Maintaining and Organizing Payroll Records
Keeping the correct paperwork is an essential aspect of payroll for any employer. We’ve already gone over what payroll records are ( PAYROLL RECORDS: WHAT EXACTLY ARE THEY?), but how long are you supposed to keep them? You might end up holding onto things longer than necessary. The information you need for audits may also get lost accidentally.
What’s the Standard and What’s Recommended?
According to the IRS, you should keep all records of employment taxes for at least four years after filing the 4th quarter for the year (https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-recordkeeping#:~:text=Keep%20all%20records%20of%20employment,Your%20employer%20identification%20number.). A company must keep records for four years as required by the Internal Revenue Service, but most companies keep records for up to seven years in the event that an audit is conducted.
Below we’ve detailed how long you must keep each document per the IRS and the Department of Labor. The state requirements, however, may be stricter, so it is imperative to check your state’s guidelines. Additionally, it is recommended to retain these documents for all current employees for as long as possible and then to destroy them after the following time frames.
Now to Organize Our Payroll Records
There are a few different options for organizing your payroll records and where to keep them. There are three (really, two) main ways to keep payroll documents. You can keep hard copies on-site or off-site or keep them electronically. Hard copy records are used more in small businesses than in larger companies and corporations.
Hard Copy Recordkeeping
When deciding to keep them on-site, you’ll need to keep them organized by year, specifically, and can sub-categorize from there as you see fit. Be sure to assign one person or department to maintain accuracy, such as human resources. It’ll also be essential to invest in safe storage, such as fireproof cabinets. If the records are destroyed in any fire or other disaster, you won’t have the required documents to substantiate expenses, child support, federal tax deductions, etcetera.
Still want to keep hard copy records but don’t want the hassle of doing it all yourself? There are record management companies that will keep up with documents for you. In addition, different organizations will offer various services such as pickup & delivery, barcode tracking, and chains of custody. If this is the course you’d prefer to take, ensure that whoever you go with has security in place, fire safety, and environmental controls guaranteeing your documents are safe.
Leave the Papers Behind
If you don’t want the hassle of keeping up with all the documents, forms, and other needed information on paper, you can always keep them electronically. For example, programs such as HelloSign can keep up with any hiring documents or other forms such as loan agreements. In contrast, payroll software can usually keep track of the payroll-specific records such as W4s, pay stubs, and timecard documents.
You can change to keeping electronic records for smaller businesses that find themselves growing to the point that they either can’t keep up with the paperwork or run out of storage space. How you make this transition is up to you. You can decide to keep your current hard copies, and anything new will be electronic, or you can transfer your existing records to electronic documents. The task of moving everything may seem daunting with all the scanning, naming, and organizing. However, those record management companies we mentioned earlier tend to offer services where they’ll do it for you.
The Afterlife of Payroll Records
Holding onto all of those payroll records following the required retention period is good, either. While you’re directed to keep payroll records for a specific amount of time, there’s still a lot of sensitive information you’re holding onto. Once you don’t need them anymore, you should destroy them to prevent this information from being misused.
It’s critical to make sure that you’re destroying everything securely. Don’t just throw the paperwork in the trashcan. Instead, use proper disposable methods, such as shredding the documents in the office or using an off-site shredding service that will pick up locked bins filled with items you need to be destroyed.
It is highly recommended to maintain a log of documents destroyed. The log should include the type of document, the method of disposal, the date, and the name and signature of the individual who disposed of the document.This way, you have an audit log if you need to go back and ask any questions.
There are many rules and regulations to follow regarding keeping up on your payroll records, different ways to store them, and the need for destruction once they’ve hit their “expiration” date. It may seem overwhelming, but once you’ve got the hang of it, keeping up with them can be a pretty easy task. Of course, if you ever need to remember, you can always check the DOL or IRS websites to refresh your memory.
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