What to do with employee information, legal records, tax documents and more.
Have you ever wondered how long you should keep contracts, banking statements and employee records? Do you keep bills, tax returns, insurance invoices and even parking tickets that you received 10 years ago?
If you answered “yes,” you are not alone. Many business owners are unsure about how long they should retain business documents and records.
A well-crafted document retention policy can serve as a guide for you and your employees while promoting efficiency, saving valuable computer and physical storage space, and protecting your business if you are sued.
What it is and Why You Need One
A document retention policy identifies important records that you must keep and for what duration. It also contains guidelines for destroying documents with important or sensitive information.
A document retention policy will reduce paper clutter at your small business, make it easier to find files when you need them, and reduce the time you and your employees spend handling and retrieving documents. In addition, a document retention policy helps prevent you and your staff from tossing out the wrong papers or deleting important emails, thus protecting you and your business during litigation and ensuring compliance with federal and state regulations.
Your small business’ document retention policy should include guidelines for:
- Employment Documents. Employee records should be retained for the length of a worker’s tenure with your business and then for an additional period in case an employee files a lawsuit. Many document retention policies call for keeping employee records for at least five years after the individual 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. The IRS requires 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. You should permanently retain federal tax returns.
- Legal Records. Legal documents are some of the most important to retain. Careful preservation of contracts, land records and intellectual property documents often means the difference between winning and losing a particular claim.
- Compliance With Federal and State Laws. Many documents must be kept for a specific period of time pursuant to federal, state or local laws. These laws include tax, employee benefit, occupational safety, and wage and hour provisions, among others.
- Electronic Records. Retention and destruction of electronic records, such as computer disks, emails, hard drives and Web pages, may be the most difficult aspect of your document retention policy. When you develop your 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.
Check out the NFIB Legal Foundation’s Small Business Guide to Document Retention at www.NFIB.com/LegalGuide for a model document retention policy and a more detailed listing of documents and applicable federal and state laws.