The earthquake really shook up our business. Now that our office is a mess, we’re taking the opportunity to throw away old records. How long do we have to keep records? Does it depend on the kind of records?
I’m sorry to hear that your office was hit hard by the earthquake, but you’re right — this is a great time to purge records that you don’t need anymore. Many business owners worry about how long to keep documents, and also about what to keep.
It really depends on what kind of records we’re talking about. As an example, California income tax records must be kept for a minimum of six years, but federal income tax records must be kept for a minimum of three years, and sometimes should be kept for up to 15 years.
Financial records include invoices, receipts, payment records, charitable contributions and even mileage logs. These records need to be kept as long as necessary to prove the income or deduction on your tax return, which varies depending on the specific tax return.
The general rule of thumb is that the longer you keep records, the better. Payroll records should be kept a minimum of three years, but if you have the storage space, I would recommend keeping them even longer. Wage and hour records for migrant and seasonal agricultural workers should be kept for a minimum of three years.
Personnel or employment records concerning hiring, promotion, demotion, transfers, layoffs, or termination should be kept for a minimum of three to five years. But again, longer is better. In fact, employment applications, records of salary and position, performance evaluations, signed policy forms, and termination records should all be held permanently.
Some documents should be maintained for the life of the business, such as up-to-date articles, bylaws, minutes and operating agreements. You want to be able to show the entire life cycle of your business.
How long you keep records also depends on what kind of business you have. For example, a doctor has specific guidelines for patient record keeping under HIPAA, and attorneys have specific record keeping rules for client trust accounts.
How you keep your records is up to you. If you just don’t have the space, consider using an off-site document storage company, or scan your documents and store them in the cloud.
Storing everything forever is probably not practical for any business, but destroying documents without checking what the legal record keeping requirements are can lead to problems down the road. Create, document and follow a record retention policy.
Mary Luros is a business law attorney with Hudson & Luros LLP in Napa, and can be reached at email@example.com. The information provided here is not legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information.