As an employer, you may find yourself swamped with excessive records, documents and paperwork to the point that it’s overwhelming and a purge is in order. Whether it’s employee pay stubs, work hours, applications or resumes, you’ll probably be inclined to discard some of those records to simplify your life and make way for new documents. The only problem is that you can find yourself in trouble if you dispose of the wrong ones. Here’s what you need to know when cleaning out the file cabinets.
Importance of Keeping Good Records
When running a business, it’s incredibly important to maintain records for several reasons:
- It’s necessary for preparing taxes and other financial statements
- You can keep track of your deductible expenses
- You can support the items you report on your tax returns
- It’s helpful for tracking the overall progress of your business
- You can better determine your business’s profitability
Laws Regarding Records Retention
Besides simply making business operations run smoothly, there are multiple laws that require employers to retain certain records for a designated period of time. For example, the Fair Labor Standards Act requires employers to retain payroll records for a minimum of three years and wage rates and job evaluations for at least two years.
The Federal Insurance Contribution Act, Federal Unemployment Tax Act and Federal Income Tax Withholding require employers to keep tax records for at least four years from when taxes are due or paid. There are also specific records retention requirements that apply to businesses depending on the industry.
Consequently, this can get confusing in a hurry — and it’s crucial to stay on top of things and know what’s expected of you. Fortunately, you can simplify matters by reading Federal Record Retention Requirements from the Society for Human Resource Management. This provides a comprehensive listing of federal record keeping requirements and the relevant laws that influence those requirements. When it comes to individual state record keeping laws, you’ll want to reference State Recordkeeping Requirements.
How to Stay Organized
In our tech-savvy, digital age, one of the most effective ways to stay on top of records is to store them electronically by using a document management system (DMS). This allows employers to store vast quantities of information online. Since many of these platforms are cloud-based, you don’t have to worry about data being accidentally wiped out — and files can be accessed via computer or mobile device from practically any location with an Internet source.
The built-in search feature of a DMS makes it much easier to retrieve documents. This enables you to quickly and conveniently locate files without becoming overwhelmed with information.
If you’re not sold on electronic storage and want to stick with traditional, physical storage, then you’ll need to carefully separate and categorize files in a logical manner. For instance, you might have one section containing employee information such as hiring records, background checks, resumes, etc. Another section might contain payroll and tax records, another might contain manager desk files and so on. The key is to thoroughly organize and label everything so files can be retrieved with minimal hassle.
While record keeping can be somewhat perplexing in terms of what you can discard and what needs to stay, it’s something that you need to understand as a business owner. Researching relevant laws and records retention requirements, as well as establishing an efficient filing system ensures you can run your business more effectively and have access to whatever information you may need.