Employee record keeping is an essential task for businesses, big or small. In addition to staying organized, companies need to comply with various laws and regulations that dictate how long they must retain employee records.
Failing to keep these records for the required periods can lead to fines, legal challenges, and other complications. As a business owner, it’s crucial to understand and adhere to these guidelines about how long to keep employee records.
The Importance of Keeping Accurate Employee Records
Accurate employee records are the backbone of effective human resource management. They provide historical data for payroll, track employee progress, support decision-making regarding promotions and terminations, and are essential during audits or legal proceedings. Therefore, having a retention strategy is imperative.
Record Retention Guidelines
While the exact retention periods can vary depending on state laws and specific circumstances, there are general federal guidelines that most businesses should follow. Here is a quick rundown of some essential employee records and their respective retention periods:
1. Payroll Records
Federal law requires that you keep payroll records, collective bargaining agreements, sales and purchase records for at least 3 years. Payroll records should include information regarding hours worked, wages, deductions, and other data related to compensation.
2. I-9 Forms
I-9 Forms, used to verify the eligibility of an employee to work in the U.S., should be retained for at least 3 years after the date of hire or 1 year after the employment ends, whichever is later.
3. Personnel Files
While the Fair Labor Standards Act (FLSA) doesn't set a specified retention period for personnel files, it is wise to keep them for at least 7 years after an employee has left. This period covers potential claims regarding wrongful termination, discrimination, or other employment disputes.
4. Employee Benefits Information
Information related to employee benefits plans such as pension and insurance plans should be retained for at least 6 years after the plan year ends.
5. Occupational Tax
Records related to occupational taxes must be preserved for at least 4 years after the tax due date or the date it was paid, whichever is later.
6. Worker’s Compensation Records
Retention periods for worker’s compensation records can vary by state, but it is generally recommended to keep them for at least 5 years following the end of the policy year.
We have a simple employee record retention guide available for you to download.
Best Practices for Record Retention
Understand the Laws: Stay up to date with both federal and state requirements as they can change and may have specific nuances to consider.
Create a Policy: Develop a record retention policy that details what to keep and for how long, and ensure it is consistently followed.
Use Digital Storage: Consider digitizing your records to save space and facilitate easy retrieval; ensure you back up digital files and maintain security protocols.
Regularly Review Records: Schedule periodic reviews of your records to ensure that you're not keeping anything unnecessary and that all required documents are up to date and retained correctly.
Secure Disposal: When it’s time to dispose of records, do so securely to protect sensitive information.
By maintaining accurate records and adhering to the correct retention periods, you ensure that your business stays compliant with legal requirements and is protected in case of audits or disputes. Managing employee records may not be the most exciting part of business ownership, but it's definitely among the most critical tasks. Stay attentive, stay compliant, and your diligence will pay off in the protection and efficiency it offers your business.