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How long do I really need to retain payroll records?

If you use enterprise content management to automatically destroy payroll records after six years, don't change your retention schedule. The Lilly Ledbetter Fair Pay Act does not override record retention laws.

How long do I really need to retain payroll records?

To answer this question, we need to start with an introduction to Ms. Lilly Ledbetter.

Lilly Ledbetter worked as a supervisor at a Goodyear Tire & Rubber Company store in Alabama for over 20 years and filed a wage discrimination (equal-pay) complaint against the company in 1998, six months before her early retirement.

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After a series of lengthy court battles, the U.S. Supreme Court ultimately invalidated her complaint since Title VII of the Civil Rights Act of 1964 stipulated that lawsuits involving pay discrimination must be filed within 180 days of when the pay decision was agreed upon, not the date of the most recent paycheck.  Since Ms. Ledbetter claimed that she had been underpaid by Goodyear long before filing suit, the 180 day period to file a claim had long expired.

To counteract this discriminatory law, The Lilly Ledbetter Fair Pay Act of 2009 was adopted by the 111th Congress, and signed into law by President Barack Obama in January 2009. This new law amended the Civil Rights Act of 1964 and now allows employees the ability to file charges of pay discrimination within 180 days of their most recent paycheck. This fair pay act closes the loophole that the U.S. Supreme Court created by nullifying Ms. Ledbetter’s lawsuit.

Questions about Indefinite Retention

Within weeks of this new fair pay act legislation, several articles began to appear declaring that employers need to immediately modify their records retention polices and begin retaining records that involve pay decisions indefinitely. This was in direct response to the extension of the 180 day time limit, which in essence, creates a rolling time-frame for filing wage discrimination lawsuits.  This means that the clock renews each time the employee receives a paycheck with compensation that is based on a discriminatory decision by their employer. The law also sets a 2-year limitation on the period for which lost wages can be recovered.

As a certified records manager for over 15 years, reading these articles stating that organizations need to retain payroll records indefinitely seemed to counteract the basic tenets of records retention requirements.  I just couldn’t believe this new fair pay legislation would intend to create a situation where organizations would be required to retain all payroll records for long periods of time. This would certainly place an undue burden on an organization’s records retention practices, and lead to excessive costs in handling discovery requests during litigation. 

An Expert's Opinion  

To obtain another opinion on this issue, I contacted Donald Skupsky, president and CEO of Information Requirements Clearinghouse, and an authority on records retention.  Mr. Skupsky noted that the normal retention period for payroll records is six years. So for organizations involved in wage discrimination lawsuits, they would only have the last six years’ worth of payroll records available for review.

“Since records retention laws support a six-year retention period for payroll records, and there is no duty to keep these records in contemplation of discrimination litigation, I doubt if any judge would dare find the retention practice unlawful -- they just have NEVER second-guessed a reasonable retention period that complies with the published legal requirements.” 

Thus, even though the intent of the new fair pay act is to allow review of compensation for all previous years of employment, in reality, current records retention laws would supplant this indefinite records retention constraint.

Where Does This Leave Us?

The Lilly Ledbetter Fair Pay Act of 2009 certainly makes it easier for employees to file wage discrimination lawsuits, but not at the expense of requiring organizations to retain payroll records indefinitely. Records retention laws for payroll records have been in existence for years, and there is no legitimate reason to abandon the six-year retention requirement due to this one legislative act.

Therefore, before automatically retaining your payroll records indefinitely, seek out legal counsel and get their advice on this issue. As for me, I plan to continue retaining our company payroll records for six years.

I welcome your questions and comments.