Payroll Records and Procedures

The employer can keep hard copy payroll files and/or store them in payroll software.

Employers are responsible for paying employees on time and in an accurate manner. The U.S. Department of Labor requires that employers also keep payroll records showing the basis on which employees are paid. Additionally, the Internal Revenue Service has employment tax record-keeping procedures that employers must adhere to.

Nonexempt

The U.S. Department of Labor's Fair Labor Standards Act, or FLSA, sets the federal minimum wage, overtime pay, record-keeping and child labor laws. The FLSA also sets the criteria for which employees can be classified as nonexempt or exempt. Nonexempt employees are subject to FLSA overtime requirements; the majority of hourly employees are nonexempt. The FLSA requires employers to keep payroll records for each nonexempt employee. This includes employee name, Social Security number, gender, job title, birth date if younger than 19 years, work hours for each day and workweek, time and day workweek begins, hourly pay rate, daily or weekly regular earnings, daily or weekly overtime earnings, additions to and deductions from earnings, total income for the pay period, pay period start and end dates, and the actual pay day.

Exempt

An exempt employee is one who is not subject to FLSA overtime pay requirement; most salaried workers are exempt. Still, an employee can be salaried and nonexempt, which qualifies him for overtime pay. If he is salaried-nonexempt, the employer follows the record-keeping guidelines for nonexempt employees. The FLSA does not, however, require the employer to keep a record of hours worked for salaried-exempt employees, but it must maintain a record showing the basis upon which wages are paid.

Employment Tax

The IRS requires employers to keep employment tax records for no less than four years. Records include employer identification number; dates and amounts of wages, annuity and retirement payments; tips reported by employees; allocated tips records; fair market value of payment-in-kind wages (noncash earnings); name, address, Social Security number and job title for each employee; W-2s and corrected W-2s returned as undeliverable; each employee's employment date; pay period dates that employees received payment while absent because of sickness or injury and weekly payments received from the employer or a third party; employee fringe benefits and expense reimbursement records; tax deposits made via the Electronic Federal Tax Payment System; copies of employee withholding allowance certificates, such as W-4 forms; and records of tax returns filed, such as 941s.

Considerations

Both the Department of Labor and the IRS require the employer to keep payroll records open for inspection at the workplace or at a central records location. The Department of Labor requires employers to keep payroll records, such as a collective bargaining agreement/employment contract; and those upon which wages are based, such as time cards, for at least three years.

References

• IRS: Publication 15
• Occupation Health and Safety Administration: Records to be Kept by Employers
• U.S. Department of Labor: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA)