If you run a business in Virginia and your instinct is to shred old pay stubs once payroll is "done," July 1, 2026 quietly made that habit a compliance risk. A sweeping wage-and-hour overhaul known as HB 238 rewrote the Commonwealth's core wage payment statute, and buried inside the bigger headlines about contractor liability and worker classification is a rule that touches every employer in the state: you now have to keep pay statements for at least three years.
It sounds like a paperwork footnote. It isn't. HB 238 didn't just add a retention clock — it redefined who counts as an "employer," widened what counts as "wages," flipped the default assumption for gig and contract workers toward employee status, and handed the attorney general new enforcement muscle. The retention mandate is the part that's easiest to overlook and the easiest to get wrong, because it's the one every single business has to act on starting immediately, regardless of industry or headcount.
Here's what actually changed, who it applies to, and how to build a recordkeeping habit that survives an audit, a wage claim, or a former employee's lawyer.
What HB 238 Actually Does
HB 238 amends Virginia Code § 40.1-29, the statute that governs how and when employers must pay wages, and layers several connected changes on top of it:
- A three-year pay stub retention requirement. Employers must keep employees' pay statements for at least three years after the work was performed. This is the baseline rule for every private employer in Virginia, not just larger companies or specific industries.
- An expanded definition of "employer." The law aligns Virginia's definition with the federal Fair Labor Standards Act, covering "any person acting directly or indirectly in the interest of an employer." That broader net can reach staffing arrangements, parent-subsidiary structures, and general contractors — not just the entity that technically signs the paycheck.
- A broader definition of "wages." The statute now explicitly covers hourly pay, salaries, piece rates, day rates, overtime, commissions, tips, and bonuses — closing gaps that some employers previously used to argue certain compensation fell outside wage payment protections.
- A presumption of employee status. Workers are now presumed to be employees unless the hiring business can affirmatively show they meet the IRS's independent contractor criteria. That's a meaningful burden shift: the default assumption used to favor the business classifying the relationship; now the business has to prove the exception.
- Joint and several liability for general contractors. On construction contracts signed after July 1, 2026, general contractors can be held liable for a subcontractor's wage violations — even if the general contractor had no knowledge the violation occurred. Sworn wage-payment certifications no longer function as a legal shield.
- Tougher remedies. Underpayment triggers liquidated (essentially doubled) damages. Knowing violations trigger treble — triple — damages, plus prejudgment interest and attorneys' fees. The Virginia attorney general also gained explicit authority to investigate and bring civil wage claims.
Separately, businesses that work on public works or prevailing-wage contracts face a heavier version of the recordkeeping rule: six years of payroll and classification record retention, on-site posting of prevailing wage rates, and sworn pay-scale certifications from contractors. If you touch any government-funded construction work, treat the six-year window as your baseline, not the general three-year rule.
Why the Retention Piece Matters More Than It Looks
Recordkeeping rules rarely make headlines, but they're the foundation everything else in HB 238 rests on. If a former employee files a wage claim, or the attorney general opens an inquiry, or a subcontractor's misclassified worker sues your business as the general contractor, the first thing anyone asks for is the paper (or digital) trail. Under the old rules, gaps in that trail were an inconvenience. Under HB 238's expanded damages — treble damages for knowing violations, plus interest and legal fees — a missing pay stub isn't just an administrative problem. It's evidence you can't produce in your own defense, in a legal environment where the burden of proof on classification questions has shifted toward the employer.
The classification presumption compounds this. If your business uses any contractors, freelancers, or 1099 workers, you're now expected to affirmatively demonstrate — and document — that the relationship meets the IRS test for independent contractor status. That documentation lives right alongside your payroll records: contracts, invoices, evidence of the worker's control over their own schedule and methods, and proof they work for other clients. Treat classification files with the same three-year (or longer) discipline as pay stubs.
What Counts as a "Pay Statement," and How Long to Actually Keep It
A pay statement generally means whatever you give (or make available to) an employee showing gross wages, deductions, and net pay for a given period — the same document most payroll platforms already generate automatically. The three-year clock runs from when the work was performed, not from when the employee leaves.
Before you set your retention policy to exactly three years and move on, though, it's worth zooming out to the other clocks already running on the same documents:
| Requirement | Retention period | Source |
|---|---|---|
| Virginia pay statements (general) | 3 years | Va. Code § 40.1-29 (HB 238) |
| Virginia payroll/classification records (public works) | 6 years | HB 238, prevailing wage provisions |
| Federal FLSA payroll records | 3 years | U.S. Department of Labor |
| Federal FLSA time cards, wage rate tables, schedules | 2 years | U.S. Department of Labor |
| IRS employment tax records | 4 years after tax is due or paid | Internal Revenue Service |
| Form I-9 | 3 years from hire, or 1 year after termination, whichever is later | U.S. Citizenship and Immigration Services |
Several other states require four to six years of wage record retention, and if you have employees outside Virginia, or you're a Virginia business with remote workers elsewhere, their state's rule can override the three-year floor. The practical takeaway: don't build your retention policy around Virginia's minimum. Build it around the longest period that applies to any record type, in any jurisdiction, where you have employees — and for most small businesses juggling federal, state, and Virginia-specific rules, that means defaulting to four years at an absolute minimum, and six years if you touch public works contracts or operate in a state with a longer wage-record rule.
A Compliance Checklist for July 2026 and Beyond
- Confirm your payroll system is actually retaining pay stubs, not just generating them. Most cloud payroll platforms store historical statements by default, but check the retention setting explicitly — some plans purge data after a fixed window unless you export or archive it yourself.
- Export and back up payroll history outside your payroll vendor. Vendors get acquired, discontinued, or migrated. A local or cloud-storage archive of PDF pay stubs and payroll registers protects you if access to the original system ever lapses.
- Audit every contractor relationship against the IRS independent contractor test. For each 1099 worker, keep the contract, invoices, and evidence supporting their independence (other clients, their own equipment, control over their schedule) in the same retained file set.
- If you do any public works or prevailing-wage contracting, switch to the six-year retention standard now and confirm you're posting prevailing wage rates on site as required.
- If you're a general contractor, get comfortable asking subcontractors for proof of their own wage compliance and recordkeeping — joint and several liability means their gaps can become your liability.
- Set a calendar reminder, not a manual habit. Recordkeeping failures usually happen because someone meant to archive records "eventually." Build the export into your monthly or quarterly closing routine instead.
Keep Your Compliance Records as Airtight as Your Books
Laws like HB 238 are a reminder that "we'll deal with old records later" is a risky default. Beancount.io's plain-text accounting approach gives every transaction a permanent, version-controlled history by design — nothing gets silently overwritten or purged, and you can always reconstruct exactly what was paid, to whom, and when, going back as far as your ledger exists. If wage record retention has you rethinking how your business tracks financial history, get started with Beancount.io for free and see what transparent, audit-ready bookkeeping actually looks like.