Document retention is a formal policy that dictates the entire lifecycle of an organization’s records, from creation to its eventual disposal. This framework provides clear guidelines on how long various types of documents, including paper files and electronic data like emails, must be kept. A retention policy is a core component of a company’s information governance strategy. It ensures that employees consistently handle company records according to a predefined plan for managing, storing, and destroying information.
The Purpose of Document Retention
A primary driver for a document retention policy is to comply with legal and regulatory requirements. Numerous federal and state laws mandate specific retention periods for different categories of documents. These rules are legal obligations that businesses must follow to avoid penalties. A formal policy provides a clear roadmap for adhering to these varied and sometimes complex regulations.
Implementing a clear policy also enhances operational efficiency. Without defined retention schedules, organizations often accumulate vast quantities of unnecessary documents. This clutter makes it difficult for employees to locate relevant information, hindering productivity. A retention strategy frees up storage space and streamlines information retrieval, allowing staff to find what they need quickly.
A well-defined retention policy is also an aspect of risk management. During litigation or government investigations, a company must be able to produce required documents, and a policy ensures these records are available. Conversely, the policy provides a legally defensible framework for the routine destruction of documents that have outlived their required retention period, preventing outdated information from being used against the company in legal disputes.
Common Document Retention Periods
The length of time a document must be kept depends on its category and the governing regulations. These timelines are set by legal requirements and business needs. Understanding these common periods is a foundational step in developing a compliant policy. The periods mentioned are general guidelines, and consulting with legal counsel is recommended to ensure compliance with specific state and local laws.
Tax and Accounting Records
Financial documents, particularly those related to taxes, are heavily regulated by the Internal Revenue Service (IRS). Most tax-related records, including documents that support income, deductions, and credits shown on a tax return, should be kept for seven years. This timeframe accounts for the period during which the IRS can audit a return and assess additional taxes, ensuring the business is prepared for any potential inquiries.
Employee and HR Records
The management of employee and human resources files is governed by federal and state laws designed to protect workers’ rights. The Fair Labor Standards Act (FLSA) requires payroll records to be kept for at least three years. Laws like the Americans with Disabilities Act (ADA) mandate that records related to hiring and termination be retained for one to two years. A common practice is to keep personnel files for at least three to four years after an employee’s termination to cover various statutes of limitations.
Corporate and Legal Documents
Certain documents are considered part of the company’s permanent historical record and should never be destroyed. These include foundational legal and corporate records that define the business’s existence and structure. Examples are articles of incorporation, company bylaws, partnership agreements, and official minutes from board and shareholder meetings. These documents have indefinite value for legal and historical continuity.
Contracts and Agreements
Contracts and other business agreements form the legal backbone of a company’s commercial relationships. These documents should be retained for a significant period after they expire or are terminated. The retention period is dictated by the statute of limitations for potential legal disputes. A common retention period for contracts is six to ten years after their expiration, providing a safeguard in case of future litigation.
Creating a Document Retention Policy
The first step in building a document retention policy is to conduct a thorough inventory of the documents your organization creates and receives. This process involves identifying every type of record across all departments. Once inventoried, classify these documents into logical categories based on their subject matter and function. This simplifies the task of assigning retention periods.
Next, determine the appropriate retention period for each document class by researching applicable federal, state, and industry regulations. This phase often involves consulting with legal counsel to ensure all mandates are met. You must also consider the operational value of each document to set a retention period that serves both compliance and business needs.
After establishing schedules, draft the official policy document. This written policy must be clear and easy for employees to understand. It should outline the retention periods for each document category, designate who is responsible for managing them, and detail the document’s entire lifecycle.
The policy must also define procedures for document disposal, specifying approved destruction methods for physical and electronic records. Finally, the policy must be implemented throughout the organization. This rollout includes training all relevant employees on the policy’s rules and their individual responsibilities.
Secure Document Disposal
The final stage in a document’s lifecycle is its secure destruction to protect sensitive information. The disposal method depends on whether the document is physical or digital. Simply throwing paper records in the trash or dragging a digital file to the recycling bin is insufficient and poses a security risk.
For physical documents with sensitive data, secure destruction methods are necessary. Cross-cut shredding turns paper into small pieces that are difficult to reconstruct. For businesses with high volumes of paper, engaging a professional shredding service is often a more efficient and secure option, as they can provide locked collection bins.
Disposing of digital documents requires more than hitting the “delete” key, as deleted files can often be recovered. Proper digital disposal involves methods like data wiping, which uses software to overwrite data multiple times. For retired hardware, physical destruction of storage media like hard drives is the most secure method.
Regardless of the method, maintaining a record of destruction is a sound practice. A third-party service will provide a “certificate of destruction,” which serves as legal proof that records were destroyed securely and according to the policy. This documentation can be valuable during an audit or legal proceeding.
Consequences of Non-Compliance
Failing to adhere to a document retention policy can lead to significant negative outcomes, including legal penalties. Federal and state regulatory bodies can impose substantial fines on organizations that do not comply with record-keeping laws. These penalties can be financially damaging and may require corrective actions that consume additional resources.
In litigation, the absence of a policy or failure to follow one can have severe repercussions. If a company cannot produce legally required documents because they were improperly destroyed, it can face accusations of spoliation of evidence. Courts can impose serious penalties for spoliation, including fines, adverse inference instructions to a jury, or a default judgment against the company.
Poor records management also leads to operational chaos, as employees waste time and resources searching for information. This inefficiency slows decision-making and hinders productivity. Additionally, the uncontrolled retention of data increases the risk of a data breach, as more information is available to be compromised.
Mismanaging documents, especially those with sensitive customer or partner information, can cause significant reputational damage. A data breach or the inability to produce records can erode trust among clients, investors, and the public. Rebuilding a damaged reputation is a long and difficult process that can have lasting effects on a company’s success.