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For many UK employers, the challenge isn’t just paying staff on time, but also keeping accurate, compliant records that stand up to HMRC’s scrutiny.
Think of payroll records as the blueprint of your business’s financial health. When they’re clear and well-structured, employers avoid penalties, maintain employee trust, and ensure smoother audits.
This guide will walk you through payroll records, what they are, how long to keep them, the documents you must retain, the best ways to store them, and what can happen if your records aren’t up to standard.
What Is Payroll Record Keeping?
Payroll record keeping is the practice of maintaining accurate and organised records of employee pay, hours worked, and deductions. This includes documents like pay slips, tax forms, and overtime logs.
Beyond being a legal requirement, keeping these records helps you understand your payroll costs, track employee hours, and ensure everyone is paid correctly.
Why Payroll Records Matter For Employers?
One of the most important things for any business is keeping detailed payroll records. Not only does it keep you compliant with UK regulations, it also makes HMRC (HM Revenue and Customs) audits much easier to manage.
Learn what to expect and how to prepare with this detailed guide on HMRC compliance checks.
What Is A Payroll Record?
A payroll record is an official document that shows details of an employee’s pay and related information. It typically includes:
- Employee’s personal details (name, job title, employee ID)
- Hours worked or salary details.
- Gross pay and net pay.
- Deductions (tax, pension, insurance, etc.)
- Employer contributions.
- Pay period and payment date.
What Are The Payroll Record Retention Laws In The UK?
UK law sets out rules about exactly what payroll and employee-related records you must keep, how long you must keep them, and what happens if you don’t. Knowing these laws helps you avoid fines and protects you if there’s a dispute.
Here is what the law requires:
- Employers must keep accurate payroll records of wages, deductions, tax reports, employee leave, sickness absences, etc.
- For most payroll / PAYE-related records, the minimum is 3 years from the end of the tax year they relate to.
- For National Minimum Wage compliance, the law requires you to keep records for at least 6 years. This was increased recently (from former shorter periods) to ensure records are available to check that you complied.
What Happens If You Don’t Follow The Laws?
Failing to meet record-keeping rules can lead to real financial and legal trouble. Here’s what could happen:
- HMRC might check payroll records. If you don’t have what’s required, you may face fines, or HMRC may estimate what you owe and charge you penalties.
- Violations of data protection laws (e.g., GDPR) could lead to investigations, fines, and reputational harm. Keeping data too long, or failing to protect it, gives cause for action.
Why Do Payroll Records Need Extended Retention?
There are situations where keeping payroll records for extra years can save you from major problems later.
- Some laws have longer time limits for bringing legal claims. For example, the Limitation Act 1980 allows many contract or pay-related complaints up to 6 years after the event. If you delete records too soon, you may have no proof if someone sues you after several years.
- GDPR (General Data Protection Regulation) and the Data Protection Act require that you don’t keep personal data longer than necessary. But “necessary” often means based on legal, tax, or business reasons. If there is a reason, like a dispute, you have to justify why you kept it.
Understand how GDPR impacts payroll in the UK with this detailed guide.
When Do You Need to Keep Payroll Records For Longer?
Keeping payroll records usually means 3 to 6 years, but some situations need extra-long storage.
- Family Leave (Maternity, Paternity, Adoption, Shared Parental Leave): Keep these records for 4 years after the tax year the leave ended. For example, if an employee’s parental leave ended in March 2025, keep the records until at least April 2029.
- Workplace Accidents: If there’s an accident at work, keep the record for 3 years after the last note in it.
If the accident involved someone under 18, keep it until they turn 21, because they might raise issues later. - Hazardous Substances (Chemicals, Asbestos, or More): Some health and safety records need to be kept for a very long time, up to 40 years. That’s because health problems caused by exposure can take decades to show up.
- Dismissals and Redundancies: If someone is let go or made redundant, keep those records for 7 years. This way, you’re covered if any disputes or claims arise long after they leave.
What Are Employee Payroll Record Retention Requirements?
Running PAYE isn’t just about paying people on time; it’s also about keeping HMRC happy. As a UK employer, you’ve got to follow the rules, which means your payroll records need to be clear, accurate, and always up to date.
Curious about what records you actually need to keep? Let’s break it down in the next sections.
Mandatory Records Under HMRC and PAYE
To stay fully compliant with Pay As You Earn (PAYE) regulations, HMRC expects you to keep a detailed set of payroll records.
Here’s what you should keep on file:
- Payments to Employees: Salaries, wages, overtime, bonuses, commissions.
- All Deductions: Income tax, NICs, student loans, pensions, and any court-ordered deductions.
- Reports to HMRC: RTI submissions and any corrections.
- Sickness, Leave, and Statutory Pay: SSP, SMP, SPP, and other statutory payments.
- Taxable Expenses And Benefits: Items reportable via payroll or P11D.
This matters a lot because if HMRC comes checking, they’ll want to see the story behind your payroll. Having everything in order not only keeps you compliant but also saves you from investigations or penalties later.
Special Considerations: Off-Payroll Working (IR35)
When you hire contractors or freelancers, IR35 (off-payroll working) rules apply. One of your key responsibilities is working out their employment status for tax, and it’s important to document that process clearly.
Here’s what should go in your records:
- Contracts, scopes of work, and day-to-day practices (they show how the work was actually carried out).
- Status determinations along with the evidence behind your decision.
- Payment records and any communications related to the engagement.
And don’t forget: IR35 records need to be kept for at least 6 years after the contract ends. If you don’t, you could face penalties or fines from HMRC, so keeping them safe and organised really protects you.
Get key HMRC payroll information every UK employer needs in this detailed guide.
Which Payroll Documents Do Employers Need to Keep?
Let’s walk through some of the key payroll documents you’ll want to keep on top of.
1. Payslips
Every employee must receive a payslip on or before payday. It should show:
- Gross pay, all deductions (tax, NICs, pensions, fixed deductions), and net pay.
- Any variable elements (overtime, commissions) and fixed items (e.g., union subscriptions).
2. Form P11D: Benefits and Expenses
Some perks don’t go through payroll, things like company cars, private medical insurance, or even interest-free loans. For these, you’ll need to use form P11D to report them as benefits in kind.
Make sure your records clearly show:
- What the benefit or expense was.
- Which employee received it.
- The cash equivalent value and how you worked it out.
3. Payroll Registers and Calculations
Payroll registers act like a summary of each pay period, covering wages, overtime, bonuses, deductions, and net pay for everyone on staff. They also show exactly how tax and NICs were worked out and auditors usually ask to see these first.
4. Time and Attendance Records
For staff on hourly or variable hours, time and attendance records are a must.
These records show that they:
- Show proof of hours worked, overtime, and any leave taken
- Keep you compliant with Working Time Regulations (like weekly limits and rest breaks)
- Confirm that staff are being paid at least the minimum wage
5. Tax Code Notices
HMRC tax code notices tell you which tax code to apply. Using the wrong code can mean the wrong tax deduction.
Keep tax code notices for at least 3 years after the tax year ends, so you have proof of why a code was applied.
6. Records of Pay and Deductions
These records contain everything that was paid or deducted.
Some examples of each include;
- Pay: basic salary, overtime, bonuses, commissions.
- Deductions: income tax, NICs, pensions, student loans, attachment of earnings.
7. Real Time Information (RTI) Submissions
Under RTI (Real Time Information), you must report payroll data to HMRC on or before each payday.
It is important to keep a record of:
- Each submission made.
- What was reported (earnings, deductions).
- Any corrections or year-end adjustments.
8. Payments to HMRC
Make sure you keep proof of every payment made to HMRC for tax and National Insurance Contributions (NICs). These records are your evidence that everything was paid correctly and on time. They should clearly show:
- The amount paid
- The payment date
- The tax period it covered
9. Employee Leave and Sickness Records
You’ll need to keep track of all types of absences, like holidays, sick days, or family-related leave, as well as any statutory payments made, such as Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), or Statutory Paternity Pay (SPP).
These records make sure employees are paid correctly, show proof of what they’re entitled to, and can even help you plan ahead by spotting patterns in absence. Keep them safely for at least 3 years.
Understand occupational sick pay in the UK with this detailed guide.
10. Records of Taxable Expenses & Benefits
Make sure you document any taxable expenses or benefits, like company cars, private healthcare, or gym memberships, as well as any reimbursed expenses. Your records should show what was provided, who received it, and how the taxable value was calculated.
By law, you need to keep these for at least 3 years, but in more complex or high-risk cases, holding onto them for up to 7 years is a safer bet.
11. Form P45 & Form P60
Two forms you’ll always come across in payroll are the P45 and the P60.
A P45 is given to an employee when they leave, showing their pay and tax for the year so far, while a P60 sums up total pay and deductions at the end of the tax year for those still on your books.
12. Minimum Wage Compliance Records
You’ll need to show that every employee is paid at least the National Minimum Wage or National Living Wage. To do this, keep clear records of hours worked alongside pay received- payslips and time records are both essential.
You should also record any deductions that affect the minimum wage calculation.
For records created on or after 1 April 2021, keep them for at least 3 years. If you can’t show compliance, you risk penalties and even public “naming and shaming” by HMRC.
How to Keep Payroll Records?
Once you know what to keep, focus on how to store it: securely, consistently, and in line with GDPR.
1. Use Secure, Centralised Storage (Digital + Backups)
The best way to store payroll records is digitally in a secure, centralised system. Modern cloud-based HR or payroll platforms usually come with built-in encryption, role-based access, and audit trails, which makes compliance and organisation much simpler.
To stay safe, choose a reputable UK/EU-compliant platform, give access only to authorised users, and back up your data regularly to a separate secure location. If you still need paper files, keep them locked away in fire-resistant cabinets.
Whatever system you use, make sure it’s secure and backed up; your future self will thank you!
2. Apply Legal Retention Policies (3 to 6-Year Framework)
Write down a clear policy that explains which records should be kept and for how long. If you can, use automation so the system reminds you when a record needs to be securely deleted. Here is a summary of typical retention periods:
| Record Type | Recommended Retention Period |
|---|---|
| PAYE Records | 3 years from end of tax year (minimum) |
| Salary, Pay & Pension Records | 6 years after employment ends |
| Sickness Absence Records | 3 months to 6 years after employment ends |
| Maternity/Paternity Leave | 3 years from end of tax year leave ends |
| Working Time Records (e.g., hours worked) | 2 years |
| Redundancy Records | 6 years after redundancy |
| Application & Recruitment Records | 6 to 12 months |
3. Enable Audit Trails and Conduct Regular Reconciliation
An audit trail records who accessed or changed payroll data and when, and most modern payroll systems include this as a standard feature.
It’s especially useful if you ever face an audit. You can make the process smoother by keeping each employee’s documents in one place, using clear and consistent file names, and running regular checks with summary reports to catch and fix errors early.
4. GDPR Compliance: Limit Access, Secure Deletion
Payroll data is highly personal, so it needs extra care under GDPR. Access should only be given to people who need it for their job, and records shouldn’t be kept any longer than necessary.
When it’s time to dispose of data, make sure it’s securely deleted, permanently erased or shredded, not just dropped in the recycle bin.
Ignoring these rules can lead to action from the ICO (Information Commissioner’s Office) and heavy fines.
5. Disaster Recovery: Lost Records Protocol
Your plan should include regular backups stored somewhere separate (off-site or in a different cloud system), clear roles and steps for what to do if something goes wrong, and tested recovery procedures so you know everything can be restored if lost in a fire, flood, or cyber-attack.
What Are the Consequences of Poor Payroll Record-Keeping?
Poor payroll records can turn into big issues like audit fines, stressed teams, and lost employee trust that harms your reputation.
1. HMRC Penalties and Financial Charges
If your payroll records are wrong or incomplete, HMRC can penalise you up to £3,000 for poor PAYE record keeping. In more serious cases, you could face investigations that result in backdated tax bills, added interest, and extra penalties.
2. National Minimum Wage & Pension Compliance Risks
You need to keep proof that your staff are paid at least the National Minimum or Living Wage and that workplace pensions are set up correctly. This means recording who is eligible, who has been enrolled, how much has been contributed, and anyone who has opted out.
If these records are missing or inaccurate, HMRC or The Pensions Regulator can step in with enforcement action- bringing arrears, fines, and damage to your reputation.
3. Legal Exposure, Tribunal Risks & Criminal Liability
Many employment disputes, like tribunal claims, unfair dismissal, discrimination, or unlawful deductions, depend on good records. Without detailed payroll and HR documentation, defending your case becomes harder and more costly.
In serious situations involving deliberate non-compliance or fraud, directors could even be held personally responsible.
4. HMRC Audits & Investigations
Audits can feel stressful, especially if your payroll records are messy or incomplete. Keeping your files well organised makes everything quicker and easier, showing that you have a good payroll risk management system in place.
To stay on top of things, keep a central folder with policies, RTI logs, and payment proofs, run regular checks to make sure your data is accurate, and assign someone to handle all audit requests.
Payroll Management Made Easy with Direct Payroll Services
Managing payroll records can feel overwhelming, but we handle it so you don’t have to. Our goal is to make managing payroll simple and stress-free, ensuring your business stays compliant while maintaining correct and secure employee records.
With our expertise and experience, Direct Payroll Services confidently manages everything from digital payroll histories to HMRC reporting. Whether you’re running a small business or handling complex payroll needs, we work efficiently to keep your records organised, compliant, and up to date.
Contact Direct Payroll Services today and keep your business running smoothly!
Conclusion
Keeping your payroll records in order might feel like a chore, but it really takes the stress out of running your business. When everything is stored safely, with clear rules on how long to keep records and simple processes in place, you can answer questions in a flash, be ready for audits, and sleep easier knowing it’s all under control.
Frequently Asked Questions
What information must be in payroll records for HMRC compliance?
Your payroll records must include employee details (name, address, NI number), gross and net pay, all deductions (income tax, NICs), statutory payments, tax codes, and copies of PAYE submissions (e.g., RTI, P60).
How can small businesses streamline payroll record management?
Small businesses can use payroll software to automate calculations, store records in one place, apply retention rules, and keep audit trails. Having a simple written procedure also helps keep the process consistent.
How long should you keep records for ex-staff?
It’s best to keep payroll and employment records for ex-staff for 6 years after they leave. This protects your business in case of legal claims, such as breach of contract.
How long should you keep records for contractors and freelancers?
You should keep contracts and agreements with contractors and freelancers for 6 years after the contract ends. Payment records should be retained for 7 years from the end of the last tax year they relate to.
Can I delete all payroll records after 4 years?
No, you should not delete all payroll records after 4 years. While the legal obligation for some records is 3 years, the recommended practice is 6 years to protect against employment law claims.
What records need to be kept for 7 years?
While not a common legal requirement, it is recommended to keep documentation related to dismissals and redundancies for 7 years after employment ends.
What information should be included in payroll records for PAYE compliance?
For PAYE compliance, payroll records must include employee data, gross pay, all tax and NI deductions, details of benefits, tax code notices, and all reports submitted to HMRC such as RTI submissions, P45s, and P60s.
Are there any differences in payroll record keeping for off-payroll working or IR35?
Yes. For IR35, you must keep detailed records showing how you determined the contractor’s employment status. This proves to HMRC that you complied with off-payroll working rules.
What digital tools or software can help with payroll record keeping?
Cloud-based payroll software and integrated HR software are excellent digital tools for record keeping. They offer secure data storage, automated retention policies, audit trails, and centralised documentation.
What details must be included in employee payroll records to meet HMRC requirements?
To meet HMRC requirements, employee payroll records must include personal employee data (name, NI number), gross pay, details of all deductions, net pay, tax code notices, statutory payments, and copies of all PAYE submissions like P60s and RTI reports.
How can small businesses manage payroll record keeping efficiently?
Small businesses can manage payroll record keeping efficiently by adopting best practices like using integrated payroll software for PAYE, establishing clear retention policies for documentation, and using secure cloud storage to keep records organised and accessible for audits.
How to record employer payroll taxes?
Record them as a payroll tax expense with matching liabilities, then reduce liabilities when taxes are paid.
What are the IRS payroll record retention requirements?
The IRS requires employers to keep payroll records for at least 4 years after the tax is due or paid, whichever is later.
What is a payroll record form?
A payroll record form documents employee pay, hours worked, tax deductions, and benefits. It ensures compliance and provides proof in case of audits or disputes.
