Guide: How Long To Keep Your Payroll Records

Payroll recordkeeping probably isn’t the first thing you think about when you roll into the office on a Monday morning. But trust us: it’s one of those quiet, behind-the-scenes duties that can make or break your business if not handled properly. If you’ve ever scrambled to pull up an old W-2 or explain a payroll hiccup during an IRS audit, you know exactly what we mean.

So, how long should you keep payroll records? Our team at BSI will break it down clearly, practically, and with just enough real-world insight to help you stay compliant and sleep better at night.

Key Takeaways

• The IRS requires employers to keep payroll tax documents for at least four years after filing.
• The Fair Labor Standards Act (FLSA) mandates storing wage and hour records for a minimum of three years.
• The EEOC expects records related to hiring, pay, and discrimination claims to be kept for one to three years.
• Some states, like California and New York, require payroll record retention for up to six years.
• Retirement, pension, and benefit-related documents should be retained for at least six years.
• BSI’s payroll software solutions help businesses manage tax records, automate compliance, and securely store employment data.

Why Payroll Recordkeeping Matters

Importance of Accurate Recordkeeping

Accurate payroll records aren’t just a “nice-to-have”, they’re your business’s paper trail of integrity. And in a world full of tax deadlines, compliance rules, and occasional employee disputes, that trail needs to be crystal clear.

• Helps with tax compliance and audits – When the IRS knocks, you’d better be ready with tax records, tax documents, wage computations, and even reimbursement forms. Having proper records, from payment amounts to account numbers and routing numbers, makes IRS audits less nerve-racking and more manageable.
• Protects against employee disputes and legal claims – Say an employee questions their regular hourly pay rate, allocated tips, or fringe benefits from 18 months ago. If you don’t have the employment records, total hours, or pay period covered in your files, the conversation can get uncomfortable, fast. Keeping employee data, overtime hours, and wages documented shields your business from legal action and guesswork.
• Required by multiple government agencies – The IRS, Department of Labor, and Equal Employment Opportunity Commission (EEOC) all have recordkeeping requirements that employers must follow. These agencies expect you to store payroll records that include tax withholding certificates, employment information, vacation time balances, union dues, and even acknowledgment numbers for merit systems or deferred compensation information.

Penalties for Non-Compliance

We don’t mean to sound dramatic, but when it comes to payroll records, missing documentation can lead to serious consequences.

• IRS penalties for missing tax records – If you can’t produce tax deposits, social security number logs, or confirmation numbers when requested, the IRS may estimate your liability based on their data, which rarely works in your favor.
• FLSA enforcement risks – The Fair Labor Standards Act (FLSA) requires detailed wage rate tables, total wages, hours worked, and time schedules. Failing to maintain such records can lead to fines, back wages, and regulatory headaches.
• Legal exposure during disputes or lawsuits – Without employment records, written seniority lists, purchase records, or final disposition notes, courts often default to the employee’s version of events. Keeping your paper records or investing in digital recordkeeping helps safeguard your interests when other documents just aren’t enough.

Federal Requirements for Payroll Record Retention

IRS Guidelines

According to the IRS, employers must keep payroll records and related tax documents for at least four years after filing.

• What to keep: W-2s, W-4s, wage computations, financial institution names, associated payment amounts, deferred compensation information, and account numbers should all be on hand.
• Pro tip: Always back up your paper records with digital recordkeeping tools. If your filing cabinet goes up in flames or your hard drive crashes, you’ll be glad you did.

Department of Labor / FLSA Rules

The Fair Labor Standards Act lays out clear expectations. Under this rule, employers must retain employment records for at least three years.

• These include payroll records like employee names, social security numbers, regular hours, total overtime earnings, employee’s wages, and hours worked.
• Additional rule: Keep time schedules, wage rate tables, and pay period information for at least two years. These backup files offer detailed proof of how you calculated pay.

Whether you use spreadsheets or advanced payroll software, don’t assume it’s all being automatically saved forever. Export and secure reports that document each pay period and any employment changes.

EEOC Requirements

The Equal Employment Opportunity Commission expects businesses to keep records related to hiring, promotions, and pay practices for one to three years.

• This includes: Offer letters, performance reviews, employment information, and any materials related to discrimination claims, fringe benefits, or collective bargaining agreements.
• If there’s an open investigation or claim, extend retention until the final disposition is reached, even if that takes years.

State-Specific Recordkeeping Laws

How State Laws Differ

Here’s where the plot thickens. While federal rules give you a solid baseline, state-specific requirements may call for longer retention.

• States like California and New York, for instance, expect you to keep payroll records for at least six years.
• Others tie requirements to state paid leave programs, local tax rules, or vacation time balances.

If your business operates in more than one specific location, things can get complex quickly. Always double-check local laws or talk to your legal team.

Aligning Federal and State Requirements

So what do you do when state law says six years and federal law says three? Easy answer: keep records for a longer period.

• Develop a policy to maintain records that satisfies the most demanding rules, federal, state, or otherwise.
• While storage costs may seem high, they pale in comparison to the risk of losing critical files when your business grows or legal scrutiny comes calling.

Use payroll software or cloud platforms that support long-term storage of employee’s wages, total hours worked, reimbursement forms, tax documents, and more. Whether you’re a small startup or a seasoned employer, keeping a clear policy in place ensures you’re protected as your team expands and the stakes rise.

Special Cases: Benefits, Retirement, and Former Employees

Of course, not all payroll files fall neatly into 3 or 4 year buckets. Some employment records have to stick around longer, especially those tied to state paid leave programs, pensions, or employment information for former staff. These cases call for extra care.

Retirement and Pension Plan Records

If you offer any type of retirement or pension plan, you’re expected to keep payroll records related to these plans for at least six years after the plan’s filing date. And we’re not just talking about one or two files. Make sure you hold on to:

• Plan documents and acknowledgment numbers
• Enrollment forms and wage rate tables
• Contribution logs and payout records

Why hang onto these? Because benefits disputes can pop up years later, and you’ll need the full story, including pay period, fair market value of assets, and employment information, to defend your case or correct the record.

Former Employee Records

When someone leaves your company, don’t be too quick to hit delete. Employers must retain former employee records for at least four years after termination. These include:

• Final pay stubs and vacation time balances
• COBRA coverage notices and documentation
• Exit agreements, office supplies issued, and employment records

Whether it’s a dispute over hours worked, a claim for fringe benefits, or a request for employment verification, these files are your paper trail. In some states, they may be required for at least six years, so check your local laws and merit systems before purging.

Payroll Documents You Should Be Retaining

Let’s clear up some confusion. Not everything needs to be saved forever, but there’s a long list of what should be kept for at least the legal minimums. And if you’re wondering how long to keep payroll records, this is where we get specific.

Core Payroll Records

These are the essentials of payroll recordkeeping. You’ll want to keep the following for at least three years (FLSA) and at least four years (IRS):

• Pay stubs, payroll ledgers, and total hours worked
• Tax documents like W-2, W-3, 941, and 944
• Wage rate tables, tax deposits, and deduction authorizations

Why are these so important? Because they reflect everything from regular hours to employee’s wages and show how you calculated compensation. And in the event of an IRS audit or FLSA inquiry, these are the first records they’ll request.

Supporting Documents

Here’s where many employers drop the ball, don’t forget the “extras” that give context to your core payroll records. That includes:

• Timecards, time tracking logs, and time schedules
• Employee schedules, attendance records, and direct deposit authorizations
• Reimbursement forms, garnishment orders, and financial institution names

These help verify everything from total hours to deferred compensation information and ensure your records hold up during audits or legal reviews. Remember: without the supporting documents, your wage math may not stand.

Simplify Payroll Compliance with BSI’s Software Solutions

BSI offers powerful, easy-to-integrate payroll software designed to help businesses stay compliant with complex tax regulations. Our suite includes TaxFactory™ for precise payroll tax calculations, TaxProfileFactory™ for automated employee tax profile management, and ComplianceFactory™ for secure e-filing and reporting.

These tools reduce risk, improve accuracy, and streamline your payroll processes, whether you’re managing a small team or a national workforce. From handling tax withholding certificates to managing multi-state compliance, we have you covered. Want to simplify your payroll and compliance workflows? Contact us today to learn more about how BSI can support your business.

Final Thoughts on Keeping Payroll Records

Still wondering how long to keep payroll records? Here’s a simplified breakdown:

• At least three years: FLSA wage and hour records
• At least four years: IRS employment tax documentation
• At least six years: Retirement, pension, and benefit records
• Seven years or more: For legal protection, tax records, and peace of mind

Our advice? Longer is generally safer, especially in industries with complex recordkeeping requirements, shifting state paid leave programs, or recurring audits. Also, don’t forget to cross-check local laws and state-specific requirements.

What passes in one state might not fly in another, especially if you’re juggling multiple specific locations, merit systems, or employment types. And if you want to upgrade your payroll process, contact our team at BSI to learn more about our payroll software.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered accounting, tax, or payroll advice. Always consult a qualified professional for guidance specific to your business or situation.