Record Keeping for Small Employers
August 25, 2008
To Keep or Not to Keep - Is that a Question?
Record Keeping for Small Employers
From the PHCC Educational Foundation via third-party
You went into business so you could pursue your passion, answer to yourself as boss, or maybe you just fell into the business by chance. But you almost certainly did not start a business to be burdened with bureaucracy and recordkeeping. Regardless, all businesses must maintain records and it's better to know your obligations as early in your business as possible to establish simpler practices for recordkeeping, accessing and eventually purging records.
While many aspects of your business require record keeping such as accounting and incorporation documents, this article focuses on the federal requirements for employee records for small employers such as the Fair Labor Standards Act (FLSA) and Title VII of the Civil Rights Act of 1964, as amended in 1991. You must keep records for a variety of employment activities including wage and hour information, I-9 forms, and records related to job applicants. Like most federal regulations, you should check for state variations. In addition, there are specific requirements for certain industries and occupations. You have an obligation to know the specific requirements for your industry as well as your state laws. For example, your state may have specific requirements for documenting hours and experience for licensing, examinations, or certifications.
The following is a list of the key requirements that most employers must follow to be compliant with federal laws. The applicable laws include:
- Fair Labor Standards Act (FLSA)
- Equal Pay Act (EPA)
- Federal Unemployment Tax Act (FUTA)
- Social Security Act (FICA)
- Employee Retirement Income Security Act (ERISA)
- Immigration Reform and Control Act (IRCA)
- Internal Revenue Service Regulations
- Personal Responsibility and Work Opportunity Reconciliation Act of 1996
- Occupational Safety and Health Act (OSHA)
- Americans with Disabilities Act (ADA)
- Age Discrimination in Employment Act (ADEA)
- Older Workers Benefit Protection Act (OWBPA)
- Consolidated Omnibus Budget Reconciliation Act (COBRA)
Note that some of the acts apply to all employers, employers with 10 or more employees, employers with 15 or more employees, and employers with 20 or more employees. Where the employee size is applicable, a note is included in the chart. Many of the acts cover the same documents yet have different retention dates. And many of the documents fall into the category “personnel records” which has a longer retention period than most individual documents. For example, an application for a candidate that is not hired must be retained for 1 year. An application that becomes part of an employee’s personnel file is retained for 7 years after the employee terminates. For simplicity’s sake, the table shows the longest period of time required to keep the document.
Personnel Records (after employees termination)
Seven (7) years
Basic employee data including name, address, Social Security Number, and birth date; records showing pay periods, daily and weekly hours, overtime, tips, deductions from pay, taxes withheld, payments for fringe benefits, and amounts and dates of wage payments; copies of employee withholding forms (Form W-4 or W4-E); annual records showing total wages for each employee and amounts of taxable pay; reasons for discrepancies; amount of tax collected; date; details of adjustment or settlement of taxes; and employer filing records; and experience rating data.
Four (4) years after payment, deduction of taxes, or due dates of returns.
Note: Retention can be extended by the IRS as long as records are material to a tax filing; therefore, keeping records indefinitely is safest.
Job résumés; application forms; interview notes; notes on reference checks; tests and test results; job advertisements and postings; all records related to hiring, promotion, demotion, transfer, layoff, and termination; requests for accommodation; records related to selection for training or apprenticeship including application forms and test papers; and applications for disability benefits.
One year (1) from making the record or taking the personnel action.
Note: Apprenticeship records must be kept for 1 year from the date an application for an apprenticeship is received or from when a successful apprenticeship ends, whichever occurs first.
Job evaluations and wage rates; job descriptions; description of merit or seniority systems; and other explanations of wage differentials for employees of different genders.
Three (3) years
Employee Eligibility Verification forms (INS Form I-9) completed and signed by each newly hired employee and the employer. It is recommended that employers keep copies of the supporting documentation presented by each employee as proof of eligibility to work in the United States. Every employer is required to report the hiring or rehiring of each employee to a state directory of new hires within 20 days of hiring.
Three (3) years after the worker is hired or 1 year after termination, whichever is later.
Certificates of age for each employee under the age of 18.
ERISA retirement plan such as 401(k) plans: annual reports; Summary Plan Descriptions (SPD); records supporting data in SPDs; notices of plan changes, amendments, or termination; and related welfare and pension reports.
Six (6) years, note - records needed to determine a participant's eligibility for benefits must be retained as long as relevant.
Selection for overtime, training, layoff, recall, or discharge; job orders submitted to employment agencies; candidate test papers for any position; physical exam results if used in employment decisions; job ads or internal notices relating to job openings; and employee benefit plans.
One (1) year from the date of action or after termination of the benefit plan.
COBRA (only applicable to employers with 20 or more employees who offer employee group health insurance benefits) does not have specific recordkeeping requirements. However, if an employer's compliance with COBRA is questioned, the burden of proof is on the employer and, absent appropriate records, the employer will not be able to show that it complied with the law.
At least three (3) years in the event a claim is filed by an employee claiming the employer did not notify them of their rights to continue coverage or terminated coverage before the 18-month period had expired.
Employers subject to OSHA (employers with 10 or more employees):
• Form 300: Log of work-related injuries and illness
• Form 301: Injury and illness incident report
• Form 300A: Annual injuries and illness report
Five (5) years
Records of any medical examination required by OSHA or records related to employee exposure to toxic or hazardous agents.
Thirty (30) years after termination of employment
Collective bargaining agreements
Three (3) years after agreement ends or after records are made, except that explanations of merit or seniority systems and employee time sheets or cards need only be retained for two (2) years.
The list is limited to employers with less than 50 employees who are not government contractors. Larger employers or employers with contracts should check for applicable laws such as Family and Medical Leave Act (FMLA), Rehabilitation Act, Davis Bacon Act, Executive Order 11246/OFCCP Rules, Vietnam Era Veterans' Readjustment Assistance Act (VEVRAA), and Walsh-Healy Public Contracts Act.
The Federal Rules of Civil Procedure requires employers to preserve electronically stored information (ESI) once the employer reasonably anticipates litigation (e.g., when an employee complains to Human Resources or the company receives a communication from an attorney). The new federal rules apply to any company that may find itself in federal court for any type of lawsuit. To fully understand the definition of ESI and what you need to retain, contact a human resources professional or an employment attorney as soon as you anticipate litigation.
If your compliance is ever challenged, these records will be important to your defense. If a charge of discrimination or a lawsuit has been filed against you under the under any of these laws, relevant records must be kept until final disposition of the matter. This is one area where it is better to err on the side of caution so when in doubt, hang onto to the documents longer than the stated time – especially employment related documents. Again, know your state requirements; some states have specific laws related to the maintenance of personnel files and other documents that may require longer retention periods.
Retention is the key part of good record keeping. Another important aspect is proper and routine purging of old files. Establish a system for noting the date a document can be destroyed. For example, when an employee leaves the company, note on the top right had corner of the I-9 form the actual date you can destroy the document (three years after the worker is hired or 1 year after termination, whichever is later). Timely purging of old files can be invaluable if you are subject to an audit. The fewer old files to sort through, the faster and less expensive the procedures. Note that if you are notified of an audit or anticipate litigation, you must not destroy anything even if it falls under your standard practice of cleaning up old records.
Many of these regulations and laws can be found on the Department of Labor website,www.dol.gov. Forms can be found at government agency websites such as the I-9 form atwww.uscis.gov/files/form/i-9.pdf. There are many commercial vendors for forms such as applications; one popular site iswww.pbcompliance.com. Be warned they will often solicit new business by implying regulations require a new form when in fact the current form is still valid. Many samples of forms can be found on the Society of Human Resources Management site,www.shrm.org. And finally, rely on a human resources professional or an employment attorney to clarify these guidelines or seek specific information for your unique situation.
This content was provided by a third party via the PHCC Educational Foundation. Please consult your HR professional or attorney for further advice, as laws differ in each state.
The PHCC Educational Foundation, a partnership of contractors, manufacturers and wholesalers was founded in 1987 to serve the plumbing-heating-cooling industry by preparing contractors and their employees to meet the challenges of a constantly changing marketplace.
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