What payroll records am I required to keep?
The IRS requires you to keep employment tax records for at least four years after the tax becomes due or is paid, whichever is later. The Department of Labor requires three years for basic payroll records and two years for supplemental documents like time cards. Massachusetts follows federal guidelines but requires certain wage records be kept for three years. The safe approach is keeping everything for at least four years.
Employee information you need to retain includes full legal name, Social Security number, address, W-4 forms, I-9 forms, and hire date. If the employee is a minor, you also need proof of age. Keep any changes to W-4s or addresses that occurred during employment.
Wage and hour records are the core of payroll documentation. For each pay period, maintain records showing hours worked each day and each week, regular pay rate, overtime pay rate, total wages paid, deductions and the reason for each deduction, and the pay period dates. For non-exempt employees, daily and weekly time records are required. Exempt employees still need records showing salary basis and any deductions from salary.
Tax filing records include every 941 filed, state withholding returns, unemployment tax returns, W-2s and W-3s, and 1099s issued to contractors. Keep copies of everything submitted to the IRS and Massachusetts Department of Revenue. If you ever need to prove you filed correctly or respond to a notice, these records are essential.
Payment documentation means keeping records of how and when employees were paid. Direct deposit confirmations, check numbers, pay stubs, and bank statements showing payroll transactions all matter. If there’s ever a wage dispute, these records prove what you paid and when.
Benefits and leave records round out your requirements. Track vacation accrual and usage, sick time balances, FMLA leave if applicable, and any other paid or unpaid leave. Massachusetts requires tracking earned sick time separately, so don’t just lump all leave together.
A managed payroll service handles much of this automatically. Payroll software generates and stores most required records digitally. But you’re still responsible for making sure records exist and are accessible if audited.
Store records securely, whether digital or paper. Terminated employee records need the same retention period as active employees. If you use cloud storage, make sure you can export records if you ever switch systems.
The penalty for missing records during an audit isn’t just fines. Without documentation, you can’t prove compliance. The burden shifts to you to reconstruct what happened, and agencies tend to assume the worst when records don’t exist. Working with an Andover, MA payroll service that maintains proper documentation from day one saves significant headaches later.
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