Finimpact

Frequently Asked Questions (FAQ)

What Are Payroll Records?
Payroll records are the documents you keep to track and inform everything regarding an employee’s paycheck. They cover hours worked, wages, taxes, benefits, and any other financial or important information related to paying an employee. Payroll records can be physical, digital, or a combination of the two.
Why Should I Keep Payroll Records?
There are a million reasons you need to keep payroll records. The most obvious is that there are many, many, many authorities that will crack down on you and impose fines if you fail to file and store records, intentionally or not. These agencies include the IRS, the DOL, the EEOC, and the DHS, could easily pay you a visit. There are other practical reasons to keep payroll records. They can come in useful in the event of litigation (the onus often being on the employer to prove hours worked). They can also help your business to be more streamlined and organized. It will give you more financial control and you will be very thankful that you kept such good records if you decide to sell your business.
What Are the Most Relevant Payroll Records to Keep?
The most common payroll records, for the purposes of legislation and reporting, are the W2, W4, Form 941, and Form 940. The W2 is completed by the employer at the end of the year, reporting key information about the employees. The W4 is handed to the employee at the start of the employment, and the employee has to fill this out. Form 941 is related to an employer’s quarterly tax, and Form 940 relates to the employers’ annual tax. As well as this, you need to keep a record of paystubs, new hire reports, and wage detail reports. Tax returns should be kept longer than wage reports, and are the domain of the IRS.
How Long Do I Have to Keep Employee Forms?
It depends on what kind of form you are talking about. There are different requirements for hiring records, medical records, payroll records, benefit plan records, etc. Generally, you will have to keep payroll forms on file for 3 years. Other employee forms may need to be kept up to 6 years. This will depend on the legislation and the area – benefit forms, medical forms, litigation forms, immigration forms, hiring forms, marketing forms, etc. Each area has specific guiding departments and legislation.
How Much Does Record Maintenance Cost?
Record maintenance is something of a buzzword. You are not actually paying for the storage of the form itself – storage is cheap for word/pdf files. But record storage comes with other capabilities such as document signing and document creation, often integrated as part of a wider HR software. It is rare to pay just for record storage, as this is quite a basic feature, that you can do yourself with a secure server and a desktop file system. But, as always, you will pay for ease and convenience. Storing 1 TB of data costs around $3,000 annually.
What Kind of Software System Tends to Record Payroll?
Practically all of the payroll software will also double in the sense of recording vital documents. The documents can be generated and stored on the same system. The payroll software will also typically provide onboarding functionality and be linked with an accounting software platform. Sometimes, the payroll software will double as an accountancy platform. You could also use a typical document storage software like Zoho Docs.
Should I Outsource My Record-Keeping Requirements?
Generally, it is not the best idea to outsource your recordkeeping requirements. Recordkeeping is integral to your business model. It is intimately tied to accounting, tax, payroll, and employment. That is a lot of sensitive data to give to a third-party. What you can most certainly do is get software that automatically creates and stores sensitive data. The most relevant would be payroll software such as Patriot software or OnPay. The employees can be automatically issued W2s and will self-onboard. You will be reminded of tax deadlines and all files can be stored within the database platform. Recordkeeping should be automatically tied in with timekeeping and payroll. It streamlines everything for you, without the risk of a third-party.
What Are the Penalties for Failure to Comply With Employee Record-Keeping?
The penalties that can be imposed for failure to keep, maintain, and dispose of employee records can be quite steep. There is a 100% penalty for willfully withholding taxes such as FICA. This means you will be on the hook for the entire amount withheld. If you did it unwillingly (such as wrongfully classifying a worker as an independent contractor) you will be responsible for a lesser percentage. If you fail to file a W2 on time, there is a $50 penalty for each form, to a maximum of $187,500 for small businesses. The penalties increase the longer you fail to submit the forms. Failure to dispose of the information correctly is dealt with on a case-by-case basis.