Managing records is a key part of running a small business, but improper handling can lead to significant problems. Without a clear system for keeping documents, businesses risk losing important information or even violating legal requirements. On the other hand, keeping every document forever can be inefficient and costly.
A document retention policy (DRP) helps businesses determine which records to keep and for how long. This policy applies to both paper and digital records. According to the National Federation of Independent Business (NFIB), a DRP improves efficiency by reducing clutter and making it easier to find important information. It also protects the business in legal matters, as having the right documents available is crucial if a lawsuit arises. Additionally, many laws require businesses to retain specific records for set periods.
Common categories of records covered by a DRP include employee files, tax records, safety documentation, legal paperwork, and digital data. For example, employee records should be kept throughout employment and typically for at least five years after an employee leaves to address any potential claims. These may include job applications, contracts, payroll information, and training details. The NFIB advises that employers consult both federal and state requirements since rules can differ.
Employment tax records—such as wage details and tax forms—must be kept for at least four years after filing with the IRS. Workplace safety documents are generally stored for around five years in case they are needed for inspections or legal claims. Federal tax returns should be kept permanently, while supporting materials like receipts and expense reports should follow IRS guidelines. Legal documents such as contracts and intellectual property records should ideally be retained indefinitely.
Electronic records also require careful management. This includes emails, backups, web content, and media files. Consulting IT professionals can help ensure these are stored securely and consistently.
Retention periods depend on the type of record and applicable laws. Business owners should consider not only legal requirements but also whether certain documents might be needed for future audits or legal disputes. Storing documents electronically can save space; however, original copies of some items—like signed contracts—should still be preserved physically.
The method of storing documents will vary based on business needs and resources. Electronic backups are cost-effective, while paper-heavy operations might need offsite storage solutions. Sensitive materials should always be kept secure and inaccessible to unauthorized staff.
When it is time to dispose of records, destruction methods should ensure confidentiality is maintained. Paper documents should be shredded; electronic files must be deleted from all storage locations before disposing of hardware.
The NFIB recommends that small business owners develop a DRP tailored to their operations and legal obligations. "By carefully considering the documents your business produces and the relevant requirements, you should be able to develop a DRP that facilitates your business’s operation and protects you in the event of a legal dispute," according to the NFIB press release.
If unsure about what records to keep or discard, business owners are encouraged to seek advice from accountants, lawyers, or state agencies. Further questions can be directed to the NFIB Legal Center at info@nfib.org.
