Looking to Downsize Office Space or Reduce Storage Costs? What You Should Know About Federal Document Retention Requirements for Employee Records

Working remotely has become common since the inception of the pandemic. Businesses have, thus, elected reduction of physical office space to save costs. If your business is looking to downsize physical office space or if you are simply looking to reduce storage costs, employee record retention is an issue that should be on your to-do list.Confidentiality of employee-related records is a high priority. Employee files should be kept strictly confidential and stored in a secure location. Access to these records should be restricted to those with a legitimate need to know or as required by law. Of course, ensuring confidentiality of employee-related records goes hand-in-hand with decisions pertaining to where, by what means, and how long to maintain the records. Federal and state statutes and guidelines dictate these requirements and offer guidance as to what documents must be kept for what duration. Some federal laws to consider when deciding what and when to purge are addressed herein.

The Equal Employment Opportunity Commission (EEOC), which investigates job discrimination claims, requires an employer to keep all employee-related records for at least one year following his/her separation from employment. Title VII and the Americans with Disabilities Act (ADA) also require the retention of these records for the same period of time. In addition, the Age Discrimination in Employment Act (ADEA) requires retention of payroll records for at least three years.

Retention of all documents related to pay is paramount under the Fair Labor Standards Act (FLSA), which mainly governs claims concerning an employee’s pay. An employee’s complete payroll records—including hours worked, overtime, wage deductions, certificates, written training agreements, sales and purchase records, and certificates of age for those under 18—must be kept for three years. Records upon which wage computations are based (i.e., time cards, work and time schedules, records of additions or deductions from wages, and piece work tickets) must be kept for two years.

The Family Medical Leave Act (FMLA) allows employees of an employer with 50 or more employees up to 12 weeks of unpaid leave for certain family and medical issues. The FMLA requires an employer to maintain for at least three years basic payroll and employee data, rate/basis of pay and terms of compensation, additions or deductions from pay, total compensation paid, requests for FMLA leave, and documentation of FMLA leave taken.

The Internal Revenue Service requires maintenance of all employment tax records for at least four years after 4th quarter filings for the year.

It is evident that federal statutes and guidelines have different retention periods and that categories of documents tend to overlap. Moreover, different states have different requirements and guidelines. Individual states’ unemployment compensation and workers’ compensation laws have particular mandates. Some states, such as Pennsylvania, have a law that dictates the number of years employee documents must be retained. Accordingly, an employer should adopt a single retention period for any and all employee-related documents, including personnel files, tax information, time card/scheduling, and payroll records, which meets the minimum requirements and guidelines of the various employment-related laws applicable to the employer.

If you determine that you are able to purge employee-related documents, your next concern should be the manner in which they are discarded. Employee records contain sensitive information, such as social security numbers, dates of birth, and medical information. Disclosure of such information can subject your company to fines and other penalties. The best way to dispose of paper employee documents is to have them shredded.

It is important to have a written policy addressing employee record retention, just as it is important to have other employment-related policies. It is generally suggested that employment-related documentation should be retained for seven years following the employee’s separation from employment, which retention period complies with the various laws and also provides additional security in the event that such documents are needed beyond any particular required time frame.

*Danielle is a shareholder in the Pittsburgh, Pennsylvania, office and can be reached at 412.803.1185 or dmvugrinovich@mdwcg.com.

_{Defense Digest, Vol. 29, No. 1, March 2023, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2023 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}