Federal agencies such as the IRS and the Department of Labor require employers to maintain detailed information on wages, hours and taxes; state laws often impose additional regulations. Some records, such as payroll tax filings, must be retained for several years for IRS review, while the Fair Labor Standards Act sets separate timelines for payroll and supporting documents. Understanding these obligations helps you stay compliant, avoid costly mistakes and ensure your business is prepared if regulators come calling.
What the FLSA requires
The FLSA does not mandate a specific format for payroll records, but it does require employers to maintain a core set of details for every worker. This information includes the employee's full name, Social Security number, home address and date of birth (if the employee is under 19). Additionally, you must record the employee's sex and occupation, the time and day the workweek begins, hours worked each day and total hours for the week. Employers need to track the basis of pay—such as hourly, weekly or piecework—the regular hourly rate, overtime earnings, additions and deductions, total wages for each pay period and the dates of payment.
These records must be open for inspection by the Department of Labor's Wage and Hour Division and retained for specific time periods. Payroll records, collective bargaining agreements and sales and purchase records must be kept for at least three years. Supporting records, such as timecards, piecework tickets, wage rate tables and work schedules, must be preserved for two years. Records can be kept at the business headquarters or in a central office, and employers are free to choose their method of timekeeping as long as it is complete and accurate.
What the IRS requires
Tax-related recordkeeping is more detailed. Employers must retain their Employer Identification Number, along with the amounts and dates of all wage, annuity and pension payments. Records of tips reported by employees, any allocated tips and the fair market value of in-kind wages must also be maintained, as well as names, addresses, Social Security numbers, occupations of employees, copies of undeliverable W-2s, dates of employment, and records of absences due to illness or injury along with related payments.
Copies of tax withholding certificates (Form W-4 and related forms), records of tax deposits with acknowledgment numbers, and filed returns with confirmation numbers must all be preserved. Documentation is required for fringe benefits, reimbursement of expenses and any credits claimed. Records related to qualified sick and family leave wages must be held for at least six years, and documentation for deferred Social Security taxes must also be retained. Unless otherwise specified, the IRS generally requires employment tax records to be kept for four years, and they must always be accurate, accessible, and available for inspection.
What your state requires
State rules can be even stricter than federal regulations. Many states set longer retention periods, require specific wage statements, or apply additional labor standards. To stay compliant, check your state labor department's website or consult with your payroll provider, which should track both federal and state regulations for you.
Keeping payroll records is a cornerstone of compliance and sound financial management. With requirements coming from diverse agencies, the safest approach is to maintain thorough, accurate, and accessible files that meet or exceed the strictest rules. Doing so not only protects you from penalties but also provides a reliable picture of your labor costs and helps build credibility with employees, regulators, and auditors.
Contact your R&A advisor with any questions specific to your situation. We are here to help.
About this Author
Allison and her team provide a comprehensive suite of outsourced accounting and financial services to clients. Prior to joining R&A in June 2018, Allison worked in the nonprofit sector for thirteen years. Her experience also includes more than ten years of teaching at the university level. Allison holds a bachelor’s degree from the University of Chicago and master’s degrees in social work from Eastern Washington University, business administration from Gonzaga University, and professional accounting from Colorado State University. Allison is an avid basketball and baseball fan who also enjoys travel, home improvement, and spending time with her family.
Join our newsletter for insights and information that matter to you or your business
