Payroll Records: What Exactly Are They?
Whether you’re a new business just beginning or you have an established business merely starting to add payroll, you’ll need to know what payroll records are. At the core, these are any documents pertaining to paying employees, though they typically include a little more than that. The information a business needs to collect from each employee is relatively the same, though some states require more than the federal government does.
What is All Included?
Below are some essential payroll records that each company should keep for each individual person they employ. This goes for anyone paid via a regular paycheck and will receive a Form W-2 come tax time, including the owner(s).
- Employee Name and Address
- Employee Date of Birth and Social Security Number
- Offer Letter
- Includes things like starting pay, starting position, work hours, starting date, etcetera.
- Employee Occupation
- Employee Phone Number and Email Address
- Form I-9, Employment Eligibility Verification
- Be sure to include copies of the unexpired identification documents used for Section 2.
- Acknowledgment for Receipt of Employee Handbook
- If disputes ever arise about pay dates, holidays, PTO policies, or other policies, this will ensure that both parties agree to what was written within the handbook.
- Federal Form W-2
- Only keep the employer copy when it comes time to send these out. You also need to hold onto any returned to your office as undeliverable after being mailed.
- Federal Form W-4
- Keep this for each employee on your payroll and update as new versions come out.
- State and Local Tax Withholding Certificates
- Keep these for each employee on your payroll and update as new versions come out.
Time and Attendance Records
- Timesheets or Time Clock Records
- Must provide a breakdown of hours to show lunch breaks and overtime.
- Time Off Records
- If you have payroll software, this will typically be recorded using that. Otherwise, be sure to keep track of these in any that you feel works best for your company.
- Pay Periods and Pay Schedules
- This would be a record of what days an employee gets paid for a paycheck and a description of how often employees are paid.
- PTO, Vacation, Paid Sick, or Other Leave Balances
- FMLA, specifically, requires the dates of the leave of absence and the compensation made to the employee during the leave, if applicable.
- Overtime Hours
- It should be recorded with employee time clocks and be reflected on their pay stubs.
- Direct Deposit Authorization Form
- This form includes a voided check or letter from a banking institution authorizing you as a company to deposit paychecks directly into the listed bank account(s).
- Voluntary Payroll Deductions (Including Federal Taxes, benefits, etc.)
- Suppose your company offers any benefits such as medical, disability, or retirement benefits. In that case, you’ll need to keep track of those deductions for your employees along with any company contributions that you may be making on their behalf.
- Expense Reimbursement Requests and Receipts
- Suppose you pay an employee reimbursement for any job or office supplies or other things that the business would generally buy themselves. In that case, you’ll need to hold onto the receipts and reimbursement information for employees who were paid back for purchasing those items.
- Garnishment Orders and Records
- These are the documents you receive from the federal or a state government letting you know to start garnishing an employee paycheck. These are typically for tax payments or child support payments.
- Documentation and Justification for Pay Raises
- Each time you give a raise: document the pay increase, where they started, how much the raise was, and the new wage.
- Bonus, Profit Sharing, or Award Paperwork
- You’ll need to document the parameters of each of these – what was the bonus for, what percentage of profits employees received, what award they received, and what the value of the award was.
- Exemption Status and Rate of Pay
- This applies to salaried employees. This may be included in their offer letter.
- Payment Records (Pay Stubs, etc.)
- These provide pay periods, pay rates, hours worked, deductions, overtime, and other necessary wage-based information required for specific audits or tax payments. Typically a pay stub generator (your payroll software) will have these.
- Employer Contributions
- Contributions you have made to your employees’ retirement plans will be recorded here.
Disciplinary and Termination Documents
- Evaluation Forms
- Whether they were done for disciplinary purposes or are standard evaluations, you’ll want to hold onto these to substantiate any causes for termination.
- Dispute Forms
- It is recommended that you keep these documents until your paycheck or termination issue is resolved if a dispute lasts longer than four years.
- Disciplinary Action Forms
- Any documentation you have for previous discussions with employees regarding behavior, attendance, etcetera to help substantiate any causes for termination.
- Forms Detailing Separation
- Include dates of employment, especially the final date of work, and any severance information.
- Final Paycheck Information
- The pay stub itself is enough in most cases, but you’ll especially want to document any early payout.
While this list includes many common payroll records, it may not be a completely comprehensive list. There may be other items that your company needs that others don’t typically use. This is especially true if you do a lot of prevailing wage jobs or have union employees.
Why Do We Need Them?
The IRS does regular auditing for companies throughout the US. So while you may know that your payroll is done correctly, you may end up on that random list one day. You’ll need your payroll records in the event that this ever happens. The IRS won’t take your word for it if you don’t have proof. The same goes for states, as they’ll also require evidence of any payroll, benefits, etcetera if they ever decide to audit you for any specific tax year.
You also need to keep them for legal reasons, which we will go into more deeply in the next payroll blog about payroll record retention and management. There are federal and state requirements when it comes to maintaining payroll records and how long to keep them. We’ll also be able to go over best practices for storing and destroying your documents. Keeping records can also come in handy for your employees if they ever need proof of income, such as when trying to rent an apartment or buy a house.
Where Do I Find Them?
Payroll records aren’t typically something you can find but rather are something that you create. Offer letters, disciplinary forms, employee information sheets, etcetera are all things you can design however you want, so long as you have the appropriate information. They don’t even need to be on paper. You can make them on online platforms for people to complete online.
Nevertheless, certain documents are standardized. Such as the federal Form W-4 (https://www.irs.gov/pub/irs-pdf/fw4.pdf). This will need to be the same across the board for all of your employees. In addition, the I-9 Form (https://www.jobs.irs.gov/sites/default/files/wysiwyg-uploads/files/IRSDownloads/I-9EmploymentEligibilityVerification.pdf) is this way as well, though you can do these online using different kinds of software.
The Mountains Become Hills
You might think it’s a lot when it’s all laid out, but once you get it all put together, it’s not so bad. You can get a lot of information on a pay stub, such as employee information on one sheet or pay rates, schedules, amounts, and periods.Don’t forget about the many tools to help manage and keep track of your payroll records. Specific programs make payroll simple and ensure data security, making payroll a breeze while ensuring data accuracy.