Payroll Records

What Are Payroll Records?

Payroll records are the comprehensive documentation that California employers must maintain regarding employee compensation, hours worked, and related employment data. Under California Labor Code Sections 226 and 1174, along with applicable Industrial Welfare Commission (IWC) Wage Orders, employers must create and retain specific records for each employee.

These records serve multiple purposes: ensuring employees are paid correctly, enabling regulatory compliance verification, protecting against wage claims, and providing documentation in case of disputes or audits. California's payroll record requirements are extensive and carry significant penalties for non-compliance.

Required Payroll Records

Basic Information for All Employees

Every California employer must maintain these records for each employee:

Record Type	Description	Required By
Full legal name	As used for Social Security	IWC Orders
Home address	Current residence, including zip code	IWC Orders
Date of birth	For minors, proof of age	Labor Code 1174
Social Security number	Full number for tax purposes	Tax regulations
Gender	Male/Female designation	IWC Orders
Occupation/Job classification	Position held	IWC Orders
Start date	Date of employment commencement	IWC Orders
Rate of pay	Hourly, salary, piece rate, or commission structure	Labor Code 226, 1174

Time and Hour Records (Non-Exempt Employees)

For all non-exempt employees, employers must maintain:

Record	Details Required
Daily hours	Total hours worked each day
Weekly hours	Total hours worked each workweek
Clock times	Actual starting and ending times each work period
Meal periods	Start and end times, or indication of waiver
Split shifts	When workday is divided by non-working time
Total wages paid	Each pay period
Pay period dates	Start and end of each period

Wage Payment Records

For every paycheck or wage payment:

• Gross wages earned
• All deductions itemized
• Net wages paid
• Pay period dates
• Date of payment
• Method of payment (check, direct deposit, cash)
• Copies of itemized wage statements

Special Records for Specific Pay Types

Piece-Rate Employees:

Record	Requirement
Units produced	Daily and pay period totals
Piece rate(s)	Each rate in effect
Rest period compensation	Hours and rate
Recovery period pay	Hours and rate
Nonproductive time	Hours and compensation

Commission Employees:

• Commission rate or formula
• Sales or transactions generating commissions
• Commission calculations
• Advances and reconciliations
• Draw arrangements

Tipped Employees:

• Tips reported by employee
• Tip credits applied (if any)
• Tip pooling arrangements
• Service charges distributed

Retention Periods

California requires different retention periods depending on the record type:

Standard Retention Requirements

Record Category	Retention Period	Legal Basis
Payroll records (general)	3 years	Labor Code 1174
Time records	3 years	IWC Orders
Wage statements	3 years	Labor Code 226
Employment records	3 years after termination	IWC Orders
Contracts and agreements	3 years after termination	Labor Code 2751

Extended Retention Recommendations

While California law requires 3 years, consider longer retention:

Situation	Recommended Retention	Reason
Ongoing litigation	Until resolved	Litigation hold
Potential class action	4+ years	Statute of limitations
Complex commission plans	4 years	Contract claims
Discrimination concerns	4+ years	FEHA claims
Federal contractors	3-5 years	OFCCP requirements

When Retention Periods Begin

Record Type	Period Starts
Payroll records	Date record is created
Time records	End of pay period
Employment records	Date of separation
Wage statements	Date of payment

Record Access Requirements

Employee Rights

California employees have extensive rights to access their records:

Payroll Records (Labor Code 226(b)):

• Written request required
• Employer must provide within 21 calendar days
• Must allow inspection and/or copying
• Can charge reasonable copying costs
• Cannot require employee to disclose reason for request

Access Methods:

Method	Employee Right
Inspection	At reasonable times and location
Copies	At reasonable cost (or free if employer chooses)
Electronic	If available and agreed
Representative	Can designate authorized person with written consent

Employer Obligations

When an employee requests records:

1. Acknowledge receipt of request promptly
2. Locate records within 21-day window
3. Make available at employee's choice of location
4. Provide copies if requested (may charge reasonable cost)
5. Document compliance with request and response

Government Access

Employers must make records available to:

Agency	Access Rights
Division of Labor Standards Enforcement	Upon demand for investigation
Employment Development Department	For tax and UI audits
Internal Revenue Service	For tax compliance
Department of Labor	For federal law compliance
Cal/OSHA	For safety investigations

Record Storage Best Practices

Physical Records

If maintaining paper records:

• Store in secure, climate-controlled location
• Organize by employee and date
• Implement access controls
• Create backup copies
• Establish destruction procedures for expired records

Electronic Records

Digital storage must meet specific requirements:

Technical Requirements:

Requirement	Standard
Legibility	Must be readable without special equipment
Durability	Must survive retention period
Accessibility	Must produce records within 21 days
Integrity	Cannot be altered without detection
Security	Protected from unauthorized access

Recommended Practices:

• Use established payroll/HRIS platforms
• Implement regular backups
• Maintain audit trails
• Test retrieval procedures
• Document retention policies

Cloud Storage Considerations

Cloud-based storage is acceptable if:

• Data is accessible from California
• Security meets reasonable standards
• Records can be produced within required timeframes
• Vendor agreements address data ownership
• Backup and recovery procedures exist

Common Compliance Failures

Record-Keeping Violations

Violation	Risk
Missing time records	Cannot prove hours worked
Incomplete wage statements	$50-$100 per occurrence penalties
Records destroyed early	Cannot defend against claims
Records inaccessible	Presumption against employer
Failure to provide copies	$750 penalty per violation

Documentation Gaps

Frequent problem areas:

Time Records:

• Using estimates instead of actual times
• Not recording meal periods
• Missing records for remote workers
• Inconsistent tracking across locations

Pay Records:

• Missing rate documentation
• Incomplete deduction itemization
• No records of rate changes
• Missing commission calculations

Consequences of Non-Compliance

Consequence	Details
Rebuttable presumption	Employee's testimony presumed accurate
Statutory penalties	Per-occurrence fines under Labor Code
PAGA penalties	Representative action penalties
Defense limitations	Cannot contest without records
Increased damages	Willfulness presumed without records

Building a Compliant Record System

Essential Components

A compliant payroll record system should include:

1. Time Tracking

• Automated clock-in/clock-out
• GPS or location verification (if applicable)
• Meal and rest period tracking
• Integration with scheduling system

2. Payroll Processing

• Rate of pay documentation
• Deduction tracking
• Overtime calculation
• Compliant wage statement generation

3. Document Management

• Secure storage
• Organized retrieval
• Retention period tracking
• Destruction scheduling

4. Access Management

• Request processing procedures
• 21-day compliance tracking
• Copy production capability
• Audit trail maintenance

System Integration

Best practices for integrated systems:

System	Integration Point
Time and attendance	Direct feed to payroll
Scheduling	Hours comparison and verification
HR/HRIS	Employee information sync
Document management	Statement and record storage
Benefits administration	Deduction accuracy

Audit Preparation

Self-Audit Checklist

Regularly verify your records include:

• Complete time records for all non-exempt employees
• Clock-in and clock-out times (not just total hours)
• Meal period documentation
• Rate of pay documentation for all employees
• Compliant wage statements for every pay period
• Commission calculation records (if applicable)
• Piece-rate documentation (if applicable)
• Employee information current and complete
• Records organized for quick retrieval
• Retention schedules being followed

Responding to Audits

When regulators request records:

1. Don't panic - Audits are routine
2. Respond promptly - Meet all deadlines
3. Be organized - Present records clearly
4. Document everything - Keep copies of what you provide
5. Seek guidance - Consult counsel for complex issues

Records for Terminated Employees

Separation Documentation

When employment ends, ensure records include:

Record	Purpose
Final hours worked	Final pay calculation
Vacation accrual	Payout calculation
Commission earnings	Final settlement
Separation reason	Unemployment claims
Final wage statement	Compliance documentation

Post-Termination Retention

After an employee leaves:

• Maintain all records for 3 years after separation
• Keep records accessible for former employee requests
• Do not destroy records if any dispute is pending
• Transfer records securely if business is sold

Technology Solutions

Modern Payroll Platforms

Current systems offer:

• Automated record creation
• Built-in retention tracking
• Quick retrieval capabilities
• Compliant wage statements
• Secure storage
• Integration with time tracking

Time and Attendance Integration

Timewave's scheduling platform helps maintain compliant records by:

• Capturing precise clock times
• Recording meal and rest periods
• Tracking hours by rate and department
• Exporting accurate data to payroll systems
• Maintaining accessible time record archives