What are payroll records and how do they help you?

Paying your employees is priority one as a business owner, but attention to payroll shouldn’t stop once payment has gone through. Keeping track of payroll records long-term is an important part of staying compliant with government regulations—and learning more about your business.

Your payroll record as a whole provides so much meaningful data—data that often goes untapped. Collected the right way, it can lead to higher employee satisfaction, easier tax filing, more manageable legal situations, effective financial planning, and so much more.

Keep reading to learn what payroll records to keep track of, why you should be keeping them, how long to keep them, and more. Plus, we’ll discuss the tools you’ll need for proper record-keeping and everything else you need to know about payroll record keeping requirements.

What are payroll records? 

Payroll records are any documents or data that relate to the payment of your employees. Generally, these records tell the story of your employees’ earnings, tax withholdings, benefits, and hours worked.

Why keep payroll records? 

There are a number of practical and legal reasons for keeping payroll records. 

1. To stay organized and help employees

Practically, keeping payroll records tracks when your employees were paid, what the amount was, and how they received their funds.Having an organized system of previous payroll transactions helps with company budgeting and smoother tax filing. 

For example, itemized pay stubs with payment breakdowns make it easy for employees to detect any issues with their pay. If someone logs three hours of overtime but those hours aren’t reflected in their paycheck, it’s easier for them to notice the error. They can let their manager know, double-check their work schedule, and fix the matter. 

Payroll records also serve important purposes outside of the workplace. When an employee applies for an apartment or a loan, they’re going to need a record of employment. 

Being able to provide this documentation—and quickly—can be the difference between someone securing an apartment, mortgage, or loan, and them not getting it. In this sense, by keeping good records, you’re not just helping your employees at work, but in their personal lives too. And that’s something they’re bound to remember and appreciate. 

2. To avoid legal issues

As a business owner, you have a legal obligation to keep payroll records to prove that you’re complying with employment laws and paying your team fairly. Plus, in cases of employee disputes, audits, and any other legal matters concerning your company, documented payroll records can save the day. 

Let’s say there’s a past employee who approaches you with an issue about payment. They claim that they were underpaid, or didn’t receive a benefit they were entitled to. 

If you have accurate and up-to-date payroll records to refer to, the dispute can be cleared up in a matter of minutes. Even if the person still chooses to pursue the issue further (i.e. goes through legal channels), you have the records to back up your claim.

Now picture this same scenario, but with no records to fall back on. Suddenly it turns into a he-said, she-said scenario, potentially requiring time-consuming, costly, and stressful legal mediation. 

Another scenario is getting audited. With organized payroll records, you don’t have to sweat about showing your receipts; you can show exactly who was paid what, and when. Without them, proving your expenses becomes much harder.

3. To keep compliant with state guidelines

Unfortunately, there’s no one agreed-upon rule set for proper record keeping. There are differences at the federal and state level—and even state to state. 

If you’ve got plenty of time, the best way to stay compliant is to research your specific state’s requirements. But since you’re busy, you know, running your business, consider working with a payroll company or using an easy payroll app that knows the ins and outs of how to stay on top of compliancy issues. Homebase’s payroll processing and record-keeping is a cost-effective way to help you keep  accurate records without having to spend hours on payroll: always a plus.

State-level requirements often pertain to records of your minimum wage, overtime, pay periods, wage deductions, and employee classifications. You might also find specific laws around retention periods and even how you format your payroll records. 

4. To keep compliant with federal guidelines

In combination with adhering to your state’s requirements, you also need to consider payroll record-keeping requirements at the federal level. 

In the United States, this means meeting the requirements outlined in the Fair Labor Standards Act (FLSA), Internal Revenue Code (IRC), and other federal governing bodies. 

Federal-level requirements often pertain to records of your employee classifications, minimum wage, overtime, tax withholding forms (e.g., W-4), payroll tax filings (e.g., Form 941), and wage and hour data.

It’s also important to note that FLSA’s requirements only apply to non-exempt employees. Both hourly and salaried workers can be considered non-exempt, as long as they:

• Earn less than $684 per week or $35,568 annually
• Perform job duties outside of the exempt professions

If you have exempt employees, what records you’re required to keep of these employees may be different than those outlined here. 

Types of payroll documents: checklist

Let’s get down to the nitty-gritty: what payroll documents should you be keeping track of?

Again, this can depend on the requirements of your state. However, there are some general items and essential payroll documents that you should keep track of:

• Any authorization for release of private information
• Bonus, profit sharing, or award paperwork
• Direct deposit authorization form
• Documentation and justification for pay raises
• Employee contracts
• Expense reimbursement requests and receipts
• Form I-9, Employment Eligibility Verification
• Form W-2, Wage and Tax Statements
• Form W-4, Employee’s Withholding Certificate
• Garnishment orders and records
• Offer letters
• Pay stubs
• Payroll registers
• Payroll tax forms
• Salaried time accounting forms
• State and local jurisdiction tax withholding certificates
• Time off and attendance records
• Timesheets
• Wage and hour records

If you’re sweating too much over the specifics, remember that the information contained in your documents is more important than the documents themselves. 

Using this as your filter, keep track of any documents that detail your employees’ compensation, benefits, tax information, hours worked, and employment terms. 

Employee information checklist for payroll 

What employee information to collect for payroll record-keeping depends on your state and business. As a general rule, the more details you collect, the better off you’ll be. 

For guidance, there are also recommendations set out by a number of governing bodies, such as the FLSA. They recommend you collect the following employee information for payroll: 

• Address, including zip code
• All additions to or deductions from the employee’s wages
• Basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, “piecework”)
• Birth date, if younger than 19
• Date of payment and the pay period covered by the payment
• Employee’s full name and social security number
• Hours worked each day
• Regular hourly pay rate
• Sex and occupation
• Time and day of week when employee’s work week begins
• Total daily or weekly straight-time earnings
• Total hours worked each workweek
• Total overtime earnings for the workweek
• Total wages paid each pay period

You can keep track of this information manually, but this can be tedious depending on the size of your teams and available resources. 

To automate the process, use a payroll processing and recording tool like Homebase. 

How long do you need to keep payroll records? 

The more comprehensive your payroll records are, and the farther back they cover, the more useful they become. You can look back at how much you’ve spent on compensation and accurately forecast for the future, easily refer back to documentation when navigating audits or employee disputes, and much more. 

Outside of these practical use cases, there are also legal reasons for keeping payroll records for certain periods of time. These periods differ for different documents and areas of the country, but a general recommendation is to keep payroll records for at least six years. 

See below for more specific recommendations. 

Payroll record retention requirements

The only way to be sure that you’re doing everything above board is to research payroll record retention requirements for your specific area and business. A great alternative is to work with experts who understand this completely, like a bookkeeper, accountant, or payroll provider like Homebase.

That said, here are some recommendations set at the federal level:

• Fair Labor Standards Act (FLSA): THe FLSA recommends preserving payroll records, collective bargaining agreements, sales, and purchase records for at least three years. Records related to wage calculation (i.e., time cards and piecework tickets, wage rate tables, work and time schedules, etc.) should be kept for at least two years.
• Internal Revenue Service (IRS): The IRS recommends keeping payroll tax records, including employment tax returns, W-2 forms, tax deposits, and related documentation for at least four years after the date that the tax becomes due or is paid, whichever is later.
• The Equal Employment Opportunity Commission (EEOC): EEOC Regulations require that employers keep all personnel or employment records for one year. If an employee is involuntarily terminated, their personnel records must be retained for one year from the date of termination.
• Employee Retirement Income Security Act (ERISA): Section 107 of ERISA requires documents related to retirement savings plans to be kept for at least six years. 

Additionally, here are some examples of state-level requirements:

• California: Labor Code § 1174 requires California employers to preserve and keep all employee payroll records for at least three years and to keep a record of the names and addresses of all current employees.
• New York: Under New York State law, employers must establish, maintain and preserve weekly employee payroll records for at least 6 years.
• Texas: Texan employers must retain payroll records, including payroll deductions, for a period of at least three years. They also have to keep records of state unemployment tax payments for a period of at least four years.

Where should payroll records be kept? 

You can keep payroll records anywhere as long as they’re secure. However, they also need to be accessible to necessary parties. 

This obviously means you and anyone authorized to view that info from team, but also third parties on occasion. For example, employers in California need to allow the Division of Labor Standards Enforcement free access and inspection of their records upon request. 

In terms of format, records can be kept in paper or digital form. For organizational and scaling purposes, digital makes more sense for most businesses. A filing cabinet with paper records may work fine in the early stages of your business, but as you grow it can quickly become impractical. Plus, it’s way less secure than password-managed documents that are stored in the cloud.

Digital records are often easier to organize and access, more secure, and make for easier compliance. For example, whenever you pay your employees with Homebase, it automatically and securely logs their time cards to help you stay compliant with FLSA record-keeping rules.

This makes for a lot easier tax season compared to paper records. Rather than take the time to manually dig through your physical files, you can just log in to your account, access digital files, and submit them for taxes in a few clicks.

You also don’t have to worry as much about human error this way. With paper records, it’s easy to accidentally write something wrong, put something where it doesn’t belong, and so on. Digital payroll records are recorded the instant your employees are paid, automatically categorized, and accessible from anywhere. 

Homebase: your payroll records tool

Hopefully, if it wasn’t clear before, you now understand why payroll records are so important to track. They help your employees get what they’re entitled to, help you financially plan for your business, and make taxes and legal situations easier for everyone. 

At first glance, thorough record-keeping can seem intimidating. But by combining the knowledge above with a full-service payroll tool like Homebase, you can start to pay employees, keep track of their payroll records, and stay compliant without even thinking about it. 

Get Homebase for an easy all-in-one solution to creating and keeping payroll records.

Payroll records FAQ

What are payroll records?

Payroll records are any documents or data that relate to the payment of your employees. Generally, these records tell the story of your employees’ earnings, tax withholdings, benefits, and hours worked.

Why should employers keep payroll records?

Practically, keeping payroll records helps ensures that there’s an accurate record of what you’ve paid your employees, that your taxes are filed properly and smoothly, and that you always have accurate data to help you financially plan for the future. 

Proper record keeping also helps your employees in their personal lives. Employee letters and other work-related documents can make or break someone’s application for a new apartment or loan.  

Legally, payroll records prove that you’re complying with employment laws and paying your team fairly. They’re also often required in cases of employee disputes, audits, and any other legal matters concerning your business.

What should be included in a payroll record?

What should be included in your payroll record depends on where you’re located in the country and what kind of business you run. Generally, you may want to keep track of the following documents:

• Any authorization for release of private information
• Bonus, profit sharing, or award paperwork
• Direct deposit authorization form
• Documentation and justification for pay raises
• Employee contracts
• Expense reimbursement requests and receipts
• Form I-9, Employment Eligibility Verification
• Form W-2, Wage and Tax Statements
• Form W-4, Employee’s Withholding Certificate
• Garnishment orders and records
• Offer letters
• Pay stubs
• Payroll registers
• Payroll tax forms
• Salaried time accounting forms
• State and local jurisdiction tax withholding certificates
• Time off and attendance records
• Timesheets
• Wage and hour records

How long should employers keep payroll records?

How long you should keep payroll records depends on where you’re located and the details of your business. Based on federal recommendations given by the FLSA, IRS, EEOC, and ERISA, a general timeline to follow is at least six years.