As a small business owner, you’re well aware that you must maintain accurate and up-to-date records and manages your employee record retention. But what records should you be keeping and for how long?
Not only are good record-keeping practices essential for managing your business effectively, but they can also help you avoid potential legal headaches down the road. Failure to maintain required records or to keep them for the required period of time could result in fines, penalties, and even the dreaded audit.
Payroll Tax Records
All payroll tax records should be kept for at least 4 years after filing the 4th quarter of the year. These records will include the following forms:
You must provide each employee with their W-2 at the end of the year, showing how much money was earned and how much tax was withheld. You should keep copies of these forms, especially those returned and marked undeliverable for at least 4 years.
You should also keep copies of W-4 forms on file for at least 4 years. These are the forms employees fill out when they’re hired, listing their withholding allowances. You’ll need to keep these forms until the employee leaves your company or makes a change to their withholding status.
In addition to the forms above, employers should also keep copies of records with any of the following information:
- Your EIN Number
- Dates and Amounts of Wages Paid
- Reported Tips Reported and Allocated Tips
- Fair Market Value of In-Kind Wages
- Identifying Information
- Dates of Employment
- Dates and Amounts of Tax Deposits
- Fringe Benefits
Employee Record Retention
In addition to payroll-related items, you’ll also need to keep certain employment records on file. According to the Fair Labor Standards Act (FLSA), employers are required to keep all employment records for at least three years or one year from the date of termination, whichever occurs last.
All new employees must complete an I-9 form to verify their eligibility to work in the United States. These forms must be kept on file for at least three years from the date of hire or one year after the employee leaves your company, whichever is later.
These records include any file or form regarding dates of hiring, promotion, demotion, transfer, termination, rates of pay, compensation, tenure, selection for training or apprenticeship, etc. Examples of these are:
- Requests for Reasonable Accommodation
- Promotion, Demotion, or Transfer Record
- Collective Bargaining Agreements
- Job Applications
- Offer Letters
- Employment Agreements
- Performance Reviews
- Disciplinary Records
How you maintain these records is up to you, but they must be readily available in the event of an audit.
Benefits Information and COBRA Records
The rule of thumb for benefits information is to keep them for as long as they’re relevant.
Under the Employee Retirement Income Security Act (ERISA) employers should keep 401(k) records for at least six years from the date the IRS Form 5500 was created. Further, while there is no specific record retention law for COBRA, it’s still best to err on the side of caution and keep records for six years from the date they were created.
For records used to determine benefits that are or will become due, it’s recommended that you retain them indefinitely, or at least until 50 years after they or the named beneficiary terminates their participation in the plan. By following these guidelines, you can ensure you have the necessary records on hand in case of any audits or other inquiries.
This is by no means an exhaustive list of records your HR department should hold on to. It is also important to note each state has its own rules and regulations regarding record retention. We know keeping up with dozens of records for each employee can be a headache. That’s why we created the Ultimate HR & Payroll Resource Bundle, complete with a comprehensive Employee Records Filing Checklist! Click here to download this value-packed freebie.
Have more questions? We’ve helped businesses all throughout Houston streamline their HR and payroll, ensure compliance, and improve their bottom line. Schedule a free consultation with one of our experts today to see how we can help your business!