The older a company gets, the more records it's required to generate and retain. Many employers make the choice to destroy their employment records in an effort to save space and costs. Unfortunately, many of those employers are unaware of how long the law requires them to retain certain records.
All too often, an employer that doesn't have a strategic retention policy in effect for the documents it retains will find out too late that it hasn't properly retained documents that may become the subject of litigation. To avoid such a result, the following records retention tips and techniques can save you significant amounts of time and money in the long run.
Consult with counsel to develop a records retention policy
You may be required by statute to retain certain employment documents. If you fail to comply with the retention requirements in a federal or state statute, you may face several possible penalties. For example, your company could face civil penalties for destroying records before the end of the required statutory retention period. Or you could be unable to use the records in the event there's a charge of discrimination for which they could have been used as evidence. Or a court could find a presumption of discrimination for which the records could be used as significant evidence.
Thus, it's recommended that you always seek competent legal advice concerning the preparation, development, and initiation of a records retention policy. Be sure to consult with your attorneys when drafting policies related to retention and destruction of employment records.
Know what type of records you should retain
Many of the laws that employers defend themselves against in lawsuits (e.g., Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, or the Employee Retirement Income Security Act) require that documents concerning those statutes be retained for specific periods of time.
In addition, several other types of documents are commonly stored by employers, including those related to recruitment, employee selection, payroll and compensation, benefit plans, employee leave, as well as discrimination charges.
It isn't uncommon for employers to make the mistake of assuming that records that don't relate to payroll or performance reviews can be destroyed at any time. There are, however, documents that you handle every day and that aren't generally considered to be part of your personnel file that you should retain.
For example, you're required to keep records of insurance premium payments of employee benefits (under the Family and Medical Leave Act, or FMLA), records of exposure to hazardous materials monitoring (under the Occupational Safety and Health Act), and even test papers completed by applicants for any position that discloses the results of an employer-administered aptitude test (under the Age Discrimination in Employment Act).
As a consequence, the first step for any records retention program is to identify the legal requirements for document retention applicable to your business. Once you have identified the critical documents and the statute governing their retention, you can then proceed to comply with the statutory retention period.
Know the retention period for the document
As the number of laws regarding records retention expands, you should reevaluate your general rules regarding records retention. Many employers have taken the position of adopting a standard retention policy that's based on the "IRS rule" that "I'll hold onto these documents for seven years in case I get audited." In the example of the records regarding exposure to hazardous materials monitoring, however, an employer whose standard policy is geared toward the IRS rule could face potential liability because certain safety records must be retained for a period of 30 years. Other documents, such as those regarding premium payments of employee benefits, could be disposed of properly under the IRS rule because the FMLA requires their retention for only three years.
It's clear that there's no clear-cut, one-size-fits-all rule on how long all records must be retained. Thus, you should consult counsel to develop strategic records retention policies and practices tailored to your business.
Know where to put the document
The worst situation an employer can find itself in is being a few months away from trial in litigation involving a previous employee or an administrative agency and not being able to find the necessary internal documents, perhaps because critical records are misplaced or mixed with the company's annual reports and EEO-1 certifications.
To avoid that situation, you should maintain separate and distinct files for documents being retained under a defined statutory retention period. For example, in addition to the employee "personnel file," many employers maintain "application" files that include job applications, resumes, and any other documents submitted to them during the employment application process.
You're also required to retain general payroll and accounting files, which include records such as timecards and wage rate tables. It's recommended that you also create "benefits/handbook" files in which you can maintain documents that describe your policies and practices regarding leave, including FMLA and other paid and unpaid leave.
If your business is required to keep certain records but you aren't certain about what type of file to create, work with your legal counsel to create a file category covering the documents in question as part of your company's records retention practices. Many such files should be maintained as "strictly confidential," separate from personnel files, because they may also contain confidential medical-related information.
Bottom line
Records retention isn't a glamorous practice area in any HR department. Nonetheless, seek to establish a comprehensive records retention policy that conforms to the applicable laws for your business.
For a chart of record retention schedules for major federal employment laws, read When can you clean out personnel files? As for state law, as always, check with your legal counsel and/or state laws and publications.
Copyright © 2005 M. Lee Smith Publishers LLC. This article is an excerpt from IOWA EMPLOYMENT LAW LETTER. Iowa Employment Law Letter does not attempt to offer solutions to individual legal problems nor does it provide legal advice. The newsletter provides general information on current developments on Iowa employment issues. Questions about individual legal problems should be addressed to the attorney of your choice.
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HR Executive Special Report: Written in clear English, this report helps you understand the intricacies of this complicated federal law. Which employers are covered? Which employees qualify for the FMLA? The report also shows how to dispute an employee´s medical certification and when you can retroactively designate leave as FMLA leave. |
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