How Long to Keep Payroll Records

How long to keep payroll and time records

Federal law requires 3 years of payroll records and 2 years of time records (raw clock-ins, schedules, wage-rate tables). Most states follow federal, but a few are stricter: New York, New Jersey, and Hawaii require 6 years for wage-and-hour records, and California's 4-year unfair-competition window effectively requires 4. If you have employees in any of those states, the longer window applies.

The bigger reason to keep records longer than the minimum: when your records are inadequate, the law presumes the employee's claim is correct. A 1946 Supreme Court rule shifts the burden to the employer to disprove unpaid hours — and when records are missing, the employer almost always loses. A $50/employee claim becomes a class-wide $500/employee verdict because no one can show the actual hours worked.

How to set up records retention that holds up

• Set payroll record retention to 4 years if you have California employees, 6 years if you have NY, NJ, or HI employees or run a 401(k) or health plan.
• Keep raw clock-in/out times — not just the rounded payroll totals.
• Store records electronically, but make them retrievable within 72 hours for a DOL audit.
• Stop automatic deletion the moment you get a demand letter, EEOC charge, or DOL notice.
• For multi-state: keep everything for 6 years — the storage cost is small.

How missing records turn small claims into class actions

• Purging raw time-clock punches at 2 years — California's 4-year window or a willfulness claim leaves you exposed.
• Retaining HIPAA records for 6 years but time records for only 2 — different statutes, separate retention windows.
• Routine deletion that continues after a demand letter or DOL audit notice — counts as evidence destruction.
• A California employee asks to inspect their wage records — you have 21 days, or you owe $750 per request.

Keep everything for 6 years

Storage is cheap; missing records are expensive. For any multi-state employer, retain payroll records for 6 years everywhere — that covers the strictest state, the federal willfulness window, and ERISA at once. When the records exist, the burden stays on the plaintiff. When they don't, your business pays the difference.