Many small business owners are confident in their knowledge of regulations concerning the retaining of receipts, canceled checks, bank statements, etc. for their business. But are you as cautious when it comes to keeping records for employee wages and personnel information?
Although the rules vary from state to state, you should maintain a record of your employees’ hours, wage rates, payments, withholdings, etc. for at least four years. (Some states require even longer retention periods.)
States frequently audit unemployment tax records, and it’s likely you’ll be asked to produce payroll records if you’re audited for income tax purposes.
Also, in most states you’re required to provide employees a detailed breakdown of their paycheck—gross, net, and the details of their withholdings. There can be penalties for failure to comply, so make sure that you are familiar with the regulations.
