A Guide to Employee Benefit Record-Keeping and Reporting

This post outlines the significance of managing employee benefits and compliance in the United States. It covers three key employee record types, federal requirements, and offers insights into precise accounting for employee benefits. Ensure compliance and effective budget management with this valuable information.

Oct 11, 2023 7.6 minute read
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Employee benefits compliance is a key component of operating a business. United States employers are required to ensure that employee benefit plans are compliant with all relevant laws, such as HIPAA, COBRA, and ERISA, among others. Businesses that fail to comply with these laws are at risk of financial penalties, the potential loss of tax advantages, and in some cases, criminal charges. Due to the serious consequences of non-compliance, many businesses seek professional guidance to ensure that their internal methods and policies conform to all applicable Federal and State standards. At Wisterm, our team of business consultants can help your business ensure that all of your employee benefit plans are fully compliant with federal and state laws.

What Are the 3 Main Types of Employee Records?

For most businesses, employee records fall into three main categories: personnel, payroll, and medical. Maintaining these records correctly is vital, for both legal and business-related reasons.

Personnel Records

Personnel records include all documents related to an employee’s history at the company. This may include contact information for the employee, employees emergency contacts, hiring documents, training records, performance reviews, and more.

I-9 forms should not be kept with personnel records. Instead, employers should consider storing these documents separately in case the business is subjected to an immigration investigation or audit. Separating these documents helps protect employee privacy and protects the business by lowering the risk of facing subsequent employment investigations.

Payroll Records

A company’s payroll files should include all documents related to an employee’s benefits, salary, and financial awards (such as commissions). Key documents to keep in this category include W-4 and W-2 forms, direct deposit information, and timesheets.

Medical Records

Employers should retain applications for all health-related employee benefits, including healthcare coverage, life insurance, and all other benefit offerings. If applicable, medical record files should also include paperwork related to Americans with Disabilities Act (ADA) requests, injury reports from the Occupational Safety and Health Administration (OSHA), and Family and Medical Leave Act (FMLA) documents related to employee leave requests.

What Are the Federal Requirements for Record-Keeping in the United States?

As per the United States Department of Labor (DOL), all employers covered under the Fair Labor Standards Act (FLSA) are required to keep certain types of records for all covered, nonexempt workers. These records must include up-to-date information on all employees, including data on how many hours they have worked and how much money they have earned.

The DOL requires all FSLA employers to maintain the following types of basic records:

  • The full names and social security numbers of all employees
  • Addresses
  • Genders
  • Job titles
  • Birth dates for employees under age 19
  • Frequency of wage payments
  • Hourly rates
  • The day and time that each employee’s workday begins
  • Hours worked each day and total weekly hours
  • Total wages for each pay period
  • Deductions and additions to employee wages
  • Payment dates and pay periods for each payment

These are the basic requirements of all FSLA-covered employers, but some businesses may need to keep other types of records.

How Do You Record Employee Benefits in Accounting?

Accurate record-keeping and accounting for employee benefits is crucial, especially for small businesses looking to stay within a budget. Employers should keep meticulous records of how much is spent on all fringe benefits, which GovInfo defines as any benefits provided to employees as compensation in addition to regular wages and salaries. These benefits include insurance policies, unemployment benefit plans, pensions, and the costs of leave.

Calculation of Annual Benefits Costs

To accurately estimate annual expenditure on employee benefits, divide the total annual cost of these benefits by the cumulative wages earned by employees during the same period. This calculation should include a comprehensive list of fringe benefits, including:

  • Medical, disability, accident, and life insurance
  • Retirement account contributions
  • Educational and work-related expense reimbursements
  • Employee discounts
  • Flexible spending accounts
  • Performance bonuses and awards
  • Employer-provided vehicles, phones, and meals
  • Paid time off, including vacation, sick days, personal days, bereavement, and holidays
  • Fitness center memberships
  • Event tickets and commuting passes
  • Relocation costs

Example Calculation of Specific Employee Benefits

Assume an employee is paid $20 an hour with 2,080 working hours each year, at 8 hours each day and 5 days each week, over 52 weeks. Out of those 52 weeks, the employee is allotted 5 sick days, 6 paid holidays, and 14 days of paid time off, adding up to 25 days or 200 non-working hours. In this example, the employer’s cost for these 200 hours would be $4,000, calculated by multiplying 200 hours by $20.

Additional benefits for this employee include $8,000 in health and life insurance coverage, $2,000 in 401(k) contributions, $300 in holiday gifts, $200 in meals, $4,000 in tuition support, and $2,500 for using and maintaining a company vehicle. The total annual fringe benefit cost for this specific employee would be the sum of the non-working hours and all other fringe benefits, which is $21,000.

Statutory Financial Obligations

Employers are federally mandated to contribute a fixed percentage of wages toward Social Security and Medicare taxes on behalf of their employees. Additionally, state laws may require employers to subscribe to state disability and workers’ compensation systems. State and federal unemployment insurance policies are also mandatory.

Although these costs are directly paid to governmental agencies and not to employees, they still constitute liabilities that arise from employment and should therefore be included in the company’s overall fringe benefits cost calculation.

Accounting for Employee Benefits

Accounting records should note the amounts deducted from employee paychecks for benefits as credit entries under their respective accounts. Fringe benefits provided should be recorded as debit entries under wages paid. The net payroll payable can then be determined by subtracting the total credits from the total debits.

A separate entry should be made to account for employer-incurred expenses as a debit. This debit entry should be balanced by listing the sum of expenses as credits. These accounting entries should be made each pay period.

Learn More From Our Employee Benefits Consultants

Ensuring that your company’s employee benefits are compliant can be a very convoluted process, especially on the subject of record-keeping, reporting, and federal and state guidelines. Our experienced employee benefits consultants at Wisterm help companies through these processes to ensure that they are meeting all federal and state requirements. If you have any questions about record-keeping, reporting, accounting, or any other matter related to compliance with employee benefits, you can learn more by contacting our team at [email protected].

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