A Complete Guide to Employee Payroll Records

In this payroll record keeping guide, we look at key federal law requirements to help business owners ensure full compliance with employee payroll records.

Owen Yin
Written by Owen Yin
September 17, 2021
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Payroll teams need to juggle numerous aspects of payroll record keeping. As companies hire global talent, new hiring models appear, and remote work becomes normality, the requirements on ensuring compliance with federal and state laws become more difficult to untangle. In this guide, we look at the essentials of proper employee payroll record keeping.

What is a payroll record?

A payroll record is any document related to an employee’s compensation, which an employer must maintain for all its workers. Payroll records span all records connected to an employee’s wages, from hiring documents, to pay periods, payroll tax, wage rate, employee benefits, payroll deductions, etc.

What should be included in a payroll record?

According to the U.S. Department of Labor (DoL), all employers covered by the Fair Labor Standards Act (FLSA) need to keep the following payroll records, as a minimum, when documenting employee’s wages:

Employee’s personal information

Within the personnel records, payroll teams need to keep the following information for each of their employees:

  • Employee's full name
  • Social security number
  • Address, including zip code;
  • Birthdate, when an employee is younger than 19
  • Sex and occupation

Records about the pay period:

When keeping payroll documents on the pay period, employers should preserve the information typically outlined in the pay stub (or payslip). These normally include:

  • Employee’s workweek, including information on time and day of the week
  • Time card information, i.e. hours worked each day and total hours worked each workweek
  • The basis on which employee's wages are paid

Although FLSA requires employers to preserve pay stubs, they are not obliged to provide pay stubs to employees.

Records on employees’ income

  • 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 to the employee during each pay period
  • Date of payment and the pay period covered by the payment
  • Tax records and any information on employment taxes and tax withholding
  • Wage garnishments, i.e. information on any court order whereby the employee earnings are withheld in order to cover an outstanding debt

While the FLSA does not specify the form of these documents, it’s crucial that business owners ensure the accuracy of payroll-related employee records for all non-exempt employees.

As for the income tax records, it is the Internal Revenue Service (IRS) that has the authority to specify record keeping requirements, including how the wages should be taxed while issuing requirements and assessing compliance related to the proper filing of Form W-4 and Form W-2.

Federal vs state labor laws on payroll records

In managing compliance of payroll records, business owners need to be mindful of both federal labor legislation and also state laws and local government rules.

The key pieces of legislation that regulate payroll include the already mentioned FLSA, but also the Family and Medical Leave Act (FMLA), and the Employee Retirement Income Security Act (ERISA).

FLSA regulates vital payroll issues, such as minimum wage, overtime work, child labor, payroll recordkeeping, and hours worked.

FMLA is a piece of legislation that safeguards the rights of employees with respect to qualified medical and family reasons, requiring covered employers to provide their employees with job-protected and unpaid leave for these reasons.

ERISA lays down the minimum standards for pension plans in private industry. It regulates how the federal income tax affects transactions related to the employee benefit plans and as such is directly related to the payroll records for each employee.

Besides the federal law requirements, business owners also need to take into account state-wide specificities, as in some cases, additional requirements need to be met. For example, when it comes to overtime work pay, in Alaska, Nevada, and California and Nevada, employees must be paid overtime premiums for all hours they worked past the eighth-hour mark in a single day. Also, employees in California are entitled to be paid double time when they work 12 hours a day.

As for agencies that oversee payroll records compliance, the Wage and Hour Division of the U.S. Department of Labor is tasked with enforcing federal labor laws.

In addition, the Equal Employment Opportunity Commission (EEOC) regulates any workplace discrimination, including payroll issues, so employees should keep abreast with the new and amendment requirements.

Payroll record retention requirements

When preserving payroll records, employers should create a comprehensive strategy that takes into account both federal and state laws.

Where federal and state laws are conflicting, federal law takes precedence. At the same time, where state laws prescribe more stringent requirements, employers should guide their record keeping in line with the state laws.

As a general rule, all payroll records need to be made available for inspection to the representative of the Wage and Hour Division. They may require employers to extend, compute or transcribe the records for compliance assessment purposes. Also, a good piece of advice is to keep payroll records in an electronic format, readily available for short notice disclosure requests by regulatory bodies or eDiscovery purposes.

How long do you need to keep payroll records?

Under the FLSA, as a rule of thumb, payroll records need to be kept for a minimum of three years.

Meanwhile, some records, such as time cards, piece work tickets, wage rate tables, work and time schedules, and records of additions or deductions from wages should be retained for two years.

But again, when it comes to payroll record keeping requirements, some states might impose more stringent regulations. A case in point is the state of New York, where employers need to maintain payroll records for at least six years, and the employer must provide a detailed wage statement to employees each week.

Where to store your payroll records?

Traditionally, payroll records have been stored in paper form. Such record keeping was prone to serious non-compliance, records spoliation, and lack of vital documents, as manual efforts often resulted in non-consistent payroll record keeping.

Today, as businesses look for global talent across the globe, many business owners, including both large corporations and small businesses, aim to streamline their payroll records by implementing payroll software that automatically preserves required payroll records in a standardized way, thus ensuring full compliance across the board and having access to legal advice at all times.

Looking to streamline your payroll records keeping? Give Deel a go and collect and preserve all your workforce payroll documents for full compliance with federal and state laws.

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