The Essential Guide to Keeping Paycheck Records in 2023
May 01, 2023
Owning a business and hiring employees come with a series of responsibilities that are necessary for legal compliance and continued operations. Keeping paycheck records is one of them.
All documents tied to your employees’ previous and current employment status, tax situation, income, benefits, and work performance help federal, state, and local authorities assess the policies and systems implemented within your workplace.
But keeping paycheck records can be difficult, as with any other paperwork. Nonetheless, don’t worry—we’ve got you covered!
This article will discuss all you need to know about maintaining and securing paycheck records. So, without further ado, let’s get to it!
- Paycheck records are documents detailing the gross and net earnings, benefits, deductions, tax withholdings, pay rates, and hours worked for each employee.
- Employers must keep paycheck records for compliance, tax filing purposes, budgeting, and expense management.
- Some of the essential information included in paycheck records are the employee’s general information, tax withholding forms, attendance records, and the company’s payroll records.
- Access to paycheck records should be limited to authorized HR and payroll personnel only, but employees must also be granted access to their files.
What are Paycheck Records?
Paycheck records, or payroll records, refer to a compilation of documents that reflect the following information regarding an employee’s job status:
- Benefits and deductions
- Bonuses and/or additional pay
- Gross and net wages
- Hours worked
- Pay rates
- Paid time off (PTO)
- Time cards
- Time schedules
Employers are expected to fully comply with federal, state, and local payroll record regulations. The Fair Labor and Standards Act (FLSA) and Equal Employment Opportunity Commission (EEOC) require payroll documentation for both exempt and nonexempt employees.
For exempt employees, the FLSA uses their paycheck documents as a basis to evaluate whether they truly qualify to be excluded from overtime compensation.
A business that maintains proper payroll documentation maintains safe and upright working conditions. Keeping paycheck records is also a clear implication of acknowledging and protecting workers’ rights.
Without paycheck records, business owners become subject to legal scrutiny as they cannot prove that they are fulfilling their tax obligations. Similarly, employees will struggle to prove their eligibility for loans and future employment since they lack proof of their credentials.
Most Commonly Used Payroll Forms
The following are other forms included in an employee’s payroll records:
- Employer Identification Number (EIN). Since employers will be withholding payroll taxes from employees' salaries, they must apply for an Employee Identification Number before hiring workers and giving them any compensation
- Form W-4. The Form W-4 is used by employers to determine how much they should withhold from employee salaries to pay for their taxes.
- State or Local Tax ID Number. The state or local tax ID number is applicable only if the state or local authorities review and monitor income taxes
- State Withholding Allowance Certificate. Similar to the state and local ID tax number, the state withholding allowance certificate is only mandatory if employers or employees are paying income taxes to their respective states. In some states, Form W-4 is accepted by authorities instead.
- Employee address and Social Security Number (SSN). The address and Social Security Number of employees are key information used to organize employee W-2 forms at the end of the year.
- Department of Labor Records. These include the number of weekly hours worked by employees, their wages, and overtime pay. The inclusion of labor records in a company’s paycheck records depends on the state, but it is best to keep a copy in case the Department of Labor conducts an audit on business records.
- I-9 form. The I-9 form is a requirement for newly hired staff. It is used to verify whether the employee is legally permitted to work in the US or not.
- Worker’s Compensation ID Number. New Mexico, Washington, and Wyoming are the only states that oblige employers to keep a worker’s compensation ID number. It is a prerequisite for employers to purchase worker’s compensation insurance.
Why Employers Must Keep Paycheck Records
In most cases, employers keep paycheck records because of:
- Legal compliance. Payroll records contain information about employees’ tax withholdings, wage rates, benefits, and deductions. As such, employers are required to maintain payroll records to ensure they comply with the IRS’s regulations for tax filing and record-keeping.
- Budget and expense management. Paycheck documents help business owners track their expenses. Employees’ salaries, benefits, and additional pay comprise a significant chunk of a company’s regular costs.
- Proof of income and competency reference. Employees can use their employment records to confirm that they have a stable source of income to pay for rent and loans. For instance, an employee can use a pay stub during their apartment application process as proof of income.
Required Paycheck Records Information That You Must Keep
The following is the information that paycheck records must contain:
Employee’s Basic Information:
- Date of birth
- Pay rate
- Corresponding compensation per week or pay period
Tax Withholding Forms
- Form W-4
- State W-4 form
- Other applicable withholding forms
Records of Attendance:
- Time cards
- Total hours worked (daily and weekly)
- Time and day when the shifts begin
- Used time off
- Time off remaining
- Benefits and deductions
- Bonus pay, commissions, and any additional pay
- Employer contributions
- Documents supporting salary increases granted to employees
- Overtime pay (if applicable)
- Payroll history
- Pay periods
- Pay rate
- Pay stubs
- Reimbursement of expenses incurred out of the employee’s pockets while fulfilling their duties, such as payments given for business trips
- Total earnings
Employees Who Resigned or Left the Company
Documents detailing separation or the end of tenure in the company
Final paycheck information
How Long Do Employers Need to Keep Paycheck Records?
The time that employers are required to keep paycheck records depends on the type of documents that are being stored.
The table below serves as a simple guide:
All personal and work-related employee documents
All records of terminated employees
1 year after the termination
Wage rates, pay grade increases, job evaluations, time cards, and schedules
Documents containing the employees’ general information
Documents containing employees’ employment and salary information
Payroll tax records
The U.S. Small Business Administration (SBA) also recommends that employers keep payroll records for a maximum of six years. The time span should be enough to accommodate the duration of keeping all types of employee records.
It is highly recommended that employers keep electronic records, as these are more practical and secure.
Electronic documents give you a complete paper trail for each employee, save you time and space, and are less prone to external damage. On top of that, they are also more convenient for remote employees since they can use e-signatures.
E-signatures are also more secure and efficient for managing individual employee records.
Who Has Access to Paycheck Records
Access to paycheck records should be limited to authorized HR and payroll personnel. While there are no federal regulations that grant employees access to their payroll documents, that may not be the case for all states.
Some states have specific rules that allow employees to access their paycheck files.
If an employee requests a copy of their records, employers must respond within 21 days of receiving the request and provide the details needed by their employee. Some instances wherein an employee may require copies of their payroll data include applying for loans or providing proof of employment.
On the other hand, employers reserve the right to modify their employees’ records or documents as they see fit. They may do this based on their assessment of which information is relevant or erroneous in the employee’s files.
In response, employees may dispute the modifications made by their employer and add a statement that refutes the changes or corrections.
Employees who are being criminally investigated should be restricted from accessing or modifying their payroll information.
Payroll records contain all vital employee and company payroll information, so employers must carefully handle and keep these documents.
By securing paycheck records, you maintain complete and accurate financial records for your business and comply with federal and state requirements.
Moreover, paycheck records are essential to providing your business with legal protection in case disputes involving your paycheck documents arise between you and your employees.
Paycheck Records FAQ
#1. What is a record of payroll?
A record of payroll is a compilation of documents detailing each employee’s wage rate, hours worked, gross and net compensation, benefits, tax withholdings, and other key information necessary for fulfilling their tax obligations and ensuring legitimate business operations.
#2. How can I view my pay stubs?
You can request that your employer or the HR personnel responsible grant you access to your pay stubs.
#3. How can I get pay stubs online?
Ask your employer to send you electronic copies of your pay stubs. If you are an employer or someone self-employed who wants a quick and effortless way to prepare pay stubs, you can also use an online paystub generator.