Payroll management is no simple task. Regardless of whether your workforce is 50 strong or you can count the number of employees on two hands, there are lots of employees and documents to keep track of and failure to do so could result in serious penalties and fines. To help, we’ve put together a guide for better managing payroll records.

 

What Payroll Records to Keep and For How Long

Payroll records are documents and items related to paying your employees. Similar to how a candidate’s job applications and interview records need to be kept for one year, the U.S. Department of Labor (DOL) Wage and Hour Division and Internal Revenue Service (IRS) require employers to keep payroll documents for a set amount of time. Here are the payroll records you need to keep in your files:

Hiring documents

Hiring documentation like an offer letter include DOL-required employee data, such as their residential address, job title, and pay rate.

Keep for three years.

I-9 documents

These include information about an employee’s eligibility to work in the U.S. and DOL-required information like the employee’s full name and Social Security number.

Keep for three years.

Time cards

Time cards show total hours worked, including unpaid lunch breaks and overtime pay.

Keep for three years.

Paystubs

These will show payment dates and the total wages each period. Paystubs will also include any additions (like reimbursement) or deductions (like taxes and benefits) to wages.

Keep for four years.

Employee handbook

Every employee should have signed your employee handbook. Employee handbooks provide information on how your employees are paid (hourly or salary) and how often you pay employees (weekly, biweekly, monthly). It also describes information regarding paid holidays, termination, and severance.

Keep for three years.

Compensation philosophy

A compensation philosophy shows how you determine employee pay grades. You’ll also need to show rationale for pay increases or merit increases, as required by the Equal Employment Opportunity Commission (EEOC).

Keep for two years.

Tax forms

The IRS requires employee and employer tax documents, including W-4s (employees’ withholding allowance certificates) and W-2s or W-3s (employee’s wage and tax statements). 

You’ll also need to keep payroll tax payments, which can be found on Forms 941 (employer’s quarterly tax form, which also includes information on tipped wages) and 940 (employer’s annual federal unemployment tax return).

Keep for four years.

Retirement income

Retirement income statements show 401k or profit-sharing plan details as required by the Employee Retirement Income Security Act (ERISA). You’ll also need to keep documents outlining enrollment, payment, and payroll deduction.

Keep for six years.

Leave documentation

The Family Medical Leave Act (FMLA) requires payroll records regarding your leave policy, requests for leave, leave balances, and leave payments. This information is typically found in your employee handbook or on employee paystubs.

Keep for three years.

Termination information

A termination letter outlines an employee’s end date and any final payments, such as unused paid time off or severance.

Keep for three years.

Keep in mind that anytime you have a dispute relating to payment or employment with an employee, it’s best practice to keep all payroll records until the dispute has been resolved.

State-Specific Payroll Records Retention

Most states abide by the payroll records retention guidelines provided by the U.S. Department of Labor and IRS, as detailed above. However, a few states have further legislation that affects what payroll records to keep and for how long. These include the following exceptions:

• New York requires payroll records to be kept for six years.
• California requires that all payroll records be retained for six years.
• Illinois requires employers to keep all payroll records for five years.
• Washington has more specific requirements of what payroll records to retain.

Destroying Payroll Records

Keep in mind that holding onto payroll records for longer than required can put business owners at risk. Financial and personal information related to payroll, such as bank account information, credit reports, and photocopies of social security cards, should be destroyed after the retention time frame to prevent confidential data from being misused. In case any questions about destroyed documents arise, you’ll also want to keep track of which payroll records you’ve destroyed and when.

How to Store Payroll Records

As you can see, there are lots of payroll records to manage. Business owners will need a good filing system to keep track of these documents. 

Think twice before storing paper records in filing cabinets or boxes. Often, these records are forgotten about and kept for longer than needed. It’s also time-consuming to manually file each document and can be even more tiresome should you need to refer back to certain records. Security can also be an issue, as these filing systems are often easily accessible.

Rather, savvy business owners have found that it’s much more efficient to digitally store these important documents in a payroll management system. This ensures that records are securely stored and can be readily available from anywhere there’s an internet connection. Additional online payroll software benefits include:

• Payroll processing. Ensure employees are paid on time every pay period and electronically store information regarding paystubs, payroll deductions and time tracking.
• Payroll tax. Streamline filing and ongoing maintenance of tax records.
• Employee self-service. Give employees 24/7 access to their payroll and tax information.

Outsource Payroll Records Management

When it comes to payroll records, there’s a lot of information to process—mentally and literally. Outsourcing payroll records management through a professional employer organization (PEO) like Group Management Services can help business owners save time and worry. We take on the burden of payroll records management, so you can put your focus back on client relationships, building and effective team, and growing your profits. In addition, GMS provides human resources, risk management, employee benefits services to help make your business simpler, safer, and stronger.

Stop wasting time on payroll records management. Contact us today to talk to one of our experts about our payroll services.

Determining pay frequency can be challenging for business owners. While most employees prefer to be paid more often, a higher pay frequency can cost employers. Not to mention, there are federal and state laws that set standards for how employees are paid. That’s why exploring the different pay period options and federal and state payday laws is critical to help you choose the right pay frequency for your business and employees.

 

Pay Periods

A pay period is a recurring length of time that determines how often employees are paid. Depending on your state, there are several to choose from, and each has its pros and cons (but we’ll get to that later). The typical options for paying employees are:

• Weekly: This is usually on the same day of the week, like Friday, for the previous week’s work. Employees are paid 52 paychecks a year.
• Biweekly: Employees are paid every other week, either for the previous two weeks or the two weeks before that. This pay period results in 26 paychecks a year.
• Semimonthly: Workers are paid twice a month, usually on the first and 15th each month, receiving 24 paychecks a year.
• Monthly: This is typically either on the last day of the month or the first day of the following month. Employees receive 12 paychecks a year.

 

Federal Pay Frequency Laws

Federal law does not set requirements for how often you have to pay employees—that’s left up to the states. However, federal laws do say that employers must keep a reliable and consistent pay frequency. This means that, for example, you can’t pay employees weekly one month and then biweekly the next.

Under certain circumstances, you may be allowed to change your pay frequency. In order to do, so the following must apply:

• You have a legitimate business reason.
• The change is permanent.
• You are not avoiding overtime or minimum wages.
• You don’t unreasonably delay payment.

 

State Pay Frequency Laws

Almost every state has pay frequency laws indicating how often you should pay employees. Many states require a monthly, semimonthly, biweekly, or weekly payroll as the minimum frequency for paying employees. Keep in mind, you can always pay employees more often than the state requires.

For example, Ohio requires a semimonthly payroll, but that is not the only pay frequency you can choose in that state. You can also pay employees biweekly or weekly, as long as you at least pay employees semimonthly. Or, in New Jersey, you can pay executive and supervisory employees at least once a month but must pay all other employees semimonthly at minimum. Find your state in the map below to see what the minimum pay frequency is for your business.

 

Choosing a Pay Frequency

After looking at your state’s pay frequency laws, you’ll have to determine how often to pay employees. While employees typically prefer to be paid more frequently, you’ll also have to consider factors that affect your business.

Payment methods

Depending on the way your employees are paid, certain payment methods are more of a hassle than they’re worth. For example, if you’re still using outdated methods like checks or cash to pay employees, then upping your pay frequency means spending more money on printing supplies and more time on bookkeeping. Even with direct deposit, higher pay frequency can mean more transaction fees if you’re not utilizing online payroll software.

Employee benefits

You’ll also want to factor in benefits. Employee benefits like health insurance typically run on a monthly basis, so paying employees monthly or semimonthly makes calculating voluntary paycheck deductions easier than if you were to pay on a biweekly or weekly schedule.

Overtime

While overtime isn’t a factor for salaried employees, it can be difficult to track for hourly workers if they’re paid on a semimonthly or monthly basis when the pay date falls in the middle of the week. For example, if employees are paid on a Wednesday, it can be difficult to calculate overtime for that week because that week’s pay is split into two different pay periods.

Business owners typically find it’s best to pay different employees at different times. Many choose to pay salaried employees on a semimonthly or monthly basis, and weekly or biweekly for hourly workers.

 

Payroll Services

For small business owners, managing payroll can be one of the most time-consuming and challenging tasks there is. Need assistance? Outsourcing payroll administration to a professional employer organization (PEO) like Group Management Services (GMS) can ensure your employees are paid on time, every time. From electronic payroll processing to software to taxes, GMS takes an active approach managing payroll, so you can spend the extra, time, money, and energy growing your business. In addition to payroll services, GMS offers a full suite of HR services that compliment payroll administration, including human resources, risk management, employee benefits, and more.

Contact GMS today to see how we can help manage payroll at your organization.