As a business owner, you likely have various documents in storage, such as tax returns, personnel records, and bank statements. Unfortunately, no single, steadfast retention rule 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 determine 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 recordkeeping?
Several federal agencies have document retention requirements. The guidelines may vary depending on your industry and circumstances. Understanding which categories apply to your company is essential to know which documents to keep.
In general, the following laws, acts, and agencies require record retention:
- The IRS.
- The Federal Insurance Contributions Act (FICA).
- The Americans with Disabilities Act (ADA).
- The Age Discrimination in Employment Act (ADEA).
- The Occupational Safety and Health Act (OSHA).
- The Employee Retirement and Income Security Act (ERISA).
- The Civil Rights Act of 1964.
- The Fair Labor Standards Act (FLSA).
- The Family and Medical Leave Act (FMLA).
- The U.S. Equal Employment Opportunity Commission (EEOC).
- The Insurance Portability and Accountability Act (HIPAA).
- The 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.
Digital files offer the advantage of real-time access to information from anywhere. As your business grows, expanding digital storage is relatively easy.
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 need to keep the records forever. If you're unsure what to keep and what to shred, your accountant, lawyer, and state recordkeeping agency may provide guidance.
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: Different personnel records have different requirements, although most need to be retained for at least three years. For instance, documents relating to exposure to 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 antidiscrimination 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.
Eight states have adopted this standard, including Colorado, Georgia, Illinois, Maryland, New Hampshire, North Dakota, Oklahoma, and Texas. It states that businesses should keep records not covered under statute-specific retention periods for at least three years.
Digital vs. physical document storage
Whether you store your documents in paper form or digitally depends on a number of factors, including your industry and your business processes. For instance, healthcare and financial organizations must meet stringent privacy laws that impact how you store digital documents. You should consult an expert to ensure you're compliant in how you keep records secure.
Digital files offer the advantage of real-time access to information from anywhere. As your business grows, expanding digital storage is relatively easy. But technical issues such as hardware failures can render your files inaccessible, and digital files introduce new cybersecurity risks.
By comparison, physical files are immune to technical failure but do take up more space. They're not as accessible as digital records, and if something catastrophic happens, such as a fire or flood, your data is still at risk. Ideally, you should keep the originals of your physical files with digital backups securely stored.
Next steps: Create a document retention policy
Organizing your physical and cloud-based storage and developing a DRP is the best way to ensure your organization complies with recordkeeping standards. Review all guidelines carefully and come up with a plan that’s easy to implement and stick with.
How to safely dispose of old documents
There are a few different options when it comes to getting rid of old paper records. A paper shredder is one convenient option, but it can take a lot of time and effort to shred old documents.
You can also take paper to companies that offer shredding services. Recycling companies and stores like UPS and FedEx will shred paper for free or for a fee, and since they mix your papers with others from multiple customers, this can be a secure option.
The National Association of Information Destruction (NAID) certifies shredding services, and working with a NAID-approved vendor can increase the security of document disposal.
This article was originally written by Jessica Elliott.
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