FAR 4.705-2—Pay administration records.
Plain-English Summary
FAR 4.705-2 sets the retention periods for pay administration records used to support labor costs and payroll-related charges on federal contracts. It covers three specific categories of records: payroll sheets, registers, or equivalent records showing salaries and wages paid to individual employees for each payroll period, along with change slips and tax withholding statements; clock cards or other time and attendance cards; and paid checks, receipts for wages paid in cash, or other evidence that employees were actually paid for services rendered. The purpose of the rule is to preserve documentation needed to verify labor payments, support audits, resolve wage and hour questions, and substantiate costs charged to the Government. In practice, this section tells contractors how long to keep core payroll and timekeeping records so they can demonstrate that labor costs were properly calculated, paid, and allocable to the contract. It also gives contracting officers, auditors, and investigators a clear baseline for record availability when reviewing incurred costs or investigating disputes.
Key Rules
Payroll records: 4 years
Payroll sheets, registers, or equivalent records showing salaries and wages paid to individual employees for each payroll period must be retained for 4 years. This category also includes change slips and tax withholding statements.
Time and attendance: 2 years
Clock cards or other time and attendance cards must be retained for 2 years. These records are the primary support for hours worked and are often used to validate labor charging and payroll accuracy.
Proof of wage payment: 2 years
Paid checks, receipts for wages paid in cash, or other evidence of payment for services rendered by employees must be retained for 2 years. This ensures there is documentation that wages were actually disbursed to employees.
Equivalent records count
The rule is not limited to paper documents; equivalent records are acceptable if they serve the same function and contain the same essential information. Contractors may use electronic systems if they preserve the required data and retention period.
Retention period starts from record creation/use
The retention periods apply to the records themselves and are measured from the time the records are created or used for payroll administration, not from contract closeout. Contractors should maintain a system that reliably preserves records for the full required period.
Responsibilities
Contractor
Maintain the specified payroll, timekeeping, and proof-of-payment records for the required retention periods; ensure records are complete, accurate, and retrievable; and preserve equivalent electronic records if used instead of paper documents.
Contracting Officer
Rely on these records, when needed, to evaluate labor-cost support, resolve questions about billed labor, and determine whether the contractor has adequate documentation during contract administration or closeout.
Auditors and investigators
Use retained pay administration records to verify labor charges, test payroll accuracy, confirm employee payment, and investigate questioned costs or compliance issues.
Agency records personnel / contractor records managers
Implement and enforce record retention systems that keep the required documents for the correct periods and ensure records remain accessible for audits, disputes, and other official reviews.
Practical Implications
Contractors need separate retention controls for different payroll documents because the retention periods are not the same: payroll registers are kept longer than time cards and proof-of-payment records.
Electronic payroll systems are acceptable, but only if they preserve the required information and can produce records when requested; poor indexing or data loss can create compliance problems.
A common pitfall is assuming all labor-support records have the same retention period; this section requires careful tracking of 4-year versus 2-year retention requirements.
These records are often critical in incurred cost audits, labor mischarging reviews, and wage disputes, so losing them early can make it difficult to defend billed labor costs.
Contractors should coordinate FAR retention requirements with any longer retention obligations under other laws, contract clauses, tax rules, labor laws, or litigation holds, because the longest applicable requirement controls.
Official Regulatory Text
(a) Payroll sheets, registers, or their equivalent, of salaries and wages paid to individual employees for each payroll period; change slips; and tax withholding statements: Retain 4 years. (b) Clock cards or other time and attendance cards: Retain 2 years. (c) Paid checks, receipts for wages paid in cash, or other evidence of payments for services rendered by employees: Retain 2 years.