By As a business owner, you might feel tempted to clear out old employee files to free up storage space—but some payroll records should be kept indefinitely. Whether for tax compliance, legal protection, or future reference, maintaining these documents is crucial. Here’s a breakdown of what you must retain and why.
Must-Keep Payroll Documents
1. New Hire Paperwork
Every employee file should include:
- Signed offer letters
- Job descriptions
- Tax withholding forms (W-4 or W-9)
- Emergency contact details
These records help verify employment history and compensation agreements if disputes arise.
2. Form I-9 (Employment Eligibility Verification)
This document confirms an employee’s legal right to work in the U.S. Though I-9s must only be kept for three years after hire or one year after termination (whichever is later), maintaining them longer can safeguard against potential audits.
3. Payroll Records
Pay stubs, direct deposit records, and tax filings should be kept for at least three to seven years, depending on state laws. These documents verify:
- Wages paid
- Tax withholdings
- Retirement contributions
- Other deductions
4. Timekeeping & Attendance Logs
Maintain timesheets, clock-in records, and overtime documentation for at least two to three years. These are crucial for:
- Resolving wage disputes
- Defending against unpaid overtime claims
- Complying with labor laws
5. Leave & PTO Documentation
Records related to FMLA, sick leave, and vacation pay should be retained for three years minimum. This includes:
- Leave requests
- Doctor’s notes (if applicable)
- PTO payout calculations
6. Performance Evaluations & Pay Raises
Keep employee reviews, promotion records, and salary adjustments indefinitely. These help justify employment decisions if disputes or wrongful termination claims arise.
7. Termination & Final Pay Documentation
When an employee leaves, keep records of:
- Resignation letters or termination notices
- Final pay stubs (including severance or unused PTO payout)
- Exit interview notes
- Non-compete or confidentiality agreements
Best Practices for Document Retention
- Digitize records where possible to save space and improve accessibility.
- Follow state and federal guidelines, which vary by document type.
- Secure sensitive data—employee SSNs, bank details, and medical records should be stored safely.
- When in doubt, keep it longer. If a document contains payroll, tax, or legal significance, err on the side of caution.
Final Thoughts
Proper payroll record-keeping isn’t just about compliance—it’s about protecting your business from legal risks and ensuring smooth operations. By maintaining these records systematically, you’ll be prepared for audits, disputes, and future hiring needs.
Need help organizing your payroll files? Consider consulting an HR or legal professional to ensure you’re meeting all requirements while keeping your business secure.