Payroll Records

A payroll Record can be defined as a list of all the employees of that company in which every information related to the payments made to the employees which they are entitled to receive, such as salaries, wages, bonuses, taxes, etc. are recorded.

The method or recording the information related to employee payroll is important because so that at every interval there can be a proper track of each payment which are paid to those employees from the employer's point of view. If a discrepancy occurs, then the same could be pointed out easily from the records. It is a crucial document that is maintained in all companies.

• Payroll records are a comprehensive list of all employees in a company, containing information related to salaries, wages, bonuses, and taxes, and help track payments made to employees.
• Payroll records typically include gross pay (the in-hand amount before deductions), mandatory and voluntary deductions (such as taxes and provident fund contributions), and net pay (the final amount after deductions).
• Employees can request their payroll records from their employer in writing or orally, and employers are generally required to respond within 21 days, according to regulations.

Payroll Records constitute anything and everything related to the information about the company's employees. It depicts the amount for which the employees are paid during each period. Naturally, the period differs from company to company. It can be daily, weekly, bi-weekly, semi-monthly, monthly, or any period which suits the company's pay period.

This kind of record is important for every business and should be maintained in an accurate and well-organized way. The payroll records retention and maintenance will ensure that the business complies with the rules and bylaws related to employment, namely the labor laws or the tax related regulation and requirements. These documents also help and acts as a guide during audit procedures and inquiries. Different countries and jurisdictions follow some specific laws. regarding payroll retention. Thus, it is necessary to comply with those guidelines for record keeping purpose.

The employee payroll records system must include the following information since they are valuable and useful for the business in many ways.

• The foremost information is gross pay, which is the main in-hand amount shown first before making any deduction from it. Gross pay is calculated by multiplying the hourly pay rate by the number of days worked.
• The next information would be deductions, which are of two types: mandatory deductions and voluntary deductions. Several taxes include professional tax, provident fund contribution from the employee’s portion, etc.
• The payroll records retention related to time and attendance and the number of hours put in by each employee are recorded in the form of cards, time sheets, or electronic records of log-in or log-out.
• Payroll taxes are the tax amount withheld by employers from employees' wages, which are given to tax authorities. This information deals with the amount to tax and the employer’s contribution to the payroll tax.
• Agreements or contracts related to employment, the copies, offer letters related to compensation and benefits, are kept too.
• The system also keeps records related to sick leaves, vacation days and other details related to usage of paid time-off.
• The last is the net pay, the final amount after making all the deductions credited to the employee’s account.

An employee can always obtain their employee payroll records by requesting his employer, either in writing/orally, to provide him with the payroll data. The employer must respond to the personnel's request made through payroll records forms, and he should give him the details within the prescribed time limit from the date of receiving the request. However, the employer must generally respond to the employee's payroll record request within 21 days.

The employer should preserve the certified payroll record for at least three years according to the Fair Labor Standards Act (FLSA) with other documentation like sales and purchase records, etc. In addition, the records on which the wage computation is recorded should be retained for two years, i.e., time cards, tables of wage rate, work, time schedules, and other records of addition and subtraction from the wages and salaries.

These records should be open for inspection by the division's in-charge, who may ask the employer to make necessary changes. These records should be kept in the Central Record Office/at employment.

Let us take an example to understand the concept.

Let us assume an employee named Smith Wells who works at ABC Ltd. His employee ID is 123456. He works for 8 hours a day for 5 days a week, making total regular working hours to 40 per week. Thus, in one month, which we assume to be from 01/07/23 to 31/07/23, he has worked for 4 weeks leading to total 160 working hours in that month, plus one day extra in that month, giving a total of 168 hours.

However, he has also worked overtime for 8 hours in that month. If his regular pay rate is $20 and overtime rate is $25, then his gross earnings will be = $3560.

Now if the deductions are considered, then, let us assume the following:

Federal Income Tax = $200

State Income Tax = $150

Medicare = $30

Retirement Plan contribution = $100

Total deductions = 200+150+30+100 = $480

Therefore, his net pay will be  = 3560 – 480 = $3080

In case of the above example, the payroll register will keep the following records:

The payroll record given above is a very simple version. The actual record details of any organization will be more complex and detailed depending on the type, size, number of employees, etc.

The system of maintaining the payroll record has its own advantages and disadvantages. Let us study the  advantages of the same as given below:

1. The system provides us with easy calculations, making the entire pay mechanism very lucid.
2. This facilitates accuracy so that the correct amount can be paid out, and it won't raise any further discrepancies.
3. The computerized payroll system that is maintained using payroll records forms, reduces the chances of errors and makes an easy flow of data and information that can be trusted and re-used.
4. This system has an appropriate structure for deductions and payments that are automatically set in the record to be used to calculate salaries/wages.
5. This can be treated as a safe backup option, and any information demanded retrospectively; the records can be useful then.
6. The record-keeping of the payroll system reinstates the faith in the employees that a properly organized and documented form is maintained for their earnings. Whatever deduction will be made, proper proof will be shown. In the future, if an employee demands a payroll record, the company would be in a position to present them with proper backup available to them.
7. This certified payroll records system is a cost-effective mechanism through which every penny paid/deducted to the employee can be tracked. The system gives back to the organization to maintain the data correctly and prevent the organization from any future hassles.
8. As the system is very cost-effective from the previous point, it saves time greatly because it does not allow any discrepancies and prevents any duplicity of work. For every fixed period of the interval, the correct data allows the organization for an error-free future of work.
9. In case of any inspection/audit/background check, if any authority demands any personnel records, this can be proof of evidence. It will not only be a savior for a well-maintained system but also will make a difference in the goodwill of the company.
10. This can be a major tool for forecasting the company. A company's major part of profits pays salaries and wages to its employees. If an estimated budget can be predicted for a future period, it can be a great tool for forecasting future costs and budgets for the company.
11. The organization can well plan its costs and then make out the reserves/investments accordingly.

It is also necessary to understand the disadvantages of the certified payroll records system to understand it better.

1. A payroll record holds data, and information can be at risk for data security, theft, or leaks. The sensitive information can be made open if it is not well protected.
2. The second disadvantage can be cyber fraud, which is almost very common. The rivalry amongst companies can be a root source of this problem.
3. The information access/control cannot be given to all. Only the person in charge of the payroll record should be familiar with the information. The person should be trustworthy enough not to leak out the company's sensitive data.
4. The last but not the least disadvantage can be the cost involved. The software, skilled operators, and the infrastructure required to set up the payroll record system are huge, which can be a barrier for a few organizations to meet up.

It is necessary to understand the advantages and disadvantages of the system so that companies can implement it and use in an optimum manner wherever necessary. This will ensure success and smooth working of the business operations and at the same time maintenance of transparency and efficiency.

This has been a guide to what are Payroll Records. We explain how long to keep along with example, what record must be kept, how to obtain & advantages. You can learn more about it from the following articles –

• Payroll Accounting
• Payroll Tax
• Income Tax vs Payroll Tax
• Payroll Formula