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The FLSA requires employers to keep payroll records for at least three years and retain timesheets and other documents that show how wages were calculated for at least two years. What’s more, the IRS mandates that businesses keep payroll tax records for four years, and some states have payroll recordkeeping requirements with longer lengths of retention than the federal government.

Understanding the Fair Labor Standards Act’s (FLSA’s) laws on overtime is essential. Overtime is any time worked beyond 40 hours in a workweek. If an employee puts in overtime hours, you must pay overtime wages. Overtime wages are one and one-half times the employee’s hourly wages for hours worked over 40 each workweek. For example, if an employee earns $16 per hour and works three hours of overtime, they would earn a total of $72 in overtime wages ($16 X 1.5 X 3).

Benefits are an important part of an employee’s full compensation package. Fringe benefits include health insurance, educational assistance, and stock options. Fringe benefits can be taxable or nontaxable. Nontaxable fringe benefits are not subject to federal income tax withholding, FICA tax, or FUTA tax. The IRS determines the taxes that apply to different types of fringe benefits.

When bring on a new employee for payroll, employers need the individual’s Social Security Number, as well as completed and signed copies of Form I-9, Employment Eligibility Verification, Form W-4, Employee’s Withholding Certificate and State Withholding Certificate.