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Recordkeeping 101: Tips for Organizing Employee Records
April 25, 2023
Businesswoman sorting through papers in file cabinet

As a small business owner, you’re no stranger to long to-do lists. This is especially true if you’ve begun hiring, which generates a lot of employee paperwork.

But if you’re like most startups, there’s no room in the budget for an administrative assistant, never mind an HR specialist. How do you get ahead of this issue when you’re in charge? What’s the best approach to tackling employee recordkeeping as your business and staff grow?

Here are some guidelines for setting up an efficient and compliant recordkeeping system for your business.

Paper or Electronic?

Many businesses start out with a paper-based recordkeeping system. This can make sense when you have just a couple of employees, but eventually, it can become cumbersome. For most growing businesses, electronic documents are easier and less costly to maintain, organize and store. Plus, when records are stored “in the cloud” (online), you can access them anywhere, any time you have Internet access.

Whether you use paper, electronic files, or both, consistency is the key to effective recordkeeping. For example, if your hiring records are sorted by employee name, organize payroll records the same way. Keep the same system across all types of records, and make sure your file folders have accurate, uniform names.

Set Up Your Essential Employee Records

In most cases, you’ll need to maintain three types of employee records: personnel, payroll, and medical files.

Personnel files cover employment history and should include hiring documents, employee and emergency contact information, and a signed acknowledgment of your company’s employee handbook. Over time, you can add performance reviews, disciplinary forms, employee awards, training records, and termination letters.

Don’t keep I-9 forms (used to verify employment eligibility in the U.S.) in the personnel file. Store these forms all together in a separate file. If your business is selected for an immigration-related audit or investigation, the investigator will ask to inspect these forms. Keeping these records separate helps to protect the privacy of your employees and reduces the risk of exposing your business to additional employment investigations.

Documents related to salary, benefits, and financial awards should be filed under payroll. Examples include timesheets, direct deposit information, and W-4 and W-2 forms.

The medical file should include application forms for health, life insurance, and other employee benefits if you offer them. Other possible medical records include requests for reasonable accommodation under the Americans with Disabilities Act (ADA), injury reports required by the Occupational Safety and Health Administration (OSHA), and paperwork concerning employee leave under the Family and Medical Leave Act (FMLA) should those laws apply to your business.

Know What to Keep and for How Long

Federal employment laws specify how long you must keep certain employee records. It’s important to adhere to those timeframes to avoid penalties. At the same time, holding on to documents longer than necessary (instead of discarding them) isn’t recommended, as any retained records could still be used against you in the event of a lawsuit.

Below is a list of required employee records and the retention periods mandated by federal law:

  • Resumes, job applications, and hiring tests – 1 year (no requirement for unsolicited resumes)
  • Form I-9 – 3 years from the date of hire or 1 year after termination (whichever is later)
  • Payroll documentation, including wage and promotion information and timekeeping records – 3 to 4 years for most documentation
  • W-4s – 4 years after taxes due or paid
  • Performance reviews – 2 years
  • Physical exam results – 1 year after action is taken based on physical exams
  • Drug test results – Most recent year’s report on file for one year
  • Request for reasonable accommodation – 1 year after action taken or document created, whichever is later
  • Benefit plans – 1 year after termination of the plan
  • FMLA documentation – 3 years after leave ends
  • Termination records – 1 year from the termination date

Maintaining an effective recordkeeping system is challenging when you don’t have dedicated administrative personnel on staff. But with proper planning and follow-through, you can get organized and meet the legal requirements.

Employee Recordkeeping Checklist
The U.S. Department of Labor requires you to keep records of the following information about each employee as long as he or she works for you. Download this checklist to help you maintain the proper employee records.
712 H St NE PMB 98848
Washington, DC 20002

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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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