Record Keeping Requirements
Legal regulations businesses and people need to follow when keeping records regarding their finances and employees.
Recordkeeping Requirement Details
Countries have laws in place that require businesses and individuals to keep records regarding their monetary and employment activities. Recordkeeping means tracking activities such as entering data into ledgers or putting documents in files. It allows you to monitor the development of your business or finances. The types of records required will vary depending on the type of business and the laws in different countries and states.
The Internal Revenue Service (IRS) requires businesses and individuals to keep records on income or deductions for tax returns. If an audit is requested, you must be able to provide proof of their claims in these records. The recordkeeping system must show income and expenses such as sales, payroll, purchases, and other transactions. The IRS requires everyone to keep employment tax records for at least four years.
Recordkeeping requirements are common within labor laws. The U.S. Equal Employment Opportunity Commission (EEOC) requires employers to keep records such as personnel, payroll, employee benefit plans, wage rates, collective bargaining agreements, and job evaluations. Federal anti-discrimination laws cover these requirements, and you must keep each record for varying amounts of time. For example, the Fair Labor Standards Act (FLSA) requires employers to keep payroll records for at least three years and wage rate records for at least two years.
Examples Of Recordkeeping Requirements
For non-exempt employees, the United States FLSA requires employers to keep accurate and identifying information about them, their hours, and their wages. Other FLSA employment requirements include minimum wage laws, overtime pay, and youth employment standards.
You can find a list of the basic records an employer must keep on the U.S. Department of Labor's website. Required employee information includes the following:
- Full name and social security number
- Sex and occupation
- Workweek information
- Hours worked each day
- Total hours worked each workweek
- Basis of wage payments (hourly, weekly, per project)
- Hourly pay rate
- Total overtime earnings
- Date of payment and pay period covered
Another example of recordkeeping requirements is for government contractors that should keep detailed records regarding the work completed. Usually, the government expects contractors to keep records for at least three years after final payment. Examples of items to record are:
- Property and equipment records
- Payroll sheets
- Purchase orders
- Tax withholding statements
- Inspection and quality control production records
Significance Of Recordkeeping Requirements
Recordkeeping can help you prepare financial statements, keep track of deductible expenses for tax returns, and support items reported on your tax returns. The EEOC also requires an employer to have adequate records in case you receive a charge of employment discrimination. The employer must retain personnel records relating to the problem under investigation until the charge or lawsuit's final disposition. Employers without records to support their position in a lawsuit can be found guilty of discrimination.
The IRS will request records of your tax refund claims if an audit occurs. For example, suppose an independent contractor lists deductibles on their tax application. In this case, they must provide accurate proof of their claims during an audit. Examples of things independent contractors can deduct on their taxes include:
- Office supplies
- Health insurance
- Business use of a vehicle
- Home office deduction
For contractors working on projects, accurate records can defend your business against a claim for liability from the project. Claims for delay, damages, or negligence may not arise until years after the project is over, so recordkeeping provides essential evidence.
Recordkeeping Requirement vs. Bookkeeping
Bookkeeping involves recording financial transactions daily. It is a crucial part of the accounting process that involves a variety of recordkeeping requirements. In other words, bookkeeping is the act of recording accounting processes.
In the context of accounting, you can use the words recordkeeping and bookkeeping interchangeably. However, recordkeeping requirements go beyond accounting records. Businesses and individuals are usually also required to keep records because of labor laws or tax filing purposes.