The employee time records you have to keep, and for how long

There are two clocks, not one

Under the Fair Labor Standards Act, the federal recordkeeping rules live in 29 CFR Part 516, and they set two different retention periods that apply to two different groups of documents.

• Three years for payroll records, collective bargaining agreements, and sales and purchase records. Payroll records here means the ones listing each employee and what they were paid: name, address, occupation, hours worked each day and each week, basis of pay, regular rate, overtime earnings, deductions and total wages per period.
• Two years for the underlying records that show how those payroll figures were arrived at. This is where time cards and timekeeping data sit, along with wage rate tables, work time schedules, and the records explaining any additions to or deductions from wages.

The distinction is the one most people get backwards. The summary of what somebody was paid is kept longer than the raw evidence of what they worked. It is a slightly odd arrangement until you notice what it is for: the three year set is the record of the transaction, and the two year set is the working paper behind it.

In practice, almost nobody should run their retention at those minimums, and the reason is in the next section.

Why the minimum is usually the wrong target

The statute of limitations for a federal wage claim is two years, and three years where the violation is found to have been willful. Those periods are not the same as the retention periods, but they rhyme with them for an obvious reason: the records exist so that a claim reaching back that far can be answered.

Now think about what that means on the day it happens. A claim is filed covering a period ending two years ago. It is not resolved that afternoon. It takes months, and during those months you need the records for the whole window, not just the part that has not yet aged out. If you deleted on the exact minimum, part of the period in dispute is already gone, and the practical effect of missing records in a wage dispute is that the employee’s account of their hours is what stands.

This is why we set our own default at two years for clock in photographs and keep the time record itself permanently. The photograph is corroborating evidence with a natural shelf life, and holding face images longer than they can be useful is a liability rather than an asset. The punch record is the wage record, and it is cheap to keep, so it is never deleted by a retention timer at all.

What actually counts as a time record

Broader than most people assume. If it is part of how you determined the hours you paid for, it is in scope. That includes the obvious things and several less obvious ones.

• Clock in and clock out times for each day.
• The total hours for each workday and each workweek.
• Corrections. If a manager changed a clock out from 5:08 to 5:00, both the original and the change are part of the record of how you arrived at the paid figure.
• Break records, where breaks affect pay. If unpaid meal periods are deducted, the basis for the deduction is part of the file.
• Schedules, where they are used to determine pay rather than just to plan coverage.
• The workweek you use, and the day and hour it starts.

Corrections are the part people lose

Managers correct times constantly, and they should. Somebody forgets to clock in and says so at ten past. Somebody stays forty minutes past close. Correcting the record to match what happened is the right thing to do and it is not suspicious.

What matters is whether the correction leaves a trail. A system where a manager edits a time in a text box and the previous value ceases to exist has destroyed part of the record it is supposed to be keeping. Worse, it has destroyed it in the one direction that matters, because the person who made the change is the person a dispute would be about.

We took a hard position on this. Clock in and clock out rows in On Post are append only, enforced by the database rather than by application code that could be bypassed. There is no screen, no menu item and no support action that rewrites one. A correction is a new row carrying who made it, when, the previous value and the new value. The corrected time becomes the time everywhere a person reads it, because that is what is true, and the trail sits in the audit log where an audit is answered.

What the law does not require

Three things people believe are required, which are not, and knowing the difference saves money.

1. A particular form or system. The Department of Labor says plainly that no particular order or form of records is required, and that timekeeping method is up to the employer. A paper sheet in a drawer satisfies the rule if it is accurate and complete. Software is a convenience and an accuracy improvement, not a legal requirement.
2. Time clocks specifically. There is no obligation to use one. What the rule cares about is that the hours recorded are the hours worked.
3. Records for exempt employees’ daily hours. For employees exempt from overtime, you keep the identifying and pay information but you are not required to record daily hours. You may, and many businesses do for scheduling and coverage reasons, and nothing forbids it. This is why our own salaried setting defaults to not requiring a clock in and can be switched on by a business that wants the data.

The freedom on method comes with a catch worth naming. Because the method is yours to choose, the accuracy of the result is entirely your responsibility. Choosing a system that is easy to falsify does not transfer any of that back.

Where small businesses actually get caught

In our experience of looking closely at how these systems are run day to day, the failures are rarely dramatic. Four patterns come up again and again.

The records live in a product you stopped paying for

A business switches time clock vendors, the old subscription lapses, and eighteen months of history goes with it. This is the single most common way a small employer ends up unable to answer a claim about a period it has records for on paper. Before you cancel anything, export the full history to a file you hold, in a format you can open without that vendor.

Nobody wrote down the workweek

Overtime is calculated per workweek, and a workweek is a fixed and regularly recurring period of seven consecutive 24 hour periods. It can start any day at any hour. If nobody ever decided, nobody can say whether a given Saturday belonged to the week that triggered overtime. Write it down once and stop guessing.

The correction trail is in somebody’s memory

Covered above, and worth repeating because it is the one that turns a small disagreement into an expensive one.

State rules were never checked

Federal minimums are a floor. Several states set longer retention for payroll records, and some set additional requirements about what must be on a wage statement or how long records of specific categories must be held. If you operate in more than one state you are subject to the rules of each of them, and the longest applicable period governs the file.

A retention policy you can write this afternoon

You do not need a lawyer to get to a defensible starting point, though you should ask one to look at it if you operate in several states. A workable policy answers five questions.

1. What do we keep? Name the categories rather than the systems, because systems change. Time records, payroll registers, wage rate history, corrections, schedules.
2. For how long? Pick numbers at or above the federal minimums and above your longest state requirement. Many businesses land on four years for everything and never think about the distinction again, which is a perfectly good answer.
3. Where? Name the system of record, and name the export. If the answer to where is only the name of a vendor, you have a dependency rather than a policy.
4. Who can change a record, and what happens when they do? If the answer is that a manager can edit a time and nothing is written down, fix that before anything else on this list.
5. What happens when somebody leaves? Their records do not leave with them. A departed employee’s history is exactly the history a claim is most likely to be about.

One last note on closing an account, since it follows directly. When a business winds down, the payroll record still has to survive the retention period. That is why closing an employer in On Post is a status rather than a deletion: the console stays open and read only, every row is kept, and destroying the data is a separate and deliberate act rather than a side effect of cancelling.