Pay Stubs are the most basic tool an employee receives from the employer’s side with every paycheck. They contain all important information pertaining to earnings, withholding taxes, and deductions. Knowing for how long you need to keep pay stubs is thus important when maintaining financial records, checking if they are at par with legal requirements, and creating an overview of the earnings.
In this blog we will be understanding all about paystubs and how long you need to keep paystubs with you.
The Importance of Keeping Paystub
There are several reasons for keeping pay stubs, such as: pay stubs as an important financial record. They give a detailed account of your earnings over a period, which can be helpful in budgeting, keeping accounts of expenses, and in the application for loans or mortgages.
You also need pay stubs for tax purposes. They are obliged to include information on the taxes deducted from your pay, thereby enabling you to file the right taxes. If your paperwork is incomplete, you will find it hard to deal with the IRS should the need arise.
For How Long Do You Need To Keep Pay Stubs With You?
How long you should retain your pay stubs or not is specific to whether you are an employer or employee. Here is how long to retain pay stubs in each case.
- Employers: Employers should be really careful regarding holding on to financial records of employees. You have to ensure that your business complies with all the applicable federal, state, and local labor laws. Then, with the FLSA in mind, companies should retain payroll records for at least three years. It is always better to be safe regarding record keeping. Your organization can keep these records longer than the three years, but it helps file management if you have a determined date at which you will shred the statements. And like any important financial statement, you should always shred pay stubs. Simply throwing them away puts you and your employees’ sensitive financial information at risk.
- Employees: Do not destroy old pay stubs until you receive your W-2 for the year. After you get the W-2, you can use the old pay stubs to reconcile your tax return forms to ensure that everything checks out. You can burn old pay stubs after filing your income tax and receiving your tax refund, and you certainly can keep them for your own record-keeping purposes, but you can certainly throw them away with no fear.
The question on how long to retain pay stubs varies depending on the legal requirements and best practices. Understanding these guidelines will keep you compliant and well-organized on paystubs.
- Legal Requirements: In the United States, federal law does not require pay stub retention times, but individual states do have their laws in regard to the retention of records. Make sure you understand the laws in your state regarding the retention of pay stubs.
- Best Practices: As per rules, you should keep pay stubs with yourself for at least one year. This timeframe is enough for you to adapt with your earnings to a W-2 form at the end of the year and correct any mistakes. For purposes of taxes, it’s recommended you keep pay stubs for up to seven years. This is the same period of time the IRS has granted for auditing tax returns. Pay stubs stored for seven years are enough documentation for your tax filings in the event of an audit.
- Digital V/S Physical Pay Stubs: Today, modern technology provides many employers with an alternative to physical paycheck stubs: that is, digital copies of pay stubs. There are advantages and disadvantages for both.
Advantages of Digital Pay Stubs
- Easy access from anywhere
- Reduced paper clutter
- Environmental Sustainability
Disadvantages of Digital Pay Stubs
- Possible risks if not properly managed and protected
- Major dependency on technology and internet access
Advantages of Physical Pay Stubs
- Sustainable records which are less susceptible to cyber threats
- No reliance on technology for access
Disadvantages of Physical Pay Stubs
- Risk of loss
- Requires physical storage space
Pay Stubs Contains Vital Information
A pay stub is a document with all the significant information, including tax, financial, and other details. A typical check stub will include all the following:
- Identifying Information: In this, it includes the name of the employee, the name of the employer, and the specific dates involved in the period.
- Gross Wages: The average earnings over the period in question.
- Deductions: A professional pay stub must include accounting for where all the employee earnings went: taxes paid and deductions that were taken out of the paycheck.
- Net Pay: Last but not least, a pay stub must clearly indicate exactly how much the employee took home in ‘net pay’ or ‘take home pay’.
Why Do Business Owners Need To Keep Pay Stubs?
Employers must keep financial records and books well organized. Employers must comply with the law to the fullest extent. There are quite a number of state and federal labor laws involved. For example, pay stub retention time, the EEOC suggests that many businesses are mandated to maintain records about its employees.
If your company is under investigation by a regulatory body or has been complained about by an employee, you will need to have clear, easy-to-access payroll records. Properly set up payroll records will also make it easier to complete some of the basic business tasks. This is much easier for your company to get everything done during the times of preparation for taxes when all financial statements and records are organized and on file. It’s relevant for small businesses due to the fact that small businesses may not be capable of hiring a person to complete payroll on a full-time basis.
Why Should Employees Keep Their Pay Stubs?
Besides, individual workers should also maintain their online pay stubs. There are several reasons for which employees want to retain old pay stubs. Among the most common reasons to retain old pay stubs? Income verification. Although a few statements will do, a pay stub is the most common way to showcase income. With the easy accessibility to your pay stubs, you will either prove or disprove the plausibility of your loan or line of credit from a bank, or while negotiating with your employers, you can offer them your pay stub and point out the actual salary you are getting. Pay stubs also track where every penny of your money is going anywhere.
Conclusion
Paystub retention times must be considered and should also ensure compliance with financial record-keeping, tax compliance, and protection of sensitive information. Knowledge of legal requirements, best practices in organization, and disposal of old pay stubs should enable an individual to manage their financial documentation well. Looking for a check stub maker? Don;t worry Online Paystub is here to help you out!
