With the start of spring, you might be getting the itch to organize and purge old paperwork and digital files. But not so fast. If you’re dealing with employee records, it’s not quite so straightforward. Federal agencies, individual states and local statutes all have their own recordkeeping requirements. To navigate this compliance maze, you either have to know your requirements inside and out — or, eliminate the question of “to keep” or “to purge” altogether. Let’s discuss.
What’s legally considered an employee record?
Before we get into the requirements of record retention, let’s break down the most basic question: What are employee records? Employee records are information pertaining to employees, including personnel files like applications and terms of employment, payroll records, compensation history, benefit enrollment forms, medical records and more. You have an obligation to store these records in a secure location for a specified period of time, even after an employee departs your organization.
How long are you required to keep employee records?
The short answer is, it depends. As mentioned, state and local statutes sometimes have different requirements than federal agencies. Because of this, it’s best to play it safe and retain employee records according to the most stringent requirement — be that the federal, state or local level.
Failure to comply with recordkeeping laws can come with strict penalties and fees. Therefore, if you plan to purge employee records, it’s important to stay up to date on the requirements. To ensure you’re compliant, check your state and local laws and then compare them to the federal requirements, as outlined by the Equal Employment Opportunity Commission (EEOC), the Fair Labor Standards Act (FLSA) and the Internal Revenue Service (IRS). Then, take the most conservative path forward. Here’s a high-level overview of the federal guidelines.
Personnel and employment records
The EEOC requires most employers to maintain all personnel and employment records for one year from an employee’s hire date. These records include, but are not limited to, application forms and records related to hiring, promotion, demotion, transfer, layoff or termination, pay rates, compensation, tenure and other terms of employment. If an employee is involuntarily terminated, you must retain these records for one year from the date of termination.
Employee benefit plan records
Employers must also keep employee benefit plan information, such as pension and insurance records, for the full period the plan or system is in effect and for at least one year after its termination. If there was any written seniority or merit system in place, those records must be kept for the full period the plan was in effect, and at least one year after its termination.
Payroll and tax records
Payroll records, however, are a different story — employers are typically required to keep those for at least three years, according to both the EEOC and the FLSA. Those records include, but may not be limited to, employer copies of pay stubs, proof of wage payments, proof of overtime wages paid, regular and overtime hours worked, payroll deductions and other wage-related documentation.
In addition, employers must keep all records (including wage rates, job evaluations, seniority and merit systems and collective bargaining agreements) that explain the basis for paying different wages to employees of opposite sex for at least two years. Records on which wage computations are based, such as timesheets and records of wage additions and deductions, should be retained for two years.
Regarding tax filings, the IRS requires employers to keep records for a certain amount of time depending on what it is. For example, employers must hold on to their payroll tax forms for four years after filing the fourth quarter for the year. For a list of which records to retain, visit the IRS website. Also, remember to check with your state, as each state has their own tax filing retention requirements.
For more information and to ensure you have the most up-to-date requirements, always consult the EEOC (start with their recordkeeping overview page and their page on 29 CFR Part 1602), the FLSA, the IRS and your state department.
W-2 Returns and Storage Reminder
W-2s should be securely retained as part of your payroll and tax records, including any returned or undeliverable copies. As stated above, the IRS recommends keeping employment tax records for at least four years to support compliance, audit readiness and timely employee requests.
How to eliminate the 'to keep' or 'to purge' question altogether
Recordkeeping requirements are nuanced, making the choice of “to keep” or “to purge” employee records a delicate matter. Often, organizations default to just keeping everything, which is not the best strategy. When you’re permanently storing employee records in file cabinets or on your company’s shared drive, it’s easy to accumulate an overload of documents. Before you know it, you’re misplacing employee records, mishandling confidential information, paying for extra storage, making recording mistakes and spending way too much time trying to stay organized.
A better way to retain employee records
The right human capital management (HCM) technology will alleviate recordkeeping compliance concerns by storing employee records for you. In other words, you don’t have to worry about purging records too soon because they live within the system as long as needed. Furthermore, you can avoid many of the operational, accuracy and security issues that are common with storing records in disparate systems, file cabinets and shared drives.
Here are two examples of how our HCM technology solution, UKG Ready, simplifies record retention:
1. Automated purging: UKG Ready allows you to define a retention schedule by document type, so the system will automatically purge those record types after the indicated amount of time has gone by. This is great for purging the system of expired documents and records you're no longer required to keep, such as offer letter drafts, short-term medical notes, old personnel records, expired annual policy acknowledgements and more.
2. A single source of truth: All of your records are stored in one cloud-based system with a single employee record, so there's no digging for data or second guessing if you have the right documents. If you're audited, need to submit required government reporting or need to gather records for one reason or another, you can quickly report on data for a given time period or retrieve records for an individual employee. Plus, when you update certain employee data in UKG Ready, it's shared across the entire system to prevent contradicting information across records. In other words, your data is organized and at your fingertips!
Ready to improve your HR and payroll recordkeeping practices?
Managing employee records is a lot of work without the help of a robust HCM solution. B2E Solutions offers full-suite HCM technology that utilizes automation and one employee record to centralize and organize information, streamline recordkeeping, facilitate compliance and securely preserve your employees’ data. Choose from Payroll, Time & Labor, Human Resources and Talent Management products, as well as integrations with many third-party technologies and services.
To learn more about our solutions, request a demo today!
Editor's Note: This article is updated regularly to reflect the most recent information.