NFIB

Employee Records: How Long Do We Have to Save All This Paper?
05/ 27/ 2004

by Charles R. McConnell

Many in business have asked the title question, often in frustration. Even in this electronic age businesses run on paper; consider how much information exists both electronically and in hard copy. Paper, which we seem to have in excess in business, will be with us for some time. And the piles keep getting taller and the files fuller. Can't we ever get rid of some of this?

We can partly conquer the paper plague. The problems lie in determining what must be retained and for how long and deciding how to get unnecessary material separated from the rest.

The employee records of interest to most businesses fall into two categories: the financial side of employment and all other employment documentation. The financial side is the more orderly; business owners find the most variation in record-keeping requirements among documents kept in personnel files. Some of the confusion arises from the fact that different Federal laws specify different retention periods for the same documents.

Financial Records
Compensation records -- amounts and payment dates, straight time and overtime hours and pay, pension payments, benefits plan payments and other additions and deductions -- should be kept for four years. Affecting most employers, the four-year requirement is specified in the Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act and by Federal Income Tax Withholding. The Equal Pay Act and Fair Labor Standards Act (FLSA) designate some of these documents for three years' retention, but the longer period applies in practice. The Equal Pay Act and FLSA also require that daily work schedules, pay rates and weekly compensation be retained for three years; these are not addressed in the laws designating four years' retention. Likewise, tax records -- wages subject to withholding, taxes withheld and other tax information -- are subject to the four-year requirement.

Non-financial Records
According to FICA, Unemployment and Withholding, basic employee data -- name, address, gender, birth date, etc. -- must be retained four years. Personnel files are maintained for active employees, so this requirement is reasonably interpreted as needing to keep these records for four years following termination. One exception under FSLA, applicable to many small businesses, involves work permits for minors; these be retained until the employee leaves or reaches majority age.

Records of Actions
Records of actions such as promotions, demotions, transfers, layoffs, recalls, terminations and such must be kept for one year per Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA) and the Age Discrimination in Employment Act (ADEA). But for all practical purposes these are part the personnel file for the duration of employment and longer.

Safety and Health Records
The Occupational Safety and Health Act (OSHA) mandates the longest retention periods. Records of exposure to toxic substances and blood-borne pathogens must be retained for the duration of employment plus 30 years. OSHA sometimes designates even longer periods for exposure to certain substances, and some states have "right-to-know" laws requiring retention of exposure records for the duration of employment plus 40 years. We can consider 4 years as the standard for compensation and tax information, but a personnel file can hold documents having legal retention periods of one to five years and 30 to 40 years after termination. There are about a dozen federal laws specifying these retention periods.

Accumulated Records
What to do about accumulated records? Simple for financial records: discard compensation and tax records after four years. Obvious? Perhaps, but one can sometimes be surprised upon discovering dusty caches of such records much older than four years.

The answer isn't as simple for documents held in personnel files. We have good reason to keep records of employment actions for the duration of employment. For example, we're not required to keep promotion or transfer notices longer than one year, but for obvious reasons it's helpful to leave them in place. Records of disciplinary actions are best removed or invalidated after a specified time during which there's been no recurrence of trouble. The problem is how to "clean out" personnel files.

Files can be screened periodically for outdated warnings and other unneeded material, but this is impractical if the company has more than just a few employees. The place to make inroads in the paper is with personnel files of past employees. If there are no documents requiring 30-plus years retention, an inactive record can be discarded four to five years after termination. If this seems too abrupt -- perhaps depending on the frequency of reference requests about former employees -- there's always microfilm. Microfilming is not overly expensive, the records remain accessible and valuable storage space is reclaimed.

Overall: After a certain amount of time, if it's on paper but you'll probably never need it again and there's no law making you keep it, trash it.

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