Know how long to keep your documents and how long is too long
Have you ever wondered how long you should keep a contract, banking statements and employee records? Or are you keeping every single bill, tax return, insurance invoice and even the parking ticket that you received 10 years ago? If you answered "yes," you are not alone. Many business owners are unsure as to how long they should retain business documents and records. The Arthur Andersen trial certainly raised public awareness about the perils of document destruction. Nevertheless, if you and your employees follow a well-crafted document retention policy, you will benefit your business by promoting efficiency, saving your company valuable computer and physical storage space, and protecting your company in the event of litigation.
What Is a Document Retention Policy?
A document retention policy provides for the systematic review, retention and destruction of documents received or created in the course of business. A document retention policy will identify documents that need to be maintained and contain guidelines for how long certain documents should be kept and how they should be destroyed.
Why Does My Business Need a Document Retention Policy?
A document retention policy is important for many reasons. A policy will facilitate your business' operations by promoting efficiency and freeing up valuable storage space. In addition, a document retention policy can protect you in litigation and help ensure compliance with federal and state laws and regulations. While it is important to clear out clutter, tossing the wrong paper or deleting an important e-mail can have disastrous consequences.
As the Arthur Andersen trial demonstrated, not having the right document can mean the difference between winning and losing in a lawsuit. For example, if you sue ABC Company because ABC owes your business money, it will be nearly impossible to win the case unless you have documentation of the debt. On the other hand, the intentional destruction of documents relevant to pending or future litigation can also severely undermine your business' position in litigation. If a litigant requests a document that you cannot provide because it has been destroyed, then a judge or jury may in some circumstances be permitted to conclude that the document contained information detrimental to your position. The primary exception to this rule is if the destruction of the document was reasonable. Evidence of a clear and consistently enforced document retention policy, enacted for valid purposes, will go a long way to convince the court that the destruction of a document was reasonable.
What Sort of Records Should a Document Retention Policy Cover?
Lawsuits from current and former employees are common. It is important for you to maintain these records accurately and in their entirety. Employee records should be retained for the length of the employee's tenure with your business, and then for an additional period of time in the event an employee files a lawsuit. Many document retention policies retain employee documents for at least five years after an employee leaves the company.
Accounting and Corporate Tax Records
It is extremely important that you maintain a record of your business transactions such as tax returns, gross receipts and expense receipts. Except in a few cases, the law does not require you to retain any particular documents. The IRS does, however, require that your books show your gross income, as well as your deductions and credits. You should therefore maintain a record of your business transactions and supporting documentation. Additionally, federal tax returns should be kept permanently.
Legal documents are some of the most important documents you may retain. Careful preservation of contracts, land records and intellectual property documents often means the difference between winning and losing a particular claim.
Maintenance and destruction of electronic records, such as computer disks, e-mails, hard drives and Web pages, may be the most difficult part of the document retention policy. When you develop your document retention policy you should consult with employees and consultants who perform maintenance on your business' computers. They will be able to adjust their own policies to ensure your electronic data is maintained as consistently as your hard data.
For More Information
To obtain a model document retention policy and a more detailed listing of documents and applicable federal and state laws, check out the NFIB Legal Foundation's Small-Business Guide to Document Retention. This book is the newest addition to the NFIB Legal Foundation library of advisory materials, which include the Federal Employment Law Handbook, Small-Business Guide to Handling OSHA Inspections and Helpful Tips for Hiring a Lawyer.