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What Employee Compensation Records To Keep

May 16, 2008
Running a business means extensive records management and recording. Regardless of the what type of business you run there is a need to keep records for decision making and to comply with federal and state laws. Every business is in the business of record keeping and failure to do so, can come back to bite you.

Keep track of the compensation paid to employees is no exception. Often employers to try to avoid having to pay taxes and having to comply with minimum wage, overtime, and meal period laws. Sometimes employers keep records, but then destroy them when a claim or audit is made. Some employers go as far as keeping multiple sets of records to avoid prosecution or liability. Unless exempted every employer is required to keep records under federal law, so it does not matter what state you have your business, under federal law you are required to keep records. The records are to be of the person employed, the wages, hours and other conditions and practices of employment and required to be preserved for a specified time.

The terms of the records very depending on what information is kept. Payroll records must include the employee's name, address, occupation, hours worked each day and each week; wages paid and the date of the payment, the amounts earned as straight time and the amounts earned as overtime; and the deductions. These payroll records must be kept for a period of three years. This does not mean you can destroy payroll records after three years, because the statute of limitations for your state may be longer than three years or your state record keeping requirements may be longer. Federal law also requires that plans, trusts, collective bargaining agreements, employee notices, and sales and purchase records be kept for a period of three years.

The basic time and earnings cards for employees are required to be kept for a period of two years. Wage rate tables and work schedules are also required to be kept for a period of two years. This is federal law and applies to all states. Federal law also requires that records for order, shipping, and billing be kept for two years. Lastly any records of additions to or deductions from wages be kept for a period of two years.

Some employers who knowingly are not paying minimum wage, or overtime often destroy these records at the first sign of a lawsuit. This does not protect the employer and can result in greater damages to the employer. The employee meets the burden of proof by oral testimony. The employee is not required to prove the precise hours or wages owed by the employer. The burden is on the employer to prove that the employer has complied with the law. The employer may be tempted to fabricate records or destroy records to protect its interests. These activities can lead to sanctions, in the form of fines, or rulings in favor of the employee. Intentional destruction or fabrication of these records can lead to criminal prosecution and if found guilty the actors can be sentenced to prison. The crime is a felony and therefore the punishment can mean more than one year in prison.

Corporations are used to avoid personal liability and in the past were effectively used to avoid all types of liability, but corporations cannot be used to avoid complying with labor laws. Under federal law the federal courts have found that an employer cannot avoid liability for labor laws by incorporating. The officers and primary shareholders can still be found liable, so destroying or fabricating records can lead to personal liability not only for money damages, but also for criminal prosecution.

State laws vary, but impose further record keeping requirements. California also requires that the ages of any minors working be recorded and kept for a period of four years. Under California law an employee can claim up to four years of overtime or meal and rest period violations. So it is advisable than an employer maintain records for a period of at least four years.

Do employees have a right to inspect these records?
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