What Payroll Records You Must Keep & For How Long: A Complete Guide for Small Businesses, Creators, Doctors & Online Sellers

Payroll recordkeeping is one of the most overlooked compliance requirements for small businesses, creators with assistants, online sellers, medical practices, and even high-income individuals who hire household employees. Whether you have one employee or fifty, federal and state laws require you to maintain certain payroll records—and keep them for very specific periods of time.

Failing to comply can lead to:

• IRS penalties
• State agency penalties (EDD, Labor Commissioner)
• Back wage claims
• Worker classification disputes
• Expensive audits

This guide explains—in plain English—which payroll records you must keep, why they matter, and how long to retain them. We also include real examples from our experience at Velin & Associates to help you understand practical scenarios.

Why Payroll Records Matter

Payroll records protect you in case of:

✔ Wage and hour disputes
✔ Paid sick leave or PTO disputes
✔ Worker classification issues (employee vs. contractor)
✔ IRS or EDD payroll tax audits
✔ Minimum wage or overtime claims
✔ Workers’ compensation issues

Good recordkeeping is your best defense.

Payroll Recordkeeping Requirements (Federal vs. California)

California has stricter payroll requirements than federal law. Employers must follow both, which means keeping records longer and maintaining more detailed documentation than many expect.

Let’s break down what you must keep.

1. Employee Information Records (Keep for 4 Years Federal / 3 Years CA)

You must keep:

• Employee name, address, and Social Security number
• Birth date (if under 19)
• Job title and classification
• Offer letters or employment contracts
• Form W-4, DE-4, and other withholding documents
• Rate of pay and pay schedule
• Employee handbook acknowledgments

Example: Dental Practice

A dentist (Dentist CPA client) hires a new dental assistant. They must keep her W-4, DE-4, pay rate agreement, and onboarding documents for at least 4 years after her employment ends.

2. Hours Worked Records (Keep for 3 Years)

Employers must maintain detailed information including:

• Daily hours worked
• Timecards
• Meal breaks
• Overtime hours
• Paid sick leave and PTO used
• Records of remote or off-site hours

This is especially important for hourly employees and non-exempt workers.

Example: Shopify Store Owner

A Shopify seller (Shopify Store CPA client) has two warehouse assistants who work varied hours. The owner must retain all timecards and clock-in/clock-out logs for 3 years—even if employees leave.

3. Payroll Records (Keep for 3–4 Years)

These include:

• Gross wages
• Net wages
• Overtime calculations
• Deductions (taxes, benefits, garnishments)
• Employer tax payments
• Pay stubs
• Payroll summaries
• Payroll register

Example: YouTuber with an Editor/Assistant

A YouTuber (CPA for YouTubers client) pays an editor weekly. Every pay stub, payment record, and tax withholding entry must be kept for at least 4 years. This protects them in case the editor later disputes pay or classification.

4. Payroll Tax Records (Keep for 4 Years Minimum)

The IRS and California EDD require:

• Quarterly payroll tax returns (Form 941)
• Annual payroll returns (940, W-3, DE-9, DE-9C)
• Copies of W-2s
• Employer’s federal and state unemployment tax records
• Records of tax deposits
• FUTA / SUTA payment documentation

Example: Amazon Seller With Employees

An Amazon business owner (Amazon Business CPA client) running a warehouse must keep all payroll tax filings for four years from the due date or payment date, whichever is later.

5. Wage Statements (Pay Stubs) (Keep for 3 Years)

California requires employers to give employees very specific information on pay stubs and to retain copies.

Each pay stub must show:

• Total hours
• Overtime hours
• Hourly rate(s)
• Pay period dates
• Employer’s full legal name
• Employee’s last 4 digits of SSN
• Deductions

Example: Medical Practice

A doctor (CPA for Medical Practice client) must keep pay stubs for each nurse and staff member for at least 3 years, though many keep them longer for audit protection.

6. Independent Contractor Records (Keep for 4+ Years)

If you hire contractors, you must keep:

• Contractor agreements
• Invoices
• Copies of Form W-9
• Proof of payments
• 1099-NEC copies

This is critical because California aggressively enforces worker classification laws (AB5, ABC test).

Example: Filmmaker Hiring Freelancers

A filmmaker (CPA for Filmmakers client) who hires videographers, editors, and sound mixers must keep contracts, payments, and W-9s for 4 years to avoid misclassification risks.

7. Benefit & Retirement Records (Keep for 6 Years)

ERISA requires:

• Health insurance records
• 401(k) and retirement plan documents
• Employee benefit election forms
• Employer contribution records

Example: High Net Worth Individual With Household Employees

A high net worth client (CPA for High Net Worth Individuals) providing health benefits to a personal assistant must keep benefit documents for six years under federal rules.

8. Termination Records (Keep for 3–4 Years)

When employment ends, retain:

• Final pay calculation
• Accrued sick leave/PTO payout
• Notice of change in relationship (California required)
• COBRA or Cal-COBRA notices
• Exit interviews or separation agreements

Summary: How Long to Keep Each Record

Note: Many businesses choose to keep payroll records for 7 years to cover all audit periods.

Practical Tips From Velin & Associates

1. Keep digital copies

Cloud storage is safer and easier to organize.

2. Never rely on your payroll provider

Gusto, ADP, Paychex, or QuickBooks Payroll may not retain data forever. Always download and archive your own copies.

3. Document meal breaks and overtime properly

California imposes strict rules—bad documentation leads to lawsuits.

4. Keep contractor records longer than you think necessary

Misclassification audits often look back 3–4 years.

5. If you hire editors, assistants, warehouse staff, or medical staff—document everything

Creators, online sellers, and medical practices are high audit targets in California.

Why Good Payroll Recordkeeping Is Essential in California

California is one of the strictest states for:

• Wage and hour laws
• Payroll tax compliance
• Worker classification
• Overtime and meal break enforcement

If you operate in:

• YouTube or content creation
• Shopify or Amazon e-commerce
• Dental or medical practices
• Entertainment and film production
• Professional services

…you have higher audit exposure.

Proper payroll records are the first line of defense.

Need Help Organizing or Outsourcing Payroll? We Can Handle Everything.

Velin & Associates helps:

• YouTubers and influencers paying editors or assistants
• Shopify and Amazon sellers managing warehouse employees
• Doctors and dentists with complex payroll and benefits
• High net worth individuals hiring household staff
• Creators and filmmakers hiring mixed employee + contractor teams

Outsourcing your payroll setup, compliance, and recordkeeping reduces risk and frees up your time.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

CPA for YouTubers | CPA for Shopify Store | CPA for Online Commerce | CPA for Creators | Shopify Store CPA | CPA for Filmmakers | CPA for Amazon Business | Amazon Business CPA | CPA for Dental Practice | Dentist CPA | Dental Business CPA | Online Commerce CPA | CPA for TikTokers | CPA for Doctors | CPA for Medical Practice | CPA for High Net Worth Individuals