What You Should Keep In Your Employees' Personnel Files

Small-business owners and human resources departments should update their employee records often. Personnel files can become evidence if a former employee believes they were wrongfully terminated. There are things that employee personnel files must contain and things they should not contain.

Personnel records must include:

• Attendance, including time cards and other payroll records

• Tax withholding and IRS documents

• Training records and documentation of annual updates

• Receipts of employee handbooks and updated policies

• Performance evaluations, disciplinary actions, and commendations

Do not keep any documents or notes unrelated to job performance or benefits. Employment records are not an op-ed page. They are official documents and should be strictly professional.

What Should an Employee File Contain?

The employee file should contain a snapshot of the employee's time with your company. The file should include all employee documents relevant to their employment, from the date of hiring to the date of termination. The documents should be in chronological order. You or your HR department should update the file and remove duplicate or irrelevant information. The file should have:

• The offer letter

• Emergency contact information

• A job description for the initial position or the current position

• The job application or resume of the employee

• The employee's current W-4 Form. Remove all outdated copies.

• A receipt or signed acknowledgment of receiving your company's employee handbook or company policy. If you update the policy, the employee should sign a copy of the current policy.

• All performance evaluations signed by the employee

• Employee benefits documents

• Disciplinary warnings or actions signed by the employee

• Awards, certificates, or commendations for job performance

• Exit interview (if applicable)

• Employee agreements or other written documentation relating to employment, such as noncompete agreements, vehicle releases, etc. (if applicable)

When you terminate an employee, whether voluntarily or not, their file should contain information about continuing benefits, such as COBRA, pension or 401(k) rollover, and unemployment insurance.

Benefits and Health Insurance

Some human resources management agencies suggest that business owners keep their employees' insurance documentation separate from their personnel files. This is a different process from keeping medical files separate from personnel files. It may be easier for document management purposes for a financial officer to handle enrollment in health insurance plans, pension plans, or 401(k)s than to have a single human resources employee handle the entire procedure.

If you take this route, ensure the HR software is compatible across all departments. Nothing will ruin your HR department's day like discovering that they must enter everyone's payroll information a second time.

What an Employee File Should Not Contain

There are some things the general employee file should never have. Even if you never become the subject of an employee lawsuit, the personnel files should not have:

• Third-party complaints about the worker from customers, co-workers, or other individuals

• Handwritten notes taken during any disciplinary meeting or investigation with the employee

• Any items that must have separate files

Medical Files

The Americans with Disabilities Act (ADA) and the Health Insurance Portability and Accountability Act (HIPAA) require you to keep medical records separate from general personnel files. Any employee records, doctor's notes, and other medical information should be in this file, not their personnel file.

Investigation Records

If an employee is under investigation for any reason, such as a sexual harassment complaint, or if the employee has initiated an EEOC claim, any records or documentation should be separate from the employee's file. Investigation records are confidential files, and access is limited to your legal department.

Background checks are also confidential and should be shredded after use.

Government Compliance Documents

Some documents must be available for government inspection. I-9 forms, used to verify employee eligibility for U.S. employment, must be presented upon request. Rather than going through each employee file, it's easier to keep all I-9 forms in a single file. Be sure to update this folder regularly as you hire and terminate workers.

The IRS must receive updated W-4 forms and other payroll forms each year. Keep W-4 forms on file for at least four years. As with the I-9 forms, it may be easier to maintain all W-4 forms in a single file instead of keeping many employee files.

Recordkeeping Requirements

Some federal laws have specific recordkeeping requirements that employers must follow. Your state may have requirements for document retention. You should get legal advice or check with the state Department of Labor when storing employee records.

• The Age Discrimination in Employment Act (ADEA) requires employers to keep payroll records for at least three years. Keep all employee benefit plans and seniority or merit system plans for the full term of the plan, plus one additional year.

• The Fair Labor Standards Act (FLSA) requires the retention of payroll records for three years. Records or documents that explain the reasons for differences in wages (such as pay scales, performance reviews, seniority and merit systems, or collective bargaining agreements) must be kept for at least two years.

• The Equal Employment Opportunity Commission (EEOC) requires that employers keep all employment records for at least one year.

Keeping Records

Very few companies keep records in file cabinets these days. If you're one of the ones who do, keep your employee information in a secure cabinet in a secured location. Nobody should have access to employee files except human resources and those responsible for employee benefits. Whatever method you use, it must be secure and protect all confidential data, such as employee Social Security numbers and tax information.

Putting It All Together

A good employee personnel file will not protect you from an employee lawsuit. It will provide evidence that there was no wrongdoing or unlawful termination. It will show that you did not fire an employee in violation of any federal or state laws and that there was no attempt to retaliate against an employee for exercising their protected rights.

If you're unsure about any of your employment policies or need help with your personnel files, speak with a local employment law attorney who can advise you on the best way to proceed.