Employee Recordkeeping Requirements
If the Department of Labor called and gave you three days' notice of an inspection, would you be ready? Would you even know what documents you were supposed to show them? Get prepared by finding out what the federal government requires in the way of employee recordkeeping.
As though Monday mornings could be any worse: imagine rushing to the office in the rain and cold, running late, once again. The voice mail light is flashing and you fear there are at least 15 messages from Friday night to Monday morning marked “urgent”. You take your first sip of coffee as you start to listen. You think you are home free by the time you get to the 15th and you hear
“Hello Mr. Peterson, this is Mrs. McBride from the Wage and Hour division of the Department of Labor”.
A cold shiver may go down your spine at that point, as nobody really wants a call from the federal government.
“You have been selected at random for inspection to ensure you are in compliance with our record keeping requirements. You must have all employee files available for our inspectors within 72 hours. You'll find a list of those requirements here: http://www.dol.gov/whd/regs/compliance/whdfs21.pdf
This will guide you as to what information we will be looking for. Thank you in advance for your time."
Are you ready for this call on your voicemail some Monday morning in the near future? “My files are perfect, come anytime... Or “ What files! What paperwork! They can’t just come in here and inspect my files…or can they?”
It is true. You may find yourself with just 3 days to prepare for an inspection. Read on to be better prepared for that phone call or letter giving you such short notice and to make sure your records and your company shine under the microscope of the federal government.
When hiring a new employee you should consider what information is vital to maintain on your employees. The table below is an example of the kind of information you should consider retaining in your employee files. Much of this information and certain documents are required by the Internal Revenue service (IRS), Department of Labor (DOL) and State agencies.
Employee Master File
• Name (match with social security card)
• Address (with Zip code and apartment number)
• Date of birth
• Work location
• Social security number
• Company-assigned employee number
• State where employee works
• Hire date/time
• Termination date
• Payment date
• Exempt/nonexempt status (FLSA)
• Regular rate of pay
• Additions to and deductions from pay
• Shift differential or bonus
• Frequency of payment/pay period
• Hours worked per day
• Hours worked per week
• Straight time hours/pay
• Overtime hours/pay
• Tipped wages
• From 4070 Employee’s Report of Tips to Employer
• Amount of Tip credit taken
Tax and Payroll Data
• Form W4 – Employers Allowance Certificate
• State withholding allowance certificate, if state does not accept the federal Form W-4
• Local withholding allowance certificate or certificates of residence or non-residence. If required by the local jurisdiction where the work is performed or the employee resides
• Additional withholding requested
• Form I-9, Employment Eligibility Verification.
• Filing Status
• Exempt from withholding
For the pay period and Calendar Year
• Total wages subject to federal/state/local taxes
• Total wages subject to social security tax
• Total wages subject to Medicare tax
• Total compensation
• Total federal/state/local income taxes withheld
• Total social security taxes withheld
• Total Medicare taxes withheld
• Total state unemployment and/ or disability taxes withheld
• Tax paid by employer but not deducted from wages
Federal payroll record keeping requirements (other than those dealing with federal income or employment taxes), are controlled by the Wage and Hour Division of the Department of Labor under the Fair Labor Standards Act (FLSA). These records need to be kept for at least 3 years. The Internal Revenue Code requires all employers that withhold and pay federal taxes to also maintain the information above for at least 4 years after the due date of the tax for which the records relate.
You must ensure you can easily and orderly access your employee files. If the records are required by the FLSA they must be available for inspection by the Wage and Hour division within 72 hours of a notice of inspection.
Now that you know how to stay in compliance with the DOL and IRS, you may have just avoided costly penalties. If you were to willfully violate these recordkeeping requirements, you could receive a criminal penalty of up to $10,000 and/or imprisonment for up to 6 months (although a jail sentence can only be imposed for second and subsequent convictions).
So remember, you must keep accurate files on current or past employees for up to 4 years, AND you may be inspected at any time.