A question I am often asked is ‘How long must I maintain my payroll records?’, and the answer is; “it depends”. Reason being is that there are many different documents that are maintained within the payroll world by a myriad of federal, state, and local agencies, and a lots of overlap. Some people put a blanket retention policy of seven years across all documents, but in some cases as we will see, even that may not be long enough. Namely if the records are for an active employee.
Let’s take a look at the more popular forms and documents, and bring some order to what and when they can be destructed.
Applications and Resumes – Title VII of the Equal Employment Opportunity Commission (EEOC), the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) applies to employers with 15 or more employees (Title VII and ADA) and 20 or more employees (ADEA), and states that hiring records must be retained for at least one year from the date of the hiring decision (the date the position was filled). If there is a pending charge of discrimination against the organization, then all relevant hiring records must be retained until the conclusion of the case. Federal contractors and subcontractors may be required to a period of time longer than a year.
Form W-4 – The IRS states that the employer must maintain their copy for a minimum of four years after the date that the taxes were due or paid, whichever is later. Since this form is not actually used to report taxes due or paid, my translation of this requirement is to keep the form for as long as the form is used for calculation of withholding tax and for four years after the W-2 is filed for that year based on the W-2 filing date to Social Security Administration (SSA).
Form I-9 – U.S. Citizenship and Immigration Services (USCIS) states that employers must maintain a completed I-9 form on file for each employee on their payroll who is required to complete the form. As long as the employee is employed, the form must be maintained, and kept until one year after the date of termination, or three years from the start of employment, whichever is longer. If copies of documents presented by the employee were made, they should be kept with the corresponding Form. USCIS provides the following table to help you calculate how long a form is required to be maintained.
|1. Date the employee began work for pay||1. ________________________|
|A. Add 3 years to the date on line 1.||A. ______________________|
|2. The date employment was terminated||2. _______________________|
|B. Add 1 year to the date on line 2.||B. _____________________|
|3. Which date is later; A or B?||3. _______________________|
|C. Enter the later date.||C. _____________________|
The employer must retain Form I-9 until the date on Line C.
940, 941, 943, 944, 945, W-2, and every other federal tax return – The IRS states that the employer must maintain copies of these filed returns for a minimum of four years after the due date that the taxes were due or paid, whichever date is later. A good reason to file returns when they are due as it shortens the retention period to the minimum.
Employee Information, Hours Worked, and Wages Earned – This section I will break down to IRS and Department of Labor requirements.
The U.S. Department of Labor (DOL) states that employers must maintain records in no particular form, but must include certain identifying information about the employee and data about the hours worked and wages earned. Records that relate to payroll, collective bargaining agreements, sales, and purchase records must be maintained for at least three years, and records on which wage computations are based should be retained for two years. The DOL provides the following listing of the basic records that an employer must maintain:
- Employee’s full name and social security number.
- Address, including zip code.
- Birth date, if younger than 19.
- Sex and occupation.
- Time and day of week when employee’s workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- Basis on which employees wages are paid (e.g., “$9 per hour”, “$440 a week”, “piecework”).
- Regular hourly pay rate.
- Total daily or weekly straight-time earnings.
- Total overtime earnings for the workweek.
- All additions to or deductions from the employee’s wages.
- Total wages paid each pay period.
- Date of payment and the pay period covered by the payment.
The Internal Revenue Service (IRS) states to keep all records of employment taxes for at least four years after filing the 4th quarter for the year. The IRS provides the following listing of the basic records that an employer must maintain:
- Your employer identification number.
- Amounts and dates of all wage, annuity, and pension payments.
- Amounts of tips reported.
- The fair market value of in-kind wages paid.
- Names, addresses, social security numbers, and occupations of employees and recipients.
- Any employee copies of Form W-2 that were returned to you as undeliverable.
- Dates of employment.
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.
- Copies of employees’ and recipients’ income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V).
- Dates and amounts of tax deposits you made.
- Copies of returns filed.
- Records of allocated tips.
- Records of fringe benefits provided, including substantiation.
In addition to the federal requirements, state and local agencies also have payroll record retention requirements. As it would be exhaustive to try and identify every one, I will provide a sampling of two Florida requirements.
Florida Reemployment (aka unemployment) Tax – The Florida law requires the employers be open for inspection by the Department of Revenue at any reasonable hour when the company’s business is normally conducted. The employer must maintain true and accurate work records for a period of five calendar years.
Florida Workers’ Compensation – Florida requires employers to maintain a record of all workplace injuries and retain the records for at least two and a half years. I believe the 2.5 years comes from Florida statute 440.19 that states an employee, or an employee’s estate, if deceased, can file a petition for benefits up to two years after the date on which the employee knew or should have known that the injury or death arose out of work performed in the course and scope of employment.
In an age of inexpensive means of scanning documents and mass storage, the best solution is to become paperless office. Minimize the impact of needing lots of space to store hard copies of all of these records by keeping them digitally, which I will point out is allowed with all agencies I have inquired with. Have employees complete and submit their documents in a digital manner when possible, and for those companies that utilize our PayMaster HCM, inquire about our paperless solutions.
While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. PayMaster, Inc or Romeo Chicco does not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional as federal, state, and local laws change frequently.