By Jason R. Bock

Why Have a Record Retention Policy?

It is important for every organization to have an established Record Retention Policy (RRP) that provides for the retention and destruction of documents and other records maintained by the organization. Over-saving records, storing them indefinitely or simply longer than needed, can create unnecessary burdens that could easily be avoided. For instance, if an organization becomes involved in a legal dispute, the task of going through a voluminous amount of records to produce relevant material can quickly become an enormous and costly challenge. In addition, costs directly related to storing and maintaining unnecessary records is likely an expense that does not serve an organization’s bottom line.

While over-saving records presents its own pitfalls, failing to retain records for long enough presents risks as well. Minimum retention periods are imposed by law for certain records, such as those related to taxes and employees, and certain industries may be governed further by particular regulations. In addition, if an organization is involved or likely to be involved in a legal dispute, the organization has a legal duty to preserve records that may be relevant to that dispute. If relevant records have been destroyed pursuant to a sound RRP that is strictly complied with, there will often be a presumption that the organization complied with its duty. However, once litigation is pending or imminent, it is too late for an organization to establish a RRP, or to begin strictly complying with a RRP that had not been enforced in the past.

The Basic Framework of a Record Retention Policy

The basic framework of an organization’s RRP should group all records into three distinct categories. The first category should include those records that the organization “must keep.” These records include those that must be maintained by all organizations pursuant to a general legal requirement, as well as those required to be maintained by a regulation governing the organization’s particular industry. Also included, are any records relevant to a pending or likely legal dispute. Records in this category should be retained for the amount of time required by law or regulation, or until they are no longer relevant to a legal dispute.

The second category should include those records that an organization “wants to keep.” These include those records, which although not subject to a legal requirement, nevertheless serve a valuable business or administrative purpose of the organization. The RRP should provide a time period for which these records should be retained or otherwise periodically reviewed to determine whether they still provide value.

The third and final category should include every document or record that is not in either the “must keep” or the “want to keep” categories. This is the “destroy/delete” category. This group includes all records that are not required to be maintained by law or regulation, and which do not provide serve a business or administrative purpose. All records included in this category should be destroyed or deleted.

Generally Applicable Retention Periods

The records that serve the business needs of an organization will vary depending on the unique characteristics of the organization. Furthermore, the regulations that govern retention periods will depend on the particular industry in which the organization is involved. However, there are some general legal requirements which are common to nearly every organization. Two of the most common types of records that an organization is required by law to maintain include employment records and tax records. While the general retention periods for tax and employment records are summarized below, certain industries may be subject to stricter regulation. The information provided is intended for general information purposes only, and legal advice should be obtained before establishing a RRP for any particular organization.

General Retention Periods for Certain Employment Records

Employers with at least 15 employees must retain applications and other personnel records relating to hires, rehires, tests used in employment, promotion, transfers, demotions, selection for training, layoff, recall, and terminations – 1 Year

Basic employee demographic data, pay rates, and weekly compensation records – 1 Year

Supplementary basic records (basic employment and earnings records and wage rate tables); order, shipping, and billing records; and records of additions to or deductions from wages paid 2 Years

Payroll records, certificates, agreements, plans, notices, and sales and purchase records 3 Years

Records with respect to demographic information, as well as information related to the individual employee’s leave of absence – 3 Years

Records of job-related injuries and illnesses – 5 Years

Records related to medical exams along with toxic substances and blood-borne pathogen exposure – 30 Years

General Retention Periods for Certain Tax Records

Records relating to a tax return that shows additional tax owed – 3 Years

Records relating to a credit or refund claimed after a tax return was filed – 3 Years, or 2 years from the payment of the tax, whichever is later

Records relating to unreported income if such unreported income equals more than 25% of the gross income reported on the tax return – 6 Years

Records relating to a claim for a loss from worthless securities or bad debt deduction – 7 Years

All employment tax records – 4 years from when tax becomes due or is paid, whichever is later

Policy Implementation

To ensure that a RRP is successful once it is established, it is important for personnel at all levels of the organization to be educated about the policy. From upper management to the personnel who are involved in the day-to-day operations, everyone should be informed about what is expected and required under the RRP. After establishing a RRP and educating members of the organization, it is critical that the RRP be enforced. While a sound RRP will help ensure that your organization complies with its legal duty to maintain records and reduce the unnecessary burden and expense of retaining those records for too long, these benefits are lost if compliance is intermittent or nonexistent.