Companies are required by federal and State laws to maintain records
for business, legal and tax purposes. Although many business records
only need to be stored for three years, there are important exceptions.
For example, federal and State tax records usually need to be maintained
for seven or more years. Employee records need to be stored for even
longer, and may have special reporting requirements established under
federal laws including the Fair Labor Standards Act. Also, Federal
and State regulations governing document retention vary according to
business sector. For example, a pharmaceutical manufacturer may be
required to keep records for much longer than a steel producer. In
addition, State laws may have different retention requirements that
federal laws for certain types of records, such as worker injury/worker's
compensation reports.
A special note of caution: If recent news events have taught companies
anything it is this: Records that may be the subject of litigation
should not be shredded. They should be maintained beyond the period
of the applicable statute of limitations.
Companies should consider creating a Master Records Retention Schedule
that establishes a timetable for retention and the eventual destruction
of company records. The records retention rules are usually developed
in a consultative process with the company's outside professionals,
in particular its accountants. Once approved, these rules should be
used to control all record retention and records destruction activities
in the company.
Records retention rules would typically cover:
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Accident and injury reports
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Accounts payable records
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Accounts receivable records and aging reports
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Attendance records
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Audit reports
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Bank records, and cancelled checks
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Check registers and account statements
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Company policy statements, and correspondence sent to all employees
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Disciplinary reports on employees
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EEO-1 reports
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Employment applications
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Employee complaint reports, and the results of internal investigations
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Employee handbooks [one of each version]
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Financial statements
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Tax records of all types
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Training records
* Note: This is not a complete list of company records. These are
examples of categories of records. Next to each of these categories
would be the minimum number of years the records must be stored before
they may be destroyed. A company can always retain records for longer
periods of time.
One additional comment: Record retention rules apply to all company
records - including both paper and electronic records. Record destruction,
irrespective of the media the data is stored on, must follow applicable
records retention rules - except that duplicate copies can usually
be destroyed without special approval. The laws governing records retention
are not static. If applicable laws change, the records retention rules
must do likewise. And as a practical matter, it may become apparent
that certain retention schedules should be lengthened based on the
frequency the records are being accessed, rather on the applicable
federal or State law[s] relating to their destruction.
Steven Kozack is a consultant that specializes in helping companies
organize their credit operations and make them lean and efficient.
Please send your questions to Steven at: skozack@coveringcredit.com
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