As a business owner, you likely have in storage various documents, such as tax returns, personnel records and bank statements. Unfortunately, there isn’t a steadfast retention rule that applies to all kinds of records, meaning you need to categorize your files and create a document retention policy (DRP).
Once you know what types of records you have, it’s time to figure out how long to keep tax returns, statements and other documents. Below, we’ll go over legal retention requirements and best practices for records not covered by federal or state laws.
Federal record retention guidelines: Who regulates record keeping?
Several federal agencies have document retention requirements. The guidelines may vary depending on your industry and circumstances. It’s essential to understand which categories apply to your company to know what documents to keep.
In general, the following laws, acts and agencies require record retention:
- Internal Revenue Service (IRS).
- Federal Insurance Contributions Act (FICA).
- Americans with Disabilities Act (ADA).
- Age Discrimination in Employment Act (ADEA).
- Occupational Safety and Health Act (OSHA).
- Employee Retirement and Income Security Act (ERISA).
- Civil Rights Act of 1964.
- Fair Labor Standards Act (FLSA).
- Family and Medical Leave Act (FMLA).
- Equal Employment Opportunity Commission (EEOC).
- Health Insurance Portability and Accountability Act (HIPAA).
- Federal Unemployment Tax Act (FUTA).
Your state and local government may have stricter guidelines. Some external agencies, such as the Payment Card Industry Security Standards Council (PCI SSC), require businesses to keep documents for PCI compliance.
How long should I keep business documents?
Document retention guidelines typically require businesses to store records for one, three or seven years. In some cases, you will need to keep the records forever. If you’re unsure what to keep and what to shred, your accountant, lawyer and state record-keeping agency may provide guidance.
Several federal agencies have document retention requirements. The guidelines may vary depending on your industry and circumstances.
Use the following information to guide your document retention policy:
- Legal documents: It’s best to keep business formation records, deeds, patents and trademark registrations, property appraisals, bill of sale documents and other ownership records indefinitely.
- Business federal tax returns: According to the IRS, tax returns should be kept for three to seven years, depending on the situation. But, if you don’t file a return, the IRS recommends keeping “records indefinitely.” Keep federal tax returns, including payroll tax records, for seven years to stay on the safe side.
- Personnel records: Refer to the federal record retention guidelines for a precise breakdown of requirements. For instance, documents relating to exposure from harmful agents must be kept for 30 years after employment ends. In contrast, you need to keep OSHA accident forms for five years after the incident.
- Payroll information: The FLSA requires employers to keep payroll records “for at least three years.” In addition, all companies covered by federal anti-discrimination laws must retain records showing your reasoning “for paying different wages to employees of opposite sexes in the same establishment.”
- Accounting documents: Retain all small business accounting records applicable to your taxes, including depreciation schedules and year-end financial statements, for at least seven years. Your certified public accountant (CPA) may recommend keeping accounting records indefinitely.
- Insurance, permits and licenses: Keep all permits, licenses and insurance policy documents until you receive replacements for expired ones.
- Bank statements: All business banking, credit card, and investment statements, as well as canceled checks, should be kept for seven years, possibly longer, depending on your business or tax circumstances.
- Hiring records: Keep job advertisements, applications and resumes on file for at least one year.
[Read more: A Quick Guide to Data Management, Protection and Storage]
What are document retention best practices?
After you’ve reviewed federal rules and your state’s document retention schedules, you may still have records that you’re unsure about. In this case, the Uniform Preservation of Private Business Records Act (UPPBRA) is a good guideline.
Some states, including Texas, Illinois and North Dakota, have adopted this standard. It says businesses should keep records not covered under statute-specific retention periods for at least three years.
Next steps: create a document retention policy
Organizing your physical and cloud-based storage along with developing a DRP is the best way to ensure your organization complies with record-keeping standards. Review all guidelines carefully and come up with a plan that’s easy to implement and stick with.
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