Requirements for Keeping Paycheck Records

What are paycheck records?

Paycheck records, also known as payroll records or pay records, are the documentation of employee compensation (wages, timecards, time schedules, time off, bonuses, benefit payments, etc.) that employers must retain for each nonexempt employee.

Since certain state-level requirements may be stricter than federal requirements regarding documentation type and record retention length, experts recommend that employers work closely with legal counsel to ensure paycheck record compliance. You should also only hire an experienced and knowledgeable person, team or service to take care of payroll.

“Make sure that you either hire a payroll company with a good reputation or hire an internal payroll person who you know is an expert in payroll laws,” said Jilian Dimitt, HR director at Optima Office.

Editor’s note: Looking for the right online payroll software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What paycheck records are employers required to keep?

According to the U.S. Department of Labor, the Fair Labor Standards Act (FLSA) requires covered employers to maintain the following records for each nonexempt worker:

• Employee’s identifying information: Full name, Social Security number, address (including ZIP code), birthdate (if younger than 19 years old), sex and occupation
• Employee’s hours: Time and day of week when the employee’s workweek begins, the hours they worked each day, and their total hours for each workweek
• Employee’s wages and earnings: Basis on which employee’s wages are paid (e.g., per hour, per week, piecework), regular hourly pay rate, total daily or weekly straight-time earnings, total overtime earnings for the workweek, and all additions to or deductions from the employee’s wages
• Employee’s pay periods: Total wages paid each pay period, date of payment, and the period covered by the payment

Employers are also required to keep personnel records like copies of the employee’s job application, resume, cover letter and transcripts.

How long do you need to keep paycheck records?

There are federal laws regarding what documents you must keep, how you maintain paycheck records and how long you retain them. Since record retention laws can vary, it is best practice to keep all records in compliance with the longest retention law.

The IRS requires employers to maintain records for all employees for at least four years after filing the fourth quarter of the year. Although the FLSA only requires three years, you would want to maintain records for four years to comply with the IRS.

Keep in mind that each state has its own requirements for employee record retention as well. An example Dimitt points to is California.

“The paycheck stub in California needs to show how much sick leave the employee has taken and how much sick time they still have available,” she said. “California legally requires you maintain paycheck records for three years, but best practice would be six years.”

How do you retain paycheck records?

The way you store your pay records is another thing to consider. Some employers prefer the manual method of keeping paper records in a locked filing cabinet, whereas others prefer to streamline the process with a top document management system. Regardless of preference, every business owner or HR team should have a secure and organized way of storing records.

You could also use any method available to record employee time and attendance (physical or web-based time clocks, manual employee reporting, etc.) as long as timekeeping is complete and accurate. Among the easiest ways to do this is by choosing one of the best time and attendance systems. Make sure you select whatever method integrates well with how you store your paycheck records. 

Who should be allowed to see employee records?

To comply with labor and employment laws, employers should always keep employee records private and confidential. Access to these documents should be limited to priority individuals who need access to carry out their official duties (e.g., managers, executives, the HR department, the payroll department, etc.).

In some situations, you might also need to grant an external party access to your employee paycheck records. For example, certain federal and state auditors may need these records during an audit or legal matter, or an employee’s attorney may need them during a lawsuit. In either scenario, you may be able to request a warrant before granting the external party access to the restricted records.

There is currently no federal law that requires employers to provide employees access to their own payroll records; however, many states have their own laws that do require such access.

California’s Division of Labor Standards Enforcement denotes that the statute Labor Code Section 226(b) requires employers to furnish both current and former employees their payroll records when requested, and imposes a penalty for noncompliance, for example.

Keeping accurate paycheck records is a best practice

Whether you’re subject to stringent government regulations or not, keeping meticulous and accurate paycheck records is always considered a best practice. Payroll is generally a small business’s largest expense, and being able to see how those expenses have changed over time can be a great benefit when planning your budgets. Most importantly, with an organized and thorough set of payroll records, you’ll be able to furnish information on what you’ve paid employees for any regulatory compliance requirements, keeping your business aboveboard and avoiding fines and lawsuits.

Tejas Vemparala contributed to this article.