November 20

Make Sure You Follow IRS Requirements for Retaining Payroll Records

By Nolan Accounting

November 20, 2019


Under federal law, employers must keep payroll records for a certain number of years based on what they contain. This can cause a lot of confusion regarding what to hold onto and how long to keep each item. If you feel confused about this obligation as an employer, understanding what the Internal Revenue Service (IRS) considers payroll records is a great place to start.

Understanding Payroll Records

A payroll record is anything that relates to paying employees for their time and services to your company. The IRS considers each of the following payroll records that employers must maintain:

  • The start and end date of each pay period
  • Identifying information for each employee such as name, address, and social security number
  • The number of hours each employee worked daily and weekly
  • The pay rate for each employee and whether he or she is salaried or hourly
  • Record of benefits paid
  • Wages before and after deductions for each pay period
  • Forms W-2 through W-5, Form 941, and Form 944

The payroll records can also come in handy for you as an employer if you ever face a lawsuit for discrimination or an IRS audit.

How Long to Keep Payroll Records

Two federal agencies besides the IRS currently have oversight of payroll record issues. These include the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL). According to the Age Discrimination in Employment Act (ADEA) and the Fair Labor Standards Act (FLSA) instituted by these agencies, employers should hold onto payroll records for a minimum of three years. While the FLSA only requires employers to keep records for two years, the three-year requirement of the ADEA supersedes this.

Records of employment taxes fall into a different category of payroll records. You must maintain a copy of all tax payments made on behalf of your employees for a minimum of four years. The IRS recommends that employers begin maintaining these records after making their last employment tax payment of the year. Employment tax records can include dates of employment, personal and demographic data of employees, and the W-4 form for each employee.

Payroll Records Storage Requirements

If you’re dreading the thought of saving so many paper files, you can relax. The IRS, EEOC, and DOL allow employers to store the required records electronically if preferred. You can either store them on a company computer or a software program made specifically for payroll record storage purposes. However, be sure to have a back-up system in place to avoid catastrophic loss of data if you do choose this option.

Need More Help Organizing Your Payroll Records?

Organizing and storing your company’s payroll records is a time-consuming task. Whether you want advice on how to make the task more efficient or want to outsource it entirely, Nolan Accounting is here to help. Please contact us today to learn more about our services.

Sign Up for Our Newsletter

Want to hear from us regularly?