Your Checklist for Payroll Recordkeeping

By Barbara Weltman June 3, 2005
Barbara Weltman Avoid clutter by disposing of records you no longer need. What records should you save? How long should you save them? It’s vital to know the answer to these questions, and to adhere to the rules. The government sets certain requirements, and you are subject to substantial penalties if you cannot produce records when asked to do so. Here are key recordkeeping rules and resources to help you better understand your employer obligations.

Income tax withholding and FICA
As an employer, you are required to withhold federal income taxes and the employee share of Social Security and Medicare taxes (FICA) on employee wages. You are also required to keep records for four years after the due date of each employee’s personal income tax return (April 15th) for the year in which the payments were made. The records must include:

  • Employer identification number (EIN)
  • Employees’ Form W-4, Employee’s Withholding Allowance Certificate.
  • Each employee’s name, address, job title and Social Security number and the beginning and ending dates of employment.
  • Compensation paid – amount and date – and any withholding for taxes or other purposes. Specify amounts subject to withholding for federal income, Social Security and Medicare taxes. If applicable, explain why total compensation and taxable amounts are different.
  • Employees’ statements regarding tips.
  • Fringe benefits provided to employees. Include information about wage continuation payments made by you or a third party under an accident or health plan, including the beginning and ending date of the absence from work. Also retain any Forms W-4S, Request for Federal Income Tax Withholding From Sick Pay.
  • Requests from an employee to use the cumulative method of wage withholding.
  • Adjustments or settlements of taxes.
  • Copies of employment returns, including Forms 941, 943, W-2, 6559, Copy A of Form W-2 and all W-2s sent to employees but returned as undeliverable.
  • Amounts and dates of tax deposits.

    Unemployment tax
    If you are subject to the Federal Unemployment Tax Act (FUTA), retain required records for at least four years after the due date of Form 940 (or 940-EZ or the date the FUTA tax was paid, whichever is later. The records must include:

  • The amount of employee compensation for the calendar year and the amount of this compensation subject to FUTA tax. If applicable, show the reason why total compensation and total amounts are different.
  • State unemployment contributions made. Also keep separate totals for employee contributions in Alaska, New Jersey and Pennsylvania.
  • All information shown on Form 940 (or 940-EZ).

    Department of Labor
    The Department of Labor (DOL) sets its own record retention rules. There is no set form to use for required recordkeeping. But be sure to keep information on the following about each employee:

  • Birth date if younger than age 19
  • Sex and occupation
  • Hours and dates worked, including overtime amounts
  • Basis on which wages are paid

    For details go to www.dol.gov/dol/topic/wages/wagesrecordkeeping.htm

    State requirements
    Your state may also have recordkeeping rules to follow with respect to state income tax withholding, workers’ compensation and unemployment insurance. Different rules may apply to different agencies or departments (e.g., state income tax withholding may fall under your state’s revenue department while workers’ compensation may be under your state’s department of labor).

    To find your state agency, go to www.americanpayroll.org/states.html.

    Copyright © 2005 by BWideas.com, Inc.

    Category: Human Resources, Healthcare, Benefits
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