Fundamental Payroll Audits and Record Retention Questions and Answers — Questions and Answers
Question 1: An employee was hired on March 1, 2023, and their employment was terminated on May 15, 2025. According to USCIS regulations for Form I-9, what is the earliest date the employer can legally destroy this employee's Form I-9?
- March 1, 2026
- May 15, 2026 (Correct answer)
- May 15, 2028
- March 1, 2025
Correct answer: May 15, 2026
The rule for Form I-9 retention is to keep the form for three years after the date of hire OR one year after the date of termination, whichever date is later. Three years from the hire date (March 1, 2023) is March 1, 2026. One year from the termination date (May 15, 2025) is May 15, 2026. The later of these two dates is May 15, 2026.
Question 2: According to the Internal Revenue Service (IRS), for how long must an employer keep employment tax records after the due date of the return or the date the tax is paid, whichever is later?
- 2 years
- 3 years
- 4 years (Correct answer)
- 7 years
Correct answer: 4 years
IRS regulations require employers to keep records related to employment taxes, such as Forms W-2, W-4, 941, and records of tax deposits, for a minimum of four years after the tax is due or paid, whichever is later.
Question 3: What is the primary purpose of conducting a proactive internal payroll audit?
- To identify overpaid employees for disciplinary action.
- To reduce the number of staff in the payroll department.
- To prepare for an imminent and confirmed government investigation.
- To ensure compliance with regulations and identify process inefficiencies. (Correct answer)
Correct answer: To ensure compliance with regulations and identify process inefficiencies.
The main goal of an internal payroll audit is to proactively review payroll processes and records to ensure the company complies with all applicable laws and regulations, identify any errors or inefficiencies, and correct them before they become larger problems.
Question 4: Under the Fair Labor Standards Act (FLSA), which of the following payroll-related records must be preserved for at least two years, as opposed to the more common three-year requirement?
- Payroll registers summarizing wages paid each pay period.
- Time cards and wage rate tables. (Correct answer)
- The employee's name, address, and Social Security number.
- Collective bargaining agreements.
Correct answer: Time cards and wage rate tables.
While the FLSA requires most primary payroll records to be kept for three years, supplementary records on which wage computations are based, such as time cards, work schedules, and wage rate tables, are only required to be kept for two years.
Question 5: An employer must maintain records related to an employee's leave under the Family and Medical Leave Act (FMLA). What is the minimum retention period for these records?
- 1 year
- 3 years (Correct answer)
- 5 years
- For the duration of employment
Correct answer: 3 years
The Department of Labor (DOL) requires employers covered by the FMLA to make, keep, and preserve records pertaining to their obligations under the Act for a period of at least three years.
Question 6: Which federal law dictates the general record retention requirement for payroll records, such as employee identifying information and total wages paid each pay period, to be at least three years?
- Internal Revenue Code (IRC)
- Immigration Reform and Control Act (IRCA)
- Fair Labor Standards Act (FLSA) (Correct answer)
- Employee Retirement Income Security Act (ERISA)
Correct answer: Fair Labor Standards Act (FLSA)
The Fair Labor Standards Act (FLSA) is the primary federal law governing wage and hour standards, and it mandates that employers must preserve payroll records, collective bargaining agreements, and sales and purchase records for at least three years.
