Keeping payroll records probably wasn’t the dream when you started your business. But nothing snaps you out of autopilot like a letter from the IRS, a surprise audit, or an employee asking to see the exact breakdown of their hours and pay.
Here’s the problem. If your payroll records are missing or incomplete, you could be facing penalties, legal trouble, and a lot of wasted time trying to recreate something that should already be in order.
But the fix doesn’t have to be stressful. We’ll walk through what payroll records you need to keep, how long to keep them, and how to stay organized without drowning in paperwork.
Pay stubs are just the beginning. To stay compliant and avoid headaches later, here’s what you’ll want to keep on file:
It’s a long list, but it all serves a purpose. If questions ever come up about pay, taxes, or benefits, having these records handy makes it easier to respond quickly and accurately.
The big question most business owners ask is, “Can I toss this yet?” The answer depends on what the record is and what it’s used for. Here’s a breakdown of the most common categories and how long you should hang onto each one based on federal guidelines.
If you’re not sure how long to keep something, a 7-year rule is often a safe choice. That time frame generally covers IRS audits, employment claims, and most state-level rules. It’s also easier to remember than juggling different timelines for each document.
It happens. A file gets lost, a folder gets deleted, or someone forgets to save a report. What matters is how you respond.
Start by checking for backup sources. Bank statements, accounting software, email confirmations, or your payroll provider’s portal may hold the information you need. Even partial records are better than none.
If a government agency requests something you no longer have, be honest. Explain what happened, share what you’ve been able to recover, and show that you’re taking steps to improve your process moving forward. Good faith matters in these situations.
For the future, think about setting up a simple digital system with cloud backups. It doesn’t have to be complicated. Even a folder structure with monthly exports and basic naming conventions can make a big difference when you need to find something fast.
Unfortunately, state rules do complicate the payroll recordkeeping guidelines. Federal guidelines set the floor, but many states go further. Some states require you to hold onto records for longer or include details that federal rules do not mention. California, New York, and Illinois are known for having stricter requirements, with some records needing to be kept for up to seven years.
The easiest way to stay in compliance is to check your state’s labor department or tax authority website. If you operate in multiple states, follow the strictest rule across the board. That way, you are covered no matter where your employees are located.
Not sure where to look? A good payroll provider or local accountant can usually point you in the right direction. When in doubt, keep it. Holding onto a record a little longer is almost always better than scrambling to recover something you tossed too soon.
You do not need to keep piles of paper to stay compliant. Digital payroll records are fully acceptable, as long as they are accurate, secure, and easy to access when needed.
Here is how to store them the right way:
If you still have paper files, keep them until you are past the required retention period. Store them in a secure place away from damage and unauthorized access. A locked cabinet is better than a desk drawer, and definitely better than a pile on the floor.
The goal is simple: whether your records live in the cloud or in a file folder, they need to be complete, organized, and ready to use if someone asks for proof.
Skipping payroll recordkeeping might not cause problems today. But if you ever face an audit or legal issue, missing documents can turn a small problem into a major one.
Without the right records, you could face:
Even if you’re doing everything right, you still need to show your work. Complete records let you respond quickly to employee questions, avoid confusion, and handle audits with confidence. When someone asks for proof, you want to be ready, not scrambling.
Recordkeeping does not have to be complicated. A few smart systems can keep you organized and prepared.
You do not need to be perfect. You just need a plan. When your records are in order, the rest of your business runs more smoothly.
Managing payroll records isn’t exciting. But when an audit, a lawsuit, or an employee question comes up, solid documentation can make all the difference. Spend a little time now setting things up right, and you will avoid stress, fines, and messy surprises down the road.
Still wondering if your payroll records are where they should be? We can take a look. DiMercurio Advisors helps business owners set up simple, compliant systems that hold up under pressure, without adding more to your plate. Schedule a call with our team today.