Payroll Records Made Simple: What to Keep and Why

Imagine you're facing a surprise audit and scrambling to find employee timesheets from two years ago, only to realize they were never properly stored. Payroll records can quickly become a confusing and overwhelming part of compliance if you’re unsure what’s required. You know you’re supposed to keep them, but for how long? And which ones do you keep?

With clarity and best practices, you can stay compliant and keep your records organized without the added stress. Let’s walk you through what to keep, how long to keep it, and how to create a process that works.

Payroll Records to Keep on File

Knowing you need to keep payroll records is one part of the puzzle. Understanding which ones to keep is another. With so many documents tied to employee pay, taxes, and time tracking, it’s easy to lose track of what’s essential versus what’s just clutter. 

Keeping proper records helps you stay compliant and saves time during audits, tax season, or when questions arise in the future. So, before you delete a file or toss a document, check how long records should be retained.

Employee Information

What to include:

• Employee’s full name, social security number, and sex

• Address and zip code

• Birth date, if younger than 19 years of age

• Job title and classification 

• Employment contract

• Date of hire and termination (if applicable)

These records are essential for verifying employment history, resolving disputes, and ensuring compliance with labor laws.

Time and Attendance Records

What to include:

• Time and day of the week when an employee's workweek begins

• Hours worked each day

• Total hours worked each workweek

The Fair Labor Standards Act (FLSA) requires employers to maintain detailed payroll documentation to ensure accurate employee time tracking and proper wage payment.

Wage and Payment Information

What to include:

• The basis for employee wages (e.g., hourly, weekly, monthly, etc.)

• Regular hourly pay rate

• Total daily or weekly straight-time earnings

• Total overtime earnings for the workweek

• Total wages paid each pay period

• Date of payment and the pay period covered by the payment

• Pay stubs

• Direct deposit information

These payroll records show that employees are paid accurately and on time, which is crucial during wage disputes and audits.

Benefits and Deductions

What to include:

• Benefits enrollment forms

• Retirement plan contributions

• Health insurance premiums

• Wage garnishments 

• Child support withholdings

The U.S. Department of Labor's (DOL) Employee Retirement Income Security Act (ERISA) and other benefit-related laws often require long-term retention of these records.

Tax Documentation

What to include:

• W-2s, W-3s, W-4s, and 1099s

• Form 940, 941, and other quarterly/year-end filings

• Employment tax payments 

The IRS and state agencies require tax documentation to be retained for a specific period.

How Long Should You Keep Payroll Records?

Now that you know what to keep, here’s how long you should keep them. Some payroll records can be cleared after a few years, while others must be retained for a longer period. Here’s a quick breakdown:

1. Three-Year Rule: The U.S. Department of Labor requires employers to keep payroll records for a minimum of three years. The Equal Employment Opportunity Commission (EEOC) requires employers to retain all employment documentation for one year. If an employee is involuntarily terminated, their records must be kept for one year after termination.

2. Four-Year Rule: The IRS requires businesses to keep employment tax records for at least four years after the tax becomes due or is paid, whichever is later.   

3. Six-Year Rule: ERISA requires plan administrators to retain records related to benefits for at least six years.

Additionally, some states require a more extended holding period. Make sure to review your state’s payroll record retention laws 

Payroll Record keeping Best Practices

Keeping up with payroll record requirements can sometimes feel tedious and even overwhelming. But with a few strategies, you can make the process more manageable, organized, and less stressful. Here’s how to simplify your payroll recordkeeping and stay ahead of compliance:

1. Stay Updated on Record Retention Laws

Payroll documentation laws can change more often than you’d expect. What’s compliant today might be outdated tomorrow. Therefore, it’s essential to regularly check in with trusted sources like the IRS, DOL, and your state’s labor office. Even a slight policy change could affect what and how long you keep it. If you work with a payroll provider, ask if they offer compliance alerts or updates.

2. Schedule Periodic Reviews and Cleanups

Whether you use a digital or paper filing system, setting aside time for regular payroll record audits is essential. Audits help ensure you retain the correct documents for the legally required duration. Compare your records against federal and state retention guidelines, confirm they are stored securely, and flag any missing items. A consistent quarterly, biannually, or annual review schedule helps maintain compliance and make record retention more manageable.

3. Partner With a Reliable PEO

Managing payroll records alone can be time-consuming and risky if something slips through the cracks. A trusted and reliable PEO can make a significant difference. A PEO like Justworks handles payroll processing and helps you stay on top of payroll record retention requirements, tax filings, and compliance updates. 

A PEO also provides built-in tools to store and organize documents securely and expert guidance if you’re unsure what to keep and how long to keep it. It’s like having an HR safety net that keeps your business organized and protected. 

Simplifying Payroll Records with Justworks

Payroll records may not be the flashiest part of running a business, but they protect everything you’ve built. Staying organized, compliant, and audit-ready doesn’t have to be a guessing game or a time drain, especially with the proper support. 

Justworks’ PEO combines payroll, compliance support, and secure document management tools in one easy-to-use platform. With expert guidance just a call or click away, you’re never left wondering what to save and for how long. We help you stay organized, compliant, and focused on growing your business instead of digging through files. Get started with Justworks today.