Payroll is not just a monthly stressful period in the life of every business owner; it’s also a task that requires a lot more than just releasing payment to employees and collaborators.
Why Do Business Owners Need to Record Employee’s Payroll (and for How Long)?
Regardless of your current location and type of business, if you have employees, it is your responsibility to make sure the financial authority receives the correct documentation and payments (representing various income-related taxes).
But your responsibility as the employer doesn’t stop here. You also have to store payroll records for a specific period and make sure they are easy to access in case of need.
Therefore, today we will discuss payroll records and the tools a business needs to keep everything well-organized and safely stored.
What are Payroll Records?
As you probably can guess, payroll records are the documents a business needs to store in order to keep track of the payments towards employees and the IRS.
These documents must cover:
- the number of hours worked
- the agreed payment per hour (or if there is another type of agreement), benefits, wages, and other payments (such as tips, bonuses, etc.)
- other important information related to payments and the employee’s activity in the company
- overtime (if that’s the case)
- date of payment and regularity
- the amount withheld for taxes, medical insurance, and others
Overall, a business needs to store this information for a period of time (as specified by the financial law).
Lastly, if the law doesn’t specify the format, the records can be stored in physical, and/ or digital format.
Why do I Need to Keep Payroll Records?
In the US, the IRS and FMLA mandate that employers keep pay stubs for three years from the moment of their filling (of course, other countries may have a different storage period, so make sure to check).
However, not all records have the same storage period, so it’s best to check with local authorities.
Now, when it comes to “why”, the authorities require this lengthy storage period for various checkups and claims that both the employers and the employees can make.
By having access to several years worth of payroll documents, it’s easier to identify mistakes or fraudulent patterns.
How To Store the Records?
Regardless of the number of employees, document storage is a real challenge for most businesses.
In today’s day and age, it is a good idea to switch to an online paystub generator like FormPros where all the data is filled in automatically and the system runs the calculations for you.
This way, you reduce the chance for mistakes to a minimum (mistakes only come for corrupt data in the system) and cut the costs and time spent with filling these records.
In addition, you can maintain a paperless payroll process which makes storage a breeze (and a lot safer). Still, some specialists suggest keeping both paper and digital formats, to prevent losing the data in case of damage.
However, in today’s day and age, it may be enough to store the data in a safe cloud location and have an offline backup system in case something goes wrong with the first storage space.
This way, you save space, money, and time, and the entire system is a lot easier to organize and browse.
Who Can Request Access to Payroll Information?
Given the confidential nature of the information they contain, payroll records are protected information.
Therefore, not everyone is allowed to see those files. In addition, the files need to be stored in a secure environment, whit limited access.
Depending on the legal specifications of your state or country, payroll files can be accessed by people in your company (direct supervisors, accountants, HR personnel, and the employee named in said records) or by people mandated by the governmental authorities in case of a checkup or claim.
How to Get Rid of Payroll Records?
It’s important to know that, once the mandatory storage period expires, you are required to dispose of payroll records in a manner that doesn’t allow unauthorized people to read the information they contain.
Therefore, in the case of paper records, shredding is the best method of disposal. And, since the data destroyed mustn’t be recognizable, it is recommended to reduce the documents to particles no larger than 2.4 millimeters by 15 millimeters.
In the case of electronic documents, you must perform a secure delete that doesn’t allow the data to be reconstructed (as it happens with a regular delete action).
So, if you’re storing the files in a cloud location, make sure they allow you to delete the files in a way they can’t be recovered.
As the workforce is evolving and grows to include independent contractors and remote workers, the payroll process grows to include more complex data and records.
Therefore, in order to make sure your business is up to date with the latest rules and regulations, you must implement modern tools and systems that can identify mistakes and data discontinuity.