Biggest Things Overlooked in Recordkeeping Compliance

By Katherine Muniz
August 29, 2017

When you’re running a business, complying with recordkeeping regulations is just as urgent and important as complying with payroll regulations. If you’re called upon to produce these records by the Department of Labor or an existing or terminated employee, not having them on file could lead to penalties and complications for your business.

Here are a few big things overlooked in recordkeeping compliance that could lead to trouble:

1. Not keeping timesheets

“Employers often overlook creating or preserving time records for independent contractors or salaried employees,” says Andrea Downing, an Employment Law attorney at Wade, Grimes Friedman Meinken Leischner. “More and more employees are challenging their classifications and businesses are running into trouble proving that their contractors/employees did not work overtime, or proving that their contractors/employees only worked a little bit of overtime.  Even if a company is confident in its classifications, it should keep records of its employees’ hours worked for a minimum of three years after the end of each pay period.”

For more information on timekeeping requirements, see our previous blog post.

2. Not documenting complaints

“Employers also overlook creating or compiling records of their internal investigations into complaints of discrimination,” adds Ms. Downing. “Employees can use a lack of records of these investigations as evidence that their employers did not investigate their complaints, or that they did not do so adequately.  Even if employers do not find merit to these complaints, or if the complaints seem petty on the surface, they should keep careful records of their investigations so that they can defend themselves against accusations of flawed investigations.”

3. Not keeping receipts

“One thing that I find that employers do not realize that they need to keep are the receipts when employees are reimbursed for something,” says Carey Gay, Enrolled Agent and Managing Member of Treasure Tax, LLC. “For instance, if an employee takes a continuing education class and the employer reimburses the employee for it.  If the employer requires a copy of the receipt, then a copy of that receipt needs to be in the employee’s file as well as in their accounting files.  If that receipt is not required by the employer, that amount has to be added to the wages of the employee.”

The following records are more widely kept, but the details may surprise you.

4. Not keeping employment tax records

According to the IRS, businesses must keep all records of employment taxes for at least four years. Depending on the business you are in, the records you need to keep may differ, and according to the IRS, “you may choose any recordkeeping system suited to your business that clearly shows your income and expenses.”It is vital that you keep all records related to federal tax purposes.

5. Not keeping income tax returns

On the topic of keeping income tax returns, income tax returns must be kept for a minimum of three years. The IRS requires employers to keep records that support an item of income, deduction or credit shown on their tax return until the period of limitations for that tax return runs out. The period of limitations that apply to income tax returns vary depending on the action, expense, or event which the document records, and can be found in detail on the IRS website.

6. Not keeping personnel and employment records

“Every employer subject to the FLSA must keep records for each worker engaged in the nonexempt activity,” cites Charles Vethan, Esq., CEO of the Vethan Law Firm. “However, there is no required method for recordkeeping under the Act. Records should include accurate information identifying the employee, the number of hours worked, and wages earned.” DOL Fact Sheet #21 contains a listing of the basic records that an employer must maintain.

7. Not having employment-related records accessible

“A good recordkeeping policy should include where employment-related records will be kept, who will maintain those records, who will have access to those records, and when records will be destroyed,” says Mr. Vethan. “There are a lengthy set of state and federal requirements, so I suggest setting up a recordkeeping system and running that by an employment & labor law attorney in your state to make sure that you are complying with all requirements.”

While recordkeeping may seem like the least of your worries, in order to keep your business in compliance with the law, keeping diligent records as a must.

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