This article was published by J.J. Keller on September 6, 2017, in Prospera Spotlight.
Paying employees and administering benefit plans generates numerous records, often raising questions about how long specific records need to be saved. Several laws apply, but the retention period differs with each law. Under some laws, the retention period could be decades.
Wages paid
Under the Fair Labor Standards Act (FLSA), you must retain payroll records for at least three years. Such records include hours worked, rates of pay, overtime pay, total earnings, and deductions from pay. Note that state laws may impose longer retention periods. For example, New York requires employers to keep payroll records for six years.
Taxes paid
You must retain employee tax records for at least four years after filing. For example, earning and tax records from 2014 must be retained until the end of 2018 (the fourth year after filing at the end of 2014). Records subject to this retention period include, but are not limited to:
- Amounts and dates of all wage, annuity, and pension payments;
- Amounts of tips reported and records of allocated tips;
- The fair market value of in-kind wages paid, such as gift cards or prizes;
- Short-term or long-term disability payments;
- Dates and amounts of tax deposits made and copies of returns filed; and
- Records of mileage reimbursement, travel expense reimbursement, or other fringe benefits provided, including substantiation such as receipts for expenses.
While fringe benefits fall under tax law, records of other benefit payments have a much longer retention period.
Benefits paid
Although records of wages paid must be saved for only three years under the FLSA, records of compensation and benefit plan contributions must be saved for far longer — potentially long after the employee retires.
Under the Employee Retirement Income Security Act (ERISA), records about a plan itself (such as the Form 5500 Annual Report) must be retained for at least six years. For records about benefits owed to participants, there is no specified number of years, but such records must be maintained until all benefits have been paid out — and that could be decades. These records include things such as employee compensation and contributions to retirement plans, which may be part of payroll records. Other records may include:
- Dates that participants became eligible under the plan,
- Marital status and any qualified domestic relations orders,
- Beneficiary designations, and
- Payments or distributions made to participants.
In addition, records of wages and benefit payments may need to be retained for decades under the Lilly Ledbetter Fair Pay Act. This law stipulates that each paycheck (or pension check based on wages earned) re-sets the statute of limitations for a claim of pay discrimination. For example, if an employee retires and receives pension checks, then discovers she was underpaid compared to men in equivalent jobs, she could sue for sex-based wage discrimination because each pension check is deemed a new violation.
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