How Long Should You Keep Payroll Records?
The Fair Labor Standards Act mandates U.S. employers retain detailed payroll records for non-exempt employees for at least three years and pay computation records for two years, while some states like California impose longer retention periods and specific storage requirements, making adherence to both federal and state laws crucial to avoid legal penalties.
Payroll record retention is an important responsibility for accounting, HR, or payroll administrators overseeing non-exempt employees (most hourly wage workers). The Fair Labor Standards Act (FLSA) addresses employee payroll records and recordkeeping practices. Adhering to federal and state rules is essential to protect against costly labor lawsuits.
How Long to Keep Time Cards & Payroll Records?
Federal and state laws dictate how long payroll records must be kept. Discarding records too soon can result in fines or lawsuits, even if employees were paid fairly and accurately.
Federal Law
The FLSA requires U.S. employers to keep the following basic records for all non-exempt employees for at least three years:
- Employee’s full name and social security number
- Address, including zip code
- Birthdate, if younger than 19
- Sex and occupation
- Time and day of week when employee's workweek begins
- Hours worked each day
- Total hours worked each workweek
- Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework")
- 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 each pay period
- Date of payment and the pay period covered by the payment
Records on which pay computations are based (such as time cards, piece-rate tickets, or time and work schedules) should be kept for two years.
State Law
Some states have stricter recordkeeping and retention requirements. For example, California requires payroll records to be kept for four years, and wage-related records for three years. California also mandates that records be in pen or permanent ink and in English. Employers should research their state and local regulations before discarding records.
How to Store Payroll Records Safely
Payroll records must be legible and available for inspection during audits. Undated or handwritten payroll documents are discouraged. Employers can choose any organized, secure, and accessible storage method. For paper records, an organized filing system is essential, and everyone with access should know the retention requirements. Digital systems with secure cloud servers eliminate concerns about physical storage and automate filing and retrieval.
The FLSA requires time cards or timesheets used for payroll calculations to be kept for two years.
FLSA Lawsuits
Proper payroll record storage is crucial because, in wage disputes, the burden of proof lies with the employer. If an employer cannot produce records for the period in question, they may be at a disadvantage in court. The Department of Labor’s Wage and Hour Division (WHD) enforces wage and hour rules and regularly recovers back wages for workers. For example, the WHD recovered $322 million in back wages in 2019, and $1.4 billion over five years. Settlements in unpaid wage cases can also be substantial.
Tips for Businesses
- Enforce a policy of creating and collecting required payroll and time tracking information from employees.
- Use a clear and consistent system for time tracking. Paper time cards are vulnerable to loss, theft, fraud, and rounding issues; automated digital systems are more secure and accurate.
- Digital time tracking systems can automate recordkeeping, ensure accuracy, and provide secure cloud storage.
To summarize, your recordkeeping and storage system should be:
- Consistent—easy to understand, maintain, replicate, and follow by others
- Easy to maintain over time, ensuring records are kept until you are clear of any exposure to wage and hour lawsuits
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