Records Retention-What is Your Policy and Are You Compliant?

 
Not only is it imperative to keep these records to stay compliant with Federal and State regulations, but it is also very important to keep documents for your business management as well.

• One example we often overlook is with any type of payroll processing changes. Whether it be a new payroll company that may be running your payroll for you, or just changing over to a new payroll software, you want to be able to review and access documents as needed.
• Another example may be if there is ever an issue with your payroll reporting, or with what taxes have been paid and reported, you need to have all records and documents to review for your sake (and sanity) as dealing with issues with the IRS are not always easy.

Even if you have your accounting firm or payroll company collecting and remitting taxes for you, you need to be sure you have access to documents and records as you are still liable to be sure your records are accurate in the end.
 

1. All Businesses (Large or Small) Should Have Policies in Place for Record Retention

Some businesses only follow regulation guidelines, while others require lifelong retention of records. You should also keep documents that are received from the IRS, state, or local state divisions, whether it be the proof of your federal or state number (such as SUTA numbers or local number needed for tax purposes) or any notices or statements from these agencies. These notices may come in handy down the road when you are not sure of what your state unemployment number is, or if you need your state number for any reason.
 

2. Security and Confidentiality

Security and confidentiality are huge factors, as well. You need to be sure that not only are you compliant as far as the length of time you are retaining records, but also the security of the records you are keeping. Employee information is sensitive information and needs to be always held safely and securely.
 

3. Best Practice for Updating Your Files

There are no federal requirements for how often the files must be updated, but best practice is to be sure your file is up to date on a monthly basis to be sure that your records are accurate. Items to note that may need to be updated could be as simple as an address change, or as important as a change in withholding and marital status requiring an updated W-4. An expired ID will ultimately void documents such as the I-9 Form that you used to verify your employee.

Employee Master File Should Include:

Employee Data

Tax and Payroll Data

You will need to keep the W-4 forms on hand (pre 2020 or later). These forms have slight differences but will determine:

• withholding
• allowances claimed or dependents
• filing status
• any exemptions or other adjustments needed