Payroll Practitioners Learn The Importance of Recordkeeping

Payroll practitioners should learn about those recordkeeping laws and regulations that affect them, according to Ginny Elkins, CPP, relationship manager for Ceridian’s Cincinnati District. Elkins taught a workshop on Payroll Recordkeeping Requirements at the American Payroll Association’s 21st Annual Congress held in Las Vegas, Nev.

Build Employee Master File

Recordkeeping in payroll is important when calculating employees’ gross-to-net pay and deducting the correct tax withholdings, Elkins said. Proper recordkeeping also ensures that employers are meeting all relevant regulatory requirements at the federal, state, and local level, and is central to reporting information to the proper taxing authorities, she added.

An employee’s master file should include such employee data as name, address, sex, date of birth, employee number, and occupation. Information on the number of federal and state allowances the employee claims, any additional withholding requested, and filing status should also be included, Elkins told attendees.

Employers should keep track of an employee’s hire date, termination date (if applicable), payment date, exempt/nonexempt status, regular rate of pay, wages subject to federal/state/local income taxes, wages subject to Social Security taxes, and the employee’s total compensation, Elkins said.

Regulations Reviewed

The Internal Revenue Service requires “all employers that withhold and pay over federal income, Social Security, and Medicare taxes” to maintain specific information for at least four years after the tax due date or the date the tax is actually paid (if later) for the relevant return period, Elkins told participants. This information includes the employee’s name, address, occupation, Social Security number, and the total amount and date of each compensation payment, she said.

The Fair Labor Standards Act, administered by the Labor Department, has no regulations requiring employers to keep records in any particular format, but they must be accurate, complete, and understandable, Elkins said. These records must be kept in a “safe and accessible” location and available for inspection by the Wage and Hour Division within 72 hours after a request, she added.

Records that the FLSA requires be kept for each employee at least three years after the last date of entry include the employee’s name as it appears on his/her Social Security card, his/her complete home address, the employee’s date of birth if he/she is under 19, the hours worked each workday and workweek, and the employee’s straight-time earnings and overtime premium earnings, Elkins told attendees.
Basic employment and earnings records supporting the data for each employee’s hours of work and records substantiating any additions to or deductions from each employee’s wages are required to be kept at least two years from the last date of entry, she added.

Even though the FLSA has rules for tipped employees, Elkins noted that most regulations for tipped employees exist on the state level.

Regulations Should Be Followed

IRS regulations governing records processed by computer apply “to all employers with at least $10 million in assets and to smaller businesses” where (1) information is only available in machine-sensible records instead of hard-copy format, (2) computations are based on machine-sensible records that cannot be checked or redone without a computer, and (3) an IRS district director has notified the employer that its machine-sensible records must be preserved, Elkins said.

Of the four primary assets needed to effectively process records by computer, only the data is irreplaceable. Therefore, employers must ensure that their data is secure and that they have a disaster recovery plan in place, Elkins said.

Toward The Future

Wage-hour issues, executive compensation, and equal employment opportunity will be the hot compliance issues for 2003, Elkins told BNA. Even though EEO records should be kept for at least a year, officials suggest that employers keep them longer because EEO issues can arise many years later, Elkins said.

By Keith M. Hill