A frequently asked question that we hear is how long businesses need to keep business documents before disposing of them. Document management can be a little tricky because the truth is that there is no hard and fast rule on this. As it relates to healthcare, the Health Insurance Portability and Accountability Act (or HIPAA) states that any business that is responsible for keeping any medical records or transferring medical information must protect the privacy of the individuals who the records document. But that’s not the only industry with specific requirements. Failure to protect that information can have serious legal consequences, so proper records management process is critical. Here is a quick break down of the best practices for document retention.
Document Retention Basics
Document retention is important for businesses to maintain accurate records on everything from project documentation, to human resources, to financial information. Having access to information when and where you need it can mean the difference between a successful bid for a new project or the loss of a lawsuit. Audits, for example, can lead to expensive fines without the right supporting documentation on hand. In general, the IRS recommends retaining documents for 3 years to avoid supporting documents to be missing or outdated and burdensome.
Financial Records
It is recommended by the IRS that businesses keep supportive financial records relative to income or deductions until the period of limitations expires for a specific tax return. This can be up to 6 years after filing for your tax return, as that is the amount of time within which the IRS can audit you if the filing is greater than 25% f your business’ gross income. In some cases, it is even recommended that you maintain your supportive documents for 7 years if you filed for a deduction for a bad debt or worthless security.
Relative to non-tax specific documents such as journal entries, profit and loss statements, financial statements, check registers and general business ledgers permanently. Similarly, major business documents, like annual reports, corporate by-laws and amendments, Board of Directors information, annual meeting minutes and business formation documents, should also be retained permanently.
Human Resource Documents
For businesses that have employees, it is suggested that you maintain all employment tax records for at least 4 years after the date taxes were due or paid (whichever is later). Employment tax records include information such as the employer identification number, amounts and dates of wages paid, annuity and pension payments and tax deposits, the names, addresses, social security numbers, dates of employment and occupations of employees and records of allocated tips and fringe benefits.
Project Material
Important project-generated documents have less specific timelines for retention. Depending on the nature of the project, your relationship with the client, and the possibility of needing access to those records for future client proposals or project, you may want to keep certain records indefinitely. At the very least a digital copy of such material can provide the resources you need to avoid entirely duplicating project material. Certain contracts require businesses to keep project material on file (either in hard copy or in digital form for a certain period simply because the client would like to maintain access to the records as well.
That amount of paperwork can quickly add up over time, particularly for businesses. Hard copies require special handling, storage, and security. Electronic files, while they take up less physical space and therefore cost less to store, are more easily discovered for hackers without physical access to the material. Therefore, maintaining your documentation requires thoughtful storage, and prioritization of what needs to be kept. Remember, your organization should not keep personally identifiable information any longer than needed, because in the event of a security breach (physical or digital), you are liable.
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For more advice on managing your business records, connect with the team at Happy Faces Records Management today.
