Paycheck Records for Business Managers: Best Practices

Federal and state laws require employers to document employees’ payments and benefits. It’s important to follow these regulations to avoid fines and other penalties that can interfere with the administrative side of your business. Fortunately, national and state agencies make it clear which documents you should retain and for how long. Here’s what you need to know about effectively managing paycheck records.

 

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What are paycheck records?

Paycheck record refers to any authorized document that accurately accounts for each employee’s compensation, which includes hours worked, bonuses, paid time off, tax deductions and any other information relevant to payment for services rendered. These records fall under the category of employee documentation and vary widely in type. Paycheck records are often paper documents created and stored by employers in a physical location.

 

Because state-level requirements can be more stringent than federal about the types of documents, retention time frame and other compensation details, employers should consider working closely with legal counsel. Many businesses choose to use a third-party payroll management service or hire a knowledgeable, experienced bookkeeper to ensure compliance.

 

What paycheck records are employers required to keep?

The U.S. Department of Labor’s Wage and Hour Division lists the documents and personal information employers are required to keep for each employee. Employers are also required to keep records of wages paid when an employee leaves their company.

 

Businesses must keep records that contain the following information:

 

  • Name
  • Home address
  • Occupation
  • Sex
  • Birth date (if the employee is under 19 years old)
  • Day and hour of the start of the employee’s workweek
  • Total hours by day and workweek
  • Total daily and weekly straight-time (meaning non-overtime) wages
  • Pay rate
  • Total wages per pay period
  • Pay day dates

Employees fall into one of two categories—nonexempt and exempt. Nonexempt employees are entitled to overtime pay and all other rights established by the Fair Labor Standards Act (FLSA), while exempt employees aren’t.

 

A common payroll records example is a time sheet:

 

Day

 

Date

 

In

 

Out

 

Hours worked

 

Mon.

 

7/10/21

 

8am

 

5pm

 

9

 

Tues.

 

7/11/21

 

 

 

 

Wed.

 

7/12/21

 

9am

 

4:30pm

 

7.5

 

Thurs.

 

7/13/21

 

 –

 

 

 

Fri.

 

7/14/21

 

8am

 

5pm

 

9

 

 

 

 

 

25.5

 

Related: New Employee Forms

 

How long do employers have to keep paycheck records on file?

Employers must retain each record for the time period required by national or state laws. Per federal law, payroll records should be kept for at least three years. However, some states, such as New York and California, have specific guidelines to consider.

 

The following chart provides an overview of best retention practices for various record types:

 

Two years

 

Three years

 

Four years

 

Six years

 

  • Merit-based bonuses
  • Hiring documents
  • I-9 documents
  • Time cards
  • Employee handbook
  • Leave documentation
  • Termination information
  • Pay stubs
  • Tax records/W-4s
  • Records of payment/employment disputes
  • Retirement income/401(k) plan information

Once the retention period is over, you should destroy any unneeded records. Shredding and disposing of old employee information will help keep your files organized and ensure that personal identifiers like Social Security numbers aren’t accessible and in danger of misuse. This protects you, your company and your former employees.

 

Related: Employee Information Form: A Template for Your Business

 

Who should have access to paycheck records?

Typically, a company’s payroll records should be restricted to those who need access for legitimate business reasons. For example, an accountant can help coordinate the payment process without necessarily being privy to all of the information on employees’ pay stubs.

 

Some employers use specific methods to limit access to payroll data while ensuring employees are paid fairly and correctly. Even supervisory personnel might not require full access—it may be enough for them to know whether an employee has received a paycheck or the total amount paid out.

 

To keep payroll records safe, businesses frequently employ these security measures:

 

  • Requiring periodic password changes (e.g., changing system or employee passwords every 90 days)
  • Storing physical documents in a secure off-site location
  • Scheduling routine data sanitation and document shredding
  • Installing fingerprint scanners or card readers with PIN access
  • Creating data-sharing policies that restrict who can access or share certain documents

When are paycheck records protected by law?

The U.S. Department of Labor and most states have their own wage laws that protect employees’ rights and outline employers’ responsibilities for documenting regular pay, overtime, sales commissions, tip earnings, underage labor and final paychecks. For example, many states require employers to provide pay stubs, while federal law does not.

 

While it can complicate bookkeeping, employers are required to maintain employment-related records for former employees. Some state laws require that employees be given their final paycheck on the next regular payday; however, in others it’s permissible for employers to issue the check as soon as they’re able (e.g., within 24 hours).

 

Payroll management tips

There are many things to consider when managing and organizing your payroll records. Here are some useful guidelines to help minimize costly errors.

 

Consider outsourcing your payroll management

Third-party payroll management companies can help ease the burden of maintaining the appropriate payroll records. These firms manage most payroll processes, including the storage, retention and destruction of essential information.

 

Use employee information forms

If you prefer in-house payroll management, another option is to use employee information forms. These forms, which are usually only a page or two long, list all the important personal details of the employee in an easy-to-scan format. You can note on the form itself which documents are included in the employee’s personnel folder, along with the date each document should be destroyed. 

 

Include payroll management information in your employee handbook

If you’re comfortable with employees accessing their own payroll forms and records, include a reference section about them in your employee handbook. This will help avoid confusion about which records are accessible under specific conditions. It also lets employees know that it’s important to safeguard all these materials as confidential.

 

Create a retention schedule

A retention schedule is basically an organized list of documents that includes their original and final dates for storage, destruction or transfer to the archives. The list can be as detailed as necessary, but at a minimum it should include:

 

  • Employee records (application/interview, job offer letters, termination notices)
  • Payroll tax return information (W-2’s, 1099 forms)
  • Wages paid data (daily attendance logs, time cards)
  • Timekeeping records (time off request forms, leave slips)

Create a color-coded filing system

Consider color-coding each document type within the employee’s personnel folder for easier identification. For example, the color blue might correspond with the year 2030. This helps you remember to destroy any document with a blue tab in 2030.

 

Scan and store digital copies

If your office doesn’t have much storage space, consider scanning and saving important employee payroll records digitally. Digital storage has many advantages—it saves space and simplifies searching for and deleting files. Additionally, files can be password-protected for security.

 

FAQs about paycheck records

What is the document life cycle?

The document life cycle is the process of generating, finishing, delivering, reporting on, tracking and archiving data. Document life cycles are made up of a series of stages, such as archiving paper invoices and other files.

 

Can I manage payroll records myself?

If your funds are limited, doing your own payroll management can cut down on expenses. However, to avoid potential legal complications, it’s easier to pay a fee for professional software, accountants or bookkeepers.

 

What is the difference between payroll expenses and payroll liabilities?

Payroll expenses tell you how much money you’ve spent on salaries during a pay period; payroll liabilities tell you what each part is for, and how much it contributes to the total balance.

 

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