Small businesses that have employees other than the owner or partners are required by the federal law to maintain detailed payroll records. To better understand WHAT you need to keep in your files, here is an example:

Names, addresses, and Social Security numbers of all employees

Workweek information (e.g., start and end dates)

Hours worked each day/total hours worked each week

How each employee is paid (e.g., hourly, salary)

Pay rate

Overtime earnings (if applicable)

Additions to or deductions from wages

Total wages paid each period

Payment dates and pay periods

Forms W-2 and W-3

Forms W-4 and W-5

Forms 941 or 944

Records of benefits

Other records such as travel information, employee reimbursements, etc.

According to the Fair Labor Standards Act (FLSA), all payroll records must be kept for a minimum of three years. Information that shows how you determined wages needs to be kept for two years.

Records that include employment taxes need to be kept for at least four years after filing the fourth quarter of the year, according to the IRS. This would include the employees W-4, personal information, and dates of employment.

In both instances, storing information in locked cabinets or via an online system is acceptable. Please make sure in doing your own research that you follow the IRS, Fair Labor Standards Act, and the Equal Employment Opportunity Commission to maintain compliance with your records.