A woman in a pastel teal shirt sits at a desk and flips through a stack of forms. She has a slight smile on her face. The room around the woman has several large windows and pale gray walls.
Employers are required to keep medical information, including medical expense reimbursement requests and health insurance records, separate from other employee files. — Getty Images/ljubaphoto

Federal, state, and local agencies have employee record retention requirements. Failure to keep documents could result in fines and adverse outcomes if your business faces a lawsuit or audit. All small business owners should know what to keep and for how long.

While most records go into an employee’s personnel file, employers should keep immigration, credit, and medical information separate. Use this guide to ensure your business follows statutes and regulations for employee record retention.

Employee record retention requirements

Retention periods range from one year for drug test results to 30 years for hazardous exposure. The Equal Employment Opportunity Commission (EEOC) outlines basic requirements for recordkeeping. It requires businesses to retain personnel and employment records for “one year from the date of making the record or the personnel action involved” and “one year from the date of termination.”

However, other federal and state regulations may impose longer retention periods for performance reviews, payroll documentation, and more. The National Federation of Independent Business (NFIB) provides an in-depth guide

for developing business and employee document retention policies.

[Read more: How Long Should You Keep Documents?]

Pre-employment documents

Employers must keep hiring files for all applicants. Once you hire someone, you can put these records into their personnel file, along with new hire paperwork. But you must pull out any sensitive information and place it in a separate, secure file. This includes background checks, credit reports, and drug test results.

Hiring files should include:

  • Job applications or resumes.
  • Reference checks.
  • Interview assessments.
  • Employee test results.
  • Offer letters.
  • Signed acknowledgment of an employee handbook and policies.

Basics of personnel files

Business owners should maintain employee files containing information relevant to the individual and their performance. Develop policies explaining what your personnel files should include and your process for safely disposing of documents.

Put these employee records into personnel files:

  • Performance evaluations.
  • Attendance records and notes.
  • Promotions or transfers.
  • Training or educational certificates.
  • Awards.
  • Formal discipline or warnings.

Often, employers will use a seven-year rule for purging terminated employee files as this typically covers state and federal statutes of limitations.

SHRM

Keep medical information in a separate file

The Genetic Information Nondiscrimination Act (GINA) and the Americans with Disabilities Act (ADA) require employers to keep medical information separate from general personnel files. However, the Health Insurance Portability and Accountability Act (HIPAA) does not apply to employers unless they are a “health plan or a covered health care provider” and the employee is also a patient or member of your health plan.

Here are the types of records to keep separate:

  • Doctor’s notes.
  • Disability benefits claim forms.
  • Drug or alcohol tests.
  • Family and Medical Leave Act (FMLA) requests.
  • ADA accommodations requests and documentation.
  • Workers’ compensation records.
  • Medical exams.
  • Health insurance enrollment forms.
  • Employee assistance program information.
  • Medical expense reimbursement requests.

Other types of records requiring more security

SHRM recommended that employers use a different filing system for retaining information of a “sensitive nature.” Certain documents can go into confidential files, whereas a binder system may work better for I-9s. Additionally, business owners should keep records about investigations and complaints, including data related to lawsuits or internal claims, separate from personnel files.

The premise is that managers and supervisors should not have access to documents with the following details:

  • Date of birth.
  • Dependent information.
  • Social Security number.
  • Gender.
  • Marital status.
  • Sexual orientation.
  • Race.
  • Criminal history.
  • Immigration status.
  • Religion.
  • Personal financial information.
  • Credit history.
  • National origin.

Employee payroll, tax, and benefits documents

The Department of Labor (DOL), IRS, EEOC, and the Employee Retirement Income Security Act of 1974 (ERISA) regulate how long employers should keep wage, payroll, and benefits records. According to the DOL, businesses should keep payroll records and collective bargaining agreements for three years and retain time sheets for two years.

The IRS requires employers to “keep all records of employment taxes for at least four years after filing the 4th quarter for the year.” ERISA Section 107 requires businesses to keep plan-level benefits information for six years but doesn’t mention a timeline for participant-level documents under Section 209. Therefore, the accounting firm KLR suggested keeping these records “for an indefinite period of time.”

[Read more: How to Document and Manage Employee Paid Time Off]

Separation of employment records

Don’t toss any records after an employee leaves your business. Since laws vary, SHRM said, “Often, employers will use a seven-year rule for purging terminated employee files as this typically covers state and federal statutes of limitations.” The documents may include resignation letters, unemployment documentation, reasons for leaving (voluntarily or involuntarily), and exit interviews.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

Brought to you by
Simplify your startup’s finances with Mercury
Navigating the complex finances of a growing startup can be daunting. Mercury’s VP of Finance shares the seven areas to focus on, from day-to-day operations to measuring performance, and more.
Read the article
Published