Maintaining accurate payroll records may not be the most glamorous task, but it certainly ranks as a top priority for small businesses. Here are a few reasons to get your payroll records right.
Types of Payroll Records
In general, employers should keep the following important payroll records.
- Employee Information. Employee’s legal name, address, social security number, and date of birth.
- Employment Information. Offer letters, date of employment, Form I-9s, occupation/titles, job description, background checks, professional references, acknowledged company policies, evaluations/reviews, and termination information.
- Pay Information. Pay agreement/status, wages paid each period, type of wage payment, time and day of week employee’s work week starts. Total number of regular hours worked each day and each week. Overtime hours and amount paid. Date of payment and the pay period covered by the payment. Supplemental pay, tips, Amounts, and dates of all taxable annuities, pension payments, bonuses, and commissions.
- Deductions. Benefits, deferred compensation information, etc.
- Direct Deposit Details. Bank/financial institution names, account numbers, and routing numbers.
- Timesheets. Regular hours worked, overtime hours.
- Leave Records. Paid time off (PTO) and vacation time balances. Leave requests documentation, such as the Family Medical Leave Act (FMLA), state-paid leave programs, and paid sick leave.
- Reimbursement Forms. Expense reports for travel, mileage, etc.
- Tax Documents. Federal, state, and local tax forms/returns, W-4, W-2 forms.
- Employer Tax Information. Payroll reports and payment receipts
The Importance of Payroll Record-Keeping
Why are payroll records so important? Here are a few reasons.
Compliance with Federal, State, and Local Laws. Small businesses must operate within a complex maze of legal and federal, state, and local tax regulations. For example, under the Age Discrimination in Employment Act (ADEA), applicable employers are required to keep payroll or other records for all full-time, part-time, and temporary employees. EEOC Regulations require that employers keep all employment records for one year. If an employee is involuntarily terminated, personnel records must be retained for one year from the date of termination. Additionally, employers must keep on file any employee benefit plan (such as pension and insurance for at least one year after termination.
The Fair Labor Standards Act (FLSA) sets minimum wage, overtime pay, record-keeping, and youth employment standards and requires covered employers to keep certain records for each non-exempt worker. FLSA requires that records include information about the employee and data about the hours worked and the wages earned.
And getting it wrong can have expensive consequences. Here are a few examples of hard lessons learned and why payroll records are so important.
⚠️A Nashville restaurant was required to pay $270,751 in back wages for requiring servers to share tips with dishwashers, neglecting to pay non-exempt employees the proper minimum wage for all hours in a workweek, failing to pay some workers overtime wages and failing to keep accurate records of some employees’ hours worked, as required.
⚠️A Washington state painting company knowingly violated federal overtime requirements and did not keep time records for all employees. The company was ordered to pay $114,000 ($57,330 in overtime wages and $57,330 in liquidated damages).
⚠️The Department of Labor Wage and Hour investigators found a franchisee in New York violated anti-retaliation provisions of the Fair Labor Standards Act when it pressured one employee to sign a document falsely claiming there were no violations and they had been paid in full. The company also required the employee to return the back wage payment to the employer, then later fired the employee. The employer also violated federal minimum wage, overtime, and record-keeping requirements by not compensating employees for training time, paying some employees straight time for all hours worked, and failing to keep accurate records of the total hours worked by employees. As a result, the company was required to pay $10,000 in punitive damages and $3,907 in back wages and liquidated damages to each of the 18 employees.
⚠️An Urgent Dental Center and an HR manager in Indiana were ordered to pay an employee more than $22,000 in back wages and damages for violating the FLSA when they retaliated against an employee who filed a complaint alleging wage violations.
⚠️A Pittsburgh home health agency owner was ordered to pay $208,004 in back wages and damages after misclassifying workers as independent contractors, denying full pay, and failing to maintain payroll and timekeeping records as required.
Timely and Accurate Payments. Proper record-keeping guarantees that employee hours, wages, benefits, and deductions are all accurately tracked, resulting in timely and accurate payments. This prevents disputes and legal issues stemming from payment discrepancies.
Budgeting and Financial Planning. Payroll records are a valuable source of information containing data about wages and taxes that can enable employers to create better budgets and manage labor expenses more effectively. By gaining insights into labor costs, business owners can allocate their resources more efficiently, anticipate cash flow fluctuations, make informed decisions, and adapt to changing circumstances.
Data-Driven Decision-Making. In today's data-driven business landscape, small businesses can't afford to make decisions without reliable information. Accurate payroll records offer valuable insights into employee performance, productivity, and costs. This data enables business owners to identify trends, make more informed hiring decisions, assess the effectiveness of compensation structures, and implement performance-based incentives.
Audit Preparedness. The possibility of audits, whether internal or external, is a reality for businesses of all sizes. Accurate and well-organized payroll records make the auditing process smoother.
Employee Trust and Transparency. Employees value transparency when it comes to compensation. Accurate record-keeping builds trust between employers and employees, ensuring that employees can verify the accuracy of their pay and deductions.
Get it Right
Staying on top of payroll records helps to ensure compliance and accurate financial reporting. While it doesn’t have to be complicated, it does have to be right. And if you need help, just give us a call. Depending on the type of business and industry, your payroll responsibilities may be different and even more complex. By partnering with an IRS-certified PEO like Propel HR, you gain access to a team of experts to help you navigate the complexities of your year-end payroll as well as stay compliant.
PLEASE NOTE: This information is for general reference purposes only. Because laws, regulations, and filing deadlines are likely to change, please check with the appropriate organizations or government agencies for the latest information and consult your employment attorney and/or benefits and payroll advisor regarding your responsibilities. In addition, your company may be exempt from certain requirements and/or be subject to different requirements under the laws of your state.
About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for more than 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. Visit our new website at www.propelhr.com.