November 19, 2019
Why Keeping Detailed Payroll Records and Reports is so Vital
Payroll is complicated, confidential and constant. The business of maintaining detailed records and reports on behalf of employees is highly regulated. The IRS cares, and so does the U.S. Department of Labor. Its Fair Labor Standards Act (FLSA) has rigid rules regarding recordkeeping that must be followed, and which are different for exempt and nonexempt workers. There are rules about how long to keep information, though your state also cares and might have rules that require companies to retain records for longer periods of time. Privacy and security are paramount, and payroll records must be kept separate from other business records. If all of this sounds hard to manage, Wise consultants Kris Higdon, CPP and Ana Woods-Hill, CPP assure you that it can, and must, be done.
Covering all the Bases
Higdon and Woods-Hill, both Team Leads in Wise Consulting’s Managed Payroll practice, stress that there are many areas of the payroll process that rely on keeping accurate and detailed records and reports:
- Employer Compliance
- Employer Benefits or Subsidies
- Employee Wage Record Accuracy
- Wage garnishments, new hire reporting, mortgage application accuracy & social security benefits
- Reduction of Risk Exposure
- Business Continuity
- Audit Support
- Identity Accuracy
“It’s not just about getting audited,” says Woods-Hill. “Keeping detailed payroll records is critical to ensure many aspects of employer and employee record accuracy that can have far-reaching impacts. If an employee’s wage record is not updated appropriately with exact codes of payment and timing, this may misrepresent something to an agency that causes the employee to lose or gain in error. Misreported wages can jeopardize social security benefits, disability payments, paid family leave, cause denial of mortgage approval, impact wage attachment calculations and more.”
From when a new hire fills out the I-9 and the W-4, to when the employer files the W-2 on behalf of each employee, there is a minefield of confidential data to be verified, recorded and maintained. In some instances, mistakes on the I-9 can mean more work for the employer down the line.
“If any information provided by an employee is inaccurate, it could require the extra work of filing a W-2c form. To help avoid this, the Social Security Administration (SSA) strongly recommends that employers run verification on employee social security numbers,” explains Kris Higdon. “We do verification for clients three times a year. If, during the verification process a fallout occurs, we provide those results to our clients for resolution with their employees. If these fallouts are not addressed prior to verifying and printing of W-2’s, there’s a high likelihood this will result in a W-2c down the line. Employers may also receive notices from the SSA indicating filing errors.”
Higdon points out that situations in which a social security number is wrong on a new hire’s I-9, either due to typos or the use of fraudulent numbers, become a nightmare for employers when it’s time to verify and prepare W-2s.
“This is why it is so important that employers check all the hiring documents and require valid identification such as a passport or driver’s license before the employee begins work. Thorough document review, and a program such as E-Verify, can be a very successful tool for employers during the hiring process, and can help cut down on these errors.” says Higdon.
Threat of Audit
Ana Woods-Hill stresses the importance of keeping detailed records in case external auditors come knocking.
“Maintaining records of all attempts to keep in touch with an employee regarding a discrepancy is important, because when auditors ask the employer if they did attempt to communicate, when there is a record of those attempts the employer can prove they did their due diligence and there’s no exposure there.” Woods-Hill points out that this level of minutia in recordkeeping is part of the reason why companies choose to outsource their payroll.
“Many clients don’t understand the far-reaching impacts that tiny details can have. That is why they get such a benefit when they outsource, because when they don’t know what they don’t know, it’s impossible to capture and maintain everything required to keep things streamlined, compliant and accurate.”
A payroll department can be doing everything right, from verifying new hire social security numbers to keeping all mandatory records for the required periods of time, and still wind up blindsided by data issues. If records are being stored electronically and there isn’t a reliable, secure back-up system in place for all that data, it can be gone in a flash in the event of emergency. A reliable data backup system should back up data regularly and store backups in a secure offsite location. Paper documents can be scanned and stored in the same secure offsite location.
Properly backed-up records can save the day when disaster strikes. If anything happens that prevents staff from processing the next payroll cycle, employees will not be paid on time. In cases ranging from a hurricane causing catastrophic flooding, to simply the most knowledgeable payroll employee quitting suddenly, having a partner set up to access backed-up records and take over until the crisis passes is a good business practice. When Wise consultants are contracted to be that key partner for our clients, all it takes is two visits per year to ensure documentation is updated and Wise is familiar with how their payroll works so that if something catastrophic happens, we can leap in and run things smoothly until the client is back on their feet. “Payroll must go on–even when there is inclement weather, personnel changes, etc.,” offers Higdon. “Without detailed records internally tracking payroll processes and procedures, wage errors are likely. Or worse, no one gets paid.”
If all the rules, regulations, backup and emergency provisions and the threat of possible audits are not something your company has the time, staff or patience for, outsourcing can be a great option. Outsourcing gives you a team of professionals who keep current on all the rules and changes to state and federal tax requirements. They safeguard the records and reports that have to be maintained, securely backed up and kept in compliance.
“Outsourcing allows the payroll to continue when there are business changes that would normally be disruptive. It’s like having a team of your best employees who never get sick,” Woods-Hill explains. “Hiring a company that specializes in accurate wage recording, payroll-related legislative knowledge and streamlined processing frees up your personnel to focus on your business and your customers and allows for your staff to take vacations or unexpected leave.”
If your company is considering setting up temporary payroll support or outsourcing its payroll function, contact the experts at Wise Consulting to discuss your options.