As a business owner, it can be tricky figuring out which business records to keep and which ones you can throw away. You want to retain records as long as legally mandated, but figuring out what’s required of you can be confusing.
In order to provide a general framework for what you’re expected to retain and for how long, we’ve parsed through many federal guidelines to create a summary of the rules and regulations that apply to most business owners.
Keep in mind that there may be additional regulations that apply to you based on your industry and your specific business. Not all employers are subject to all of the laws referenced. Special thanks to Employment Attorney J. Bryan Wood of the Wood Law Office for fact-checking.
According to the recordkeeping regulations established by the Fair Labor Standards Act (FLSA), employers in the private sector and in Federal, State, and local governments must preserve the following records about the hours worked and wages earned for each covered, nonexempt worker:
- Time and day of the week when employee’s workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- The 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.
This information should be marked with the employee’s personal information, including name, social security number, address, birth date (if younger than 19), occupation, and sex.
Employers must retain all records that show how they determined wages for two years, including time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages. Keep all payroll records for at least three years (more on that below).
These records must be open for inspection by the Division’s representatives, who may ask the employer to make extensions, computations, or transcriptions. Employers may use a paper-based recordkeeping system or store files online. Any timekeeping plan is acceptable as long as it is complete and accurate.
There are several federal statutes to keep in mind regarding the retention of payroll records. These may overlap, require different portions of employee personnel files to be retained, and/or have their own required time limits.
Under the FLSA employers must keep payroll records for at least three years, including pay records, collective bargaining agreements, sales and purchase records. Employees who are paid on commission might have records of this nature.
Under ADEA recordkeeping requirements, payroll records must also be preserved for three years, and employees must also keep on file any employee benefit plan (such as pension and insurance plans) and any written seniority or merit system for the full period the plan or system is in effect and for at least one year after its termination.
The Equal Pay Act, Davis-Bacon Act, Walsh-Healey Act, and Family Medical Leave Act also require payroll records to be retained for three years. Under the Lilly Ledbetter Fair Pay Act, it is recommended that employers retain records for length of employment, plus an additional 5 years.
Each state may have its own requirements that may increase the obligations of employers.
There are also several statutes to keep in mind regarding the retention of tax records. The Federal Insurance Contribution Act, Federal Unemployment Tax Act, and Federal Income Tax Withholding require tax records to be kept for four years from the date tax is due or paid. The records covered include:
- Amounts of wages subject to withholding
- Agreements with the employee to withhold additional tax
- Actual taxes withheld and dates withheld
- Reason for any difference between total tax payments and actual tax payments, and withholding forms. (taken from Federal Record Retention Requirements by the Society for Human Resources Management)
In an article titled “How long should I keep records?” the IRS states that employers must keep records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.
Companies must keep business tax returns and supporting documents for a minimum of three years from the time of filing. However, the IRS can pursue employers up to seven years depending on whether they failed to report income or took a deduction for worthless security or bad debt.
It’s suggested that it’s best to keep tax records permanently, as they may be helpful to have in the future.
Human Resource Records
The U.S. Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee. The following are the employment-related records as required by the EEOC, with consideration given to the requirements of all applicable laws and acts, including the ADEA, the ADA, Title VII, the Equal Pay Act, and Lilly Ledbetter Act.
- The demographic records of employees must be retained for three years. This includes documents containing the employees’ names, home addresses, dates of birth, gender, and occupation.
- Personnel action records must be retained for two years. This includes documents reflecting promotions, demotions, disciplinary actions (including termination), layoffs and recalls test papers and results of all testing completed in conjunction with any of the above personnel actions, physical examination results related to requests for reasonable accommodations, and transfers.
- Hiring decision records for applicants not hired must be retained for one year.
- Hiring decision records for applicants conditionally offered employment must be retained for two years.
- Job postings must be retained for one year.
The Family and Medica Leave Act (FLMA) requires information related to the individual employee’s leave of absence to be retained for three years.
As stated earlier, not all employers are subject to all the laws referenced. There are different requirements and factors that may alter an employer’s obligation. This article is in no way intended as legal advice and has been written for informational purposes only.