS payroll record storage requirements

The Internal Revenue Service 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 tax ID 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. This 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'll need to store records for an unlimited period.

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)

EEOC and ADEA record storage requirements

The Equal Employment Opportunity Commission (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 Age Discrimination in Employment Act (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.

FYI: While paycheck record laws vary by state, the Small Business Administration recommends keeping paycheck records for six years to keep your business compliant with all employment laws (federal and state).

Additional payroll records you should consider keeping

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

• Any form that states 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

Should you keep paycheck records longer than required?

Keeping paycheck records for more than the required length of time can actually put employers at risk for security breaches and encourage fraudulent activity. Therefore, all financial and personal employee information, including credit reports, Social Security card images and bank account information, should be destroyed quickly after the retention time frame. 

However, if you receive questions about destroyed documents, it's wise to keep a list of paycheck record dates and when you got rid of them.

Tip: If you are unsure how long to keep payroll records, it's best to consult an attorney before disposing of them. 

Does your state have specific paycheck record retention requirements?

While most states go by the retention requirements set by the IRS and U.S. Department of Labor, a few states have taken additional steps to refine payroll records retention policies. States with exceptions include California, Illinois and New York.

• California: Payroll records must be kept for six years.
• Illinois: Payroll records must be kept for five years.
• New York: Payroll records must be kept for six years.

How to manage and store payroll records

There are three main ways to maintain paycheck records:

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

Tip: Consider free payroll services and apps if your business is just starting out or has minimal needs.

Self-storage

While storing paper records in boxes or filing organizers is an option, there are several drawbacks to this method. 

First, most businesses don't have the capacity to constantly go through the files and may thus end up mixing outdated files with documents that still need to be kept. 

Second, even if the paycheck records are filed correctly, searching for a copy could take time – a luxury you might not have if dealing with a disgruntled employee, your accountant or the IRS. 

Lastly, guaranteeing 24/7 security of paper files is nearly impossible.

Did you know? You can also store your records using an in-house document management system. The best document management software can help you seamlessly organize and manage electronic documents.

Offsite storage

Storing paycheck records offsite does offer benefits 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:

1. Lack of access. It may be difficult to access documents instantly from an offsite facility. In addition, if your business uses the same forms repeatedly, storing documents offsite could cause a significant pinch point.
2. Lack of compliance. The document storage facility you choose might not be 100% 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 need to guarantee your documents' long-term safety.
3. More expense. Choosing an offsite storage facility that is far from your main office could significantly drive up costs, such as having to pay staff as well as gas and mileage expenses for round trips to drop off and pick up documents.

Payroll software

Manually monitoring paycheck records can sidetrack you from keeping up with other business tasks. Instead, investing in payroll software can help you understand what to prepare, where to store and how long to keep paycheck records.

Software options like Gusto, Paychex and QuickBooks Payroll automatically cover your employee payroll, taxes, benefits and payroll deductions. Plus, payroll software can inform you of new compliance requirements. For more information about these services, read our Gusto review, our review of Paychex and our QuickBooks Payroll review. 

With payroll software, if you need a paycheck record for an employee, your accountant, or the IRS, you can log in to the software or payroll mobile app and print your record. You won't have to sift through pages of handwritten calculations. Save yourself time and money by choosing payroll software or a payroll service that meets your business needs so you can focus on growing your business.