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Keeping Employee Records: Three Things to Avoid

The human resources (HR) department of a company is responsible for handling important employee documents that include government forms, sensitive employee information, financial documentation and company policies. People who work within the HR department are expected to keep these and other employee records safe and confidential. This means taking specific protective steps and avoiding potential mistakes as a part of HR record keeping requirements.

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Why keep employee records?

There are many legal and practical reasons why companies should keep employee records on file. The most important among these include the simple fact that it’s often required by law. Aside from the convenience of having an employee’s basic employment dates and information within reach, companies must also keep financial documents on hand in the event of a lawsuit or an IRS audit. Employee financial and payroll records for potential IRS issues should be kept for at least four years, for example. There may also be times when staffers who have left your company request their old employee record from your personnel file.

The basics of employee record-keeping

Physical security

Your HR department should safely store confidential records for future reference. These documents must be kept in a secure place that is inaccessible to unauthorized staff and nonemployees in general. It should also be protected from dangers such as fire, water and other elements that can corrupt documents.

Digital security

Furthermore, in the case of digital employees’ records, they should be stored in a cryptographically secure way with backups kept on-site and off-site if possible. This is particularly important in today’s environment of frequent cybercrime penetrations and subsequent data leaks, or as a measure against ransomware attempts. Access to sensitive employee records in digital form should be kept to a minimum among staff. This means that you should provide it only to employees who have a legitimate access need.

Employee records prioritization

Organizing employees record documents and deciding which ones are worth keeping can be challenging at first because certain forms have special legal and practical requirements. There are five basic types of records that an HR department manages. Each file must be kept for a specified period of time. These include:

  • Personnel files
  • Payroll and benefits information
  • Medical files
  • Tax paperwork
  • Staffing files

Personnel files

An employee’s personnel file includes their basic contact information and hiring documents. You can also add more documents to this file later on, such as promotions, salary agreements, performance reviews, special awards, disciplinary forms and termination notices. By law, you’re required to keep this type of information for at least a year, although requirements may vary by state.

Payroll and benefits information

Federal and state laws normally require that all payroll-related documents be kept on hand for four years. This applies to copies of pay stubs, although if you’re using an online payroll provider, it may not be necessary to print these records out. Benefits, on the other hand, include records pertaining to health insurance, life insurance, COBRA, retirement plans and any short- or long-term disability plans. By law, these must be kept for six years.

Medical files

Employees often have medical-related documents that warrant a separate folder. Medical files typically contain documents like doctor’s notes, drug test results, Family and Medical Leave Act of 1993 (FMLA) paperwork and anything else related to an employee’s well-being.

Tax paperwork

In the event of an audit, it’s important to store tax-related documents in a specific file. This includes forms like the W-2, W-4, 1099, Form 1-9, Forms 940 and 941, plus other federal and state payroll tax deposit forms. You might even have Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) forms to file as well. These should normally be kept for at least four years, according to the IRS.

Staffing file

Any time you post a new job listing, you should keep a copy of it in this special file. You can add to this file once you start getting resumes from applicants and conducting interviews. Any notes related to the hiring and selection of employees should also go in this folder in case your company gets accused of discrimination or wrongful termination. The details of your documents may support your case in court.

The U.S. Department of Labor lists several specific types of records of employment that employers should keep. These include the following:

  • Name of employee and Social Security number
  • Address and zip code
  • Birth date for employees aged less than 19
  • Sex and occupation
  • Time and days worked
  • Hours worked per day
  • Basis of employee wages (hourly, weekly or piecework)
  • Hourly pay rate
  • Total daily or weekly earnings
  • Total overtime earnings if any
  • Additions and deductions from employee wages
  • Total wages per pay period
  • Payment dates and coverage periods

Full-time employees vs. part-time employees

Basic legal and practical HR record keeping requirements for former and current employees usually apply to both full- and part-time staff. Keeping employment records such as those listed above should be done for any individuals you’ve hired unless they’re specifically exempt in some way.

Three things to avoid

When you’re tasked with keeping employees’ records, there are three things you should avoid when setting up a filing system. These should be diligently applied to ensure you’re meeting legal requirements and make your own HR department’s job easier:

1. Combine employee files

You should never mix one employee’s documents with another or put all of the information pertaining to an employee in one master file. Every employee should have their own folder with subfolders for each type of file. For example, personnel files, payroll and benefits information, medical forms and tax paperwork should all have their own folders due to confidentiality and privacy laws that protect certain documents from exposure. In particular, disability-related medical information for any employee should be kept separate from their regular personnel file and only disclosed in specifically regulated ways to others.

2. Throw away files early

When employees quit, you may be tempted to shred their information in an attempt to create more room for new hires. However, due to federal requirements, certain types of files need to be kept for a specified period of time. Here is a quick guideline regarding specific documents for reference:

  • Keep personnel files for at least a year.
  • Keep payroll documents for four years.
  • Keep benefits details for at least six years.
  • Hold onto medical records such as FMLA benefits for at least three years.

3. Give unapproved access to confidential files

You may have someone in a supervisory role request the personnel file of another team member. In this situation, you’ll want to make sure you’ve properly separated the details of their performance evaluations from the confidential documents that are only meant for the HR department. Letting a supervisor see another employee’s tax documents or medical forms is a violation of privacy and may result in legal action.

Employee record FAQs

Here are some of the most frequently asked questions about keeping employee records:

May my employees access their HR record?

Yes, you should give access to employees who wish to view and make copies of their employment files if they request it. It’s wise for companies to have a viewing policy in relation to employee records so they know what to expect. There are no federal laws regarding employee files, although some states can restrict the information you’re allowed to show.

Should I keep paper copies of employee forms if they’re available electronically?

You don’t have to print out special paper versions of records of employment if you can access them online. Whether you do so is a matter of personal preference and convenience.

How long should you keep the I-9 form of a previous employee?

You should hold onto this form for at least three years from the date of hire or one year after the employee’s termination date.

Do my employment records need to be stored in my place of employment?

The Department of Labor, the IRS and other federal government agencies require that you store your employment records in a place that makes them accessible for audit if required. This includes your business offices, but you can also store records in digital databases or external central records archives.

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