Keep payroll records for at least four years to meet IRS rules, though six to seven years provides added safeguard. Use secure, consistent storage methods—digital or paper—to avoid fines and ensure easy access when needed.
By Brad Nakase, Attorney
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Are you deeply afraid when you hear about the IRS audit? You don’t need to, though.
According to a number of federal regulations and laws, you must retain payroll records for a number of years, regardless of whether they are digitized or stored in a file cabinet. You’ll be prepared if the IRS or additional departments knock on your door if you are aware of the best procedures and retention schedules.
The common question is: “How long do you need to keep pay stubs?” Although the criteria differ by state, the federal split is quite clear-cut. Breathe easy after reading through these commonly asked questions and an explanation of retention requirements!
Prior to concentrating on the duration, you must understand what constitutes a payroll record. All paperwork pertaining to employee payments is referred to as payroll or paycheck records. This is a collection of data that goes beyond a paystub, including:
At any time, you might be audited and requested to provide documentation of these payroll records. A disagreement with a current or former employee may arise. You would have to provide proof of benefits in the event that an employee took a leave of absence. For whatever reason, the organization is in charge of keeping records. It is recommended that reports be downloaded and kept for the specified period of time.
That’s why understanding “How long do you need to keep pay stubs?” becomes crucial—not just for IRS compliance but also for operational protection.
You must keep different records for varying periods of time, according to several government agencies and governing organizations. This is a basic breakdown by agency and time:
1. Documents that must be preserved for a year
Unless you work for the local government or at an educational institution, you should keep thorough employment records, including applications, demotions, promotions, and terminations, for a minimum of one year after they are created.
The U.S. EEOC (Equal Employment Opportunity Commission) may also utilize such papers as evidence to prove or disprove the allegations that the employee was discriminated against during the termination process. In cases where an accusation of discrimination is filed based on Title VII, the ADA (Americans with Disabilities Act), and the GINA (Genetic Information Nondiscrimination Act), you are required to retain all documents related to the charge till the moment the charge is ruled conclusively.
2. Records needed to be preserved for two years
According to the EEOC and the U.S. DOL (Department of Labor), you must save wage rate tables, work and time calendars, and timecards for a minimum of two years. Thus, make sure to preserve any information pertaining to pay grade changes and wage calculations. If you work for a municipal government or educational institution, you will need to keep thorough employment documents for two years.
3. Documents that must be preserved for three years
Documentation of occupation, gender, workweek, standard hourly wage, purchase and sale records, and negotiating agreements for a minimum of three years is required by the Fair Labor Standards Act.
4. Documents That Need to Be Preserved for Four Years
Payroll & paycheck records, including dates of employment, dates of compensation, and the amounts and dates of tax deposits, must be kept on file for a minimum of four years, according to the IRS. The 4th quarter of the year’s filing marks the beginning of the clock.
Still wondering, “How long do you need to keep pay stubs?” At a minimum, retain them for four years for IRS compliance—but longer is often smarter.
5. Documents That Must Be Preserved for Six Years
Benefit plan documentation, financial statements, Form 5500, benefit election forms, program termination documents, 401(k) forms, and COBRA information are among the records that must be retained for a minimum of six years following the plan’s inception or employee departure.
6. State-Required Documents Vary
Consult your state government for specific regulations, as they may differ in terms of duration and which papers to preserve. For instance, records must be kept for four years in Arizona and California, but five years in Montana. The Wage Theft Prevention Legislation, which raises the threshold from 3 to 6 years, has been followed by several states.
Encourage your staff members to retain their own pay stubs for a minimum of a year or until they submit their yearly tax returns. When refinancing or purchasing a new home, they can also be required to present documentation. They will have access to these papers whenever they need them if you provide cloud-based payroll software.
A good rule of thumb is to know: “How long do you need to keep pay stubs?” to feel protected during verifications or disputes.
Does it make a difference whether these documents are accessible via an app, kept on a desktop, or clogging up a mailroom? Keeping payroll records in a location that is safe, secure, and easily accessible is the most important component of their storage. If the United States Department of Labor personnel ask for this information, you will have to give it to them within 72 hours; therefore, you might want to keep it all in an office or use cloud-based HR software. The advantages and disadvantages of each kind of payroll file storage are listed below.
1. Paper Records
There are some considerations to take into account, even if paper could be a viable choice for entrepreneurs or smaller organizations. In the case when the copies are stored in a physical place, they must be secured against physical risks, such as fire and flood. They have to be safe as well, so that authorized people are the only people who can access them.
You must be able to expand your system as your company expands. You will require a certain file storage area for a number of years for each new hire you bring on board.
2. Digital
There are alternatives to paper files if they appear inconvenient. The advantage of keeping these documents in a digital format is that data may be available 24 hours a day from anywhere. There is, however, a need to ensure that you have both on and off-site backups. Also, you need to restrict access to valuable information.
3. Software
Every stage of the employee journey may have documentation stored, making it perfect for companies of all sizes. The most protected of the three choices is a solution that uses the cloud, which can also help you reduce liability.
Whichever approach you use, reports need to be downloaded and stored for the proper period of time. Keeping your payroll records organized requires both security and consistency. Additionally, record-keeping eventually falls under the purview of the employer. Avoiding problems later on can be achieved by using the same structure and naming rules for all types of files. These records should often be divided into three worker categories:
Employers are prohibited by the ADA from including medical data in employee personnel data. Additionally, you should be mindful of any state-specific regulations; some jurisdictions mandate that records be kept at a specified location and in a particular manner.
Practice these best practices to safeguard your company and yourself:
So, “How long do you need to keep pay stubs?” Legally, four years is a solid baseline, but six to seven years offers better protection.
When every worker has so many records, it is easy to get overwhelmed with paperwork. Maybe it is about time you switch to something new, in case you are still using hard drives or filing cabinets. You can enjoy flexibility and security when using a cloud-based solution. To save printing & storage costs and avoid fines, you can put all records on autopilot and store them in a single, secure, and robust payroll and HR system.
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