It’s time to review (or create) your document retention policy

Benefits of a Document Retention Policy

Are you worried your company wouldn’t have a particular document available if the IRS audited it? Are you scared you would struggle to produce relevant evidence in a former employee’s wrongful termination lawsuit because mounds of other paperwork bury written warnings and performance appraisals?

Innovative businesses ease such concerns with proactive measures. They create a document retention policy that clarifies what needs to be saved, where, and for how long. Sticking to a set record retention policy eliminates guesswork and promotes efficiency. People can find what they want when they need it without hassle.

Defining what types of documents your organization must keep as a record, their retention period, and their destruction policy also gives your organization credibility in the eyes of outsiders. Courts and government agencies frown upon individual employees selectively keeping or tossing essential documents. Such action raises concern about cover-ups. It backs up your decisions when you can show a thoughtful, standardized records management procedure to a relevant third party, such as a lawyer or auditor.

Businesses and nonprofits of all sizes should possess a written document retention policy. As you construct or perfect yours, consider the following.

The importance of a records retention policy team

Developing recordkeeping requirements and retention schedules is far from a one-person endeavor. Creating an effective documentation retention policy involves reviewing company and human resources requirements, state law, federal law, industry and governmental regulatory requirements, and insurance policies. Assembling a team that approaches the process from different angles and spheres of expertise can prove valuable.

Input from senior management, human resources, and the record-keeping department is necessary. Likewise, the number of electronic records kept nowadays includes representatives from the IT department. They can address concerns related to storage, automation, security, back-ups, and destruction of documents. As financial statements, tax returns, and similar types of records will concern all organizations, including your CPA or a similar accounting professional on the team, it is a smart move.

Legal consult proves especially helpful in matters involving the organization’s litigation hold policy. Their advice places a legal hold on physical and electronic records that should not be deleted because of potential future use. This forward-thinking measure may, for instance, preserve records about an employee who has expressed concern about harassment in case he or she later takes the matter to court.

Document retention requirements for standard business records

Each business and nonprofit must evaluate its situation to develop accurate document retention schedules. Factors such as industry and the state in which the organization is located can come into play.

When constructing your policy, examine legal and regulatory guidelines. They provide a good foundation for establishing the records you need to keep and how long. Always research rather than assume. Requirements may prove surprising.

As a starting point, consider what these organizations say about some significant types of records to keep and for what length of time:

Per the Internal Revenue Service:

The length of time you should keep a document depends on the action, expense, or event that the document records. Generally, you must keep records supporting an item of income, deduction, or credit shown on your tax return until the period of limitations for that tax return runs out. The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.

Keep records relating to the property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure out any depreciation, amortization, or depletion deduction. Figure your basis for computing gain or loss when you sell or otherwise dispose of the property.

If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later.

Keep copies of your filed tax returns permanently.

Per U.S. Citizenship and Immigration Services

Never dispose of a current employee’s Form I-9; you must keep it for as long as the employee works for you, and for a certain amount of time after they stop working for you. This requirement applies even if the employee ends employment shortly after you hired them. Only when an employee stops working for you should you calculate how much longer you must keep their Form I-9. Federal regulations state you must retain a Form I-9 for each person you hire for three years after the date of hire, or one year after the date employment ends, whichever is later.

Per the U.S. Department of Labor

Employers covered by the Family and Medical Leave Act (FMLA) are required to make, keep and preserve certain records pertaining to their obligations under the law. (See website for specifics.) Employers must keep the records specified by FMLA regulations for no less than three years and make them available for inspection, copying and transcription by DOL representatives upon request.

Under the Fair Labor Standards Act (FLSA), every covered employer must keep certain records for each non-exempt worker (see site for specifics). The Act requires no particular form for the records, but does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned. Each employer shall preserve for at least three years payroll records, collective bargaining agreements, sales and purchase records. Employers should retain records on which they base wage computations for two years. Examples include time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.

Per the U.S. Equal Employment Opportunity Commission

All Personnel and Employment Records made or used (including, but not limited to, requests for reasonable accommodation, application forms submitted by applicants, and records dealing with hiring, promotion, demotion, transfer, lay-off or termination, rates of pay, compensation, tenure, selection for training or apprenticeship, or other terms of employment) must be preserved for the following periods:

• Private employers must retain such records for one year from the date of making the record or the personnel action involved, whichever occurs later, but in the case of involuntary termination of an employee, they must retain the terminated employee’s personnel or employment records for one year from the date of termination.

• Educational Institutions and State and Local Governments must retain such records for two years from the date of the making of the record or the personnel action involved, whichever occurs later. In the case of involuntary termination of an employee, they must retain the terminated employee’s personnel or employment records for two years from the date of termination.

Employers must keep records if someone files a discrimination charge under Title VII, the ADA, or GINA. Employers must also keep records if the Commission or Attorney General brings a civil action. The records must be kept by the respondent. The respondent could be a private employer, state or local government employer, educational institution, labor union, or apprenticeship committee. All records related to the charge or action must be retained. These records must be kept until the charge or action is resolved.

Plenty of other factors will influence your document retention policy, too. Know how the Sarbanes-Oxley Act affects the recordkeeping of publicly traded companies. Become familiar with Occupational Safety and Health Administration (OSHA) recordkeeping requirements as they pertain to your organization. Figure out what documents need to be kept for potential insurance claims. Identify items to archive for permanent retention, such as licenses, incorporation records, permits, patents, charters, training manuals, and annual reports.

For further assistance in thinking about which records to keep and for how long, see Business Management Daily’s Record Retention Schedule Guidelines for Every Office Document.

The Uniform Preservation of Private Business Records Act (UPPBRA)

Even the most diligent teams may end up with some records. They may be unsure how long to keep these records. When this happens, the Uniform Preservation of Private Business Records Act serves as a guideline.

UPPBRA basically states that businesses should keep records not covered under statute-specific retention periods for at least three years. Document your search efforts to find the pertinent legal requirement. Note that you invoked this three-year retention period when unable to obtain an answer. Then, suppose you missed a legal requirement during your search. In that case, you have documentation to show the judge or regulatory agency that your organization had made a good-faith effort to comply with the law.

Other considerations

Do not go through all the trouble of creating a document retention policy only to bury it somewhere. Problems arise when companies leave employees to their own devices when handling records. Employees may keep everything for fear of inadvertently destroying something the company should retain. Or, they may be too quick to dispose of something that to the untrained eye looks old or unnecessary.

Do not expect employees to inherently know what stays and what goes. A good company records policy defines what your organization considers a business record. Basically, the term refers to evidence of business-related activities, such as events, transactions, discussions, and communications. Some types of business records, such as tax forms and legal documents, are relatively easy to spot. Others, such as emails and social media posts, are not so obvious. Be certain employees know not only your organization’s precise definition of a business record. Also the various forms such records may take.

Finally, realize that document retention policies may need revision over time. Your policy team members should stay aware of new laws. They should also remain mindful of other changes. These changes impact what you keep and for how long.

Conclusion

A well-crafted document retention policy is essential for businesses and nonprofits. It ensures legal compliance, streamlines operations, and protects against potential risks. To create an effective policy, organizations should assemble a diverse team with expertise in various areas, such as legal, IT, and accounting. Researching legal and regulatory guidelines is crucial to determine the appropriate retention periods for different types of records.

The Internal Revenue Service, U.S. Citizenship and Immigration Services, U.S. Department of Labor, and U.S. Equal Employment Opportunity Commission provide specific requirements for recordkeeping. Organizations should also consider industry-specific regulations and consult the Uniform Preservation of Private Business Records Act for guidance when unsure about retention periods. Additionally, it’s important to educate employees on the policy, define what constitutes a business record, and regularly review and update the policy to stay compliant with evolving laws and regulations.