Record retention – to many small businesses these two words can be very scary. How do you know what to keep? How do you know what to trash? What are the best practices to trashing payroll and HR records? It can be overwhelming as there are many laws involved when it comes to record retention. Let’s not forget about the state laws that govern payroll records retention as well.

The breakdown

Record Type Years Kept Records Covered
Hiring & Employment Records 1 year after creation of document or the hire/no hire decision. Job applications, resumes, job ads, and other records related to hire/no hire decisions.
Records related to promotions, transfers, demotions, performance, terminations, reasonable accommodations.
Copy of EEO-1 survey and intake forms.
Payroll Records, Time Sheets 3 years Basic employee data – Name, address, social security number, gender, DOB, occupation and job classification.
Compensation records:
Total work week hours
Work week start and end dates
Salary/hourly rate
Straight and overtime hours/pay
Piecework pay
Total wages paid each pay period
Annuity and pension payments
Fringe benefits
Form I-9 3 years after date of hire or one year after date of termination, whichever is later
Employment Benefits 6 years ERISA’s reporting and disclosure requirements apply to all pension and welfare plans
Tax Records 4 years from date tax is due or paid Amount of wages subject to withholding.
Agreements with employee to withhold additional tax.
Actual taxes withheld and dates.
Reason for any differences between total tax payments and actual tax payments.
Withholding forms
FMLA 3 years Basic employee data – Name, address, social security number, gender, DOB, occupation and job classification.
Dates of leave taken by eligible employees.
Leave must be designated as the FMLA leave.
Copies of employee notices and documents describing employee benefits or policies and practices regarding paid and unpaid leave.
Drug Test Records 1 year from test date
Credit Reports No retention requirement

What now?

The first step to take is to create a company retention policy. If you currently have a policy, make sure your policy is up to-date. Make sure the payroll records can be accessed easily. If ever records are required to be investigated by the FLSA – there is a 72 hour period in which the employer has to prepare to make those records available for the audit.

Now that you know how to stay in compliance with the DOL and IRS, you may have just avoided costly penalties. If you were to willfully violate these recordkeeping requirements, you could receive a criminal penalty of up to $10,000 and/or imprisonment for up to 6 months (although a jail sentence can only be imposed for second and subsequent convictions).

Destruction of Employee and Applicant Records

All paper copies of employee records and applicant records need to be shredded after retention dates have passed. Hiring a reputable shredding service company is a great way to purge old payroll records. Why?

  • Shredding is done onsite. You can even watch them shred confidential documents.
  • It is cost effective and saves time. Would you want to sit and shred thousand of pages of confidential documents? Didn’t think so.
  • Shredded documents are discarded in a secure manner.

While this may seem overwhelming at first, having and following a retention policy will greatly reduce costs. By restricting the amount of data retained, an organization will lower its storage requirements and thereby reduce its infrastructure costs.

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