As an employer, you are bound by laws and regulations that specify which employee information you can (and should) collect and who can access that information. Administrative functions like gathering and storing employee documents may seem tedious, but they can have a major impact on your business. In 2020, the major Swedish retailer H&M was fined more than $41 million for allegedly tracking employees’ personal lives (i.e., vacations, illnesses, religious beliefs and family problems) on a company database.
To avoid any legal issues and penalties (not to mention the ire of your employees), you need to understand what a personnel file is and what it should and shouldn’t include.
An employee personnel file is a collection of critical documents that pertain to a specific worker. Employers are legally required to store some employee documents, whereas others are simply nice to have.
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According to Damien Weinstein, partner at Weinstein & Klein PC, “You should be able to read a personnel file and have a pretty accurate view into who the employee is, what they do at the company and how they are performing.”
While you can store employee personnel files in a locked filing cabinet, you run the risk of the documents being damaged by potential disasters (e.g., floods, fires or tornadoes) or stolen and exposed. Instead, many businesses use highly rated HR software to digitally store and manage employee personnel files.
How long you’re required to keep a particular document in the file depends on federal and state laws (see some examples below). Some states only require you to retain certain documents for two to three years after the employee’s last date of employment with your company, but you may want to retain them for six or seven years. Regardless, while an audit isn’t legally required, you should conduct one on your business’s personnel files once a year to ensure the information you have is accurate and up to date.
Only key HR personnel and designated company officers, like your chief operating officer (COO), should have access to employee personnel files. [Read related article: What Do C-Suite Job Titles Mean?]
“Key personnel who are contractually and legally obligated to maintain confidentiality [should have access],” Weinstein told business.com. “This could be a business owner and COO, head of HR, etc. The point is that this contains personal, private and sensitive information and isn’t to be readily available to anyone in the company.”
Although only key designated professionals should have access to employee personnel records, these high-level leaders can occasionally grant managers or supervisors access to some of the information in the standard employee file that doesn’t contain sensitive details. Learn more about the various file types below.
There is a copious amount of information that should be kept in a personnel file; however, some of it is confidential. For these reasons, Nicole Anderson, founder and CEO of the HR solutions firm MEND, recommends dividing the information in an employee’s personnel file into three distinct folders: an employee file, a confidential file and an I-9 file.
This file should contain information regarding the employee’s job requirements, knowledge, performance and behavior. Anderson said this general file typically includes the following items:
This file would contain highly sensitive information and should be kept in a secure file. Only the previously mentioned key personnel should have access to this file. Anderson said a confidential file typically includes the following:
Form I-9 is used to verify an employee’s eligibility for legal employment in the United States. Employers must complete and retain an I-9 form for every employee. Immigration and Customs Enforcement (ICE) inspectors frequently perform I-9 audits on businesses, and being prepared can spare you hours of tracking down the documentation and paying costly fines.
Storing or sharing the wrong personnel information can land you in legal trouble. As outlined above, sensitive information that you should keep separate from the general employee file includes the employee’s W-4, equal employment opportunity information, their Social Security number and their medical file.
“More recently with COVID, guidance suggests that personal health information (exposures, test results, documentation of symptoms, etc.) should not be kept in the [general] personnel file since this may be accessed by too many people,” said Weinstein.
Do not keep any information regarding an employee’s personal information, work product, emails or opinions about the employee. You should also discard copies of employee identification cards, such as Social Security cards, government identification cards, driver’s licenses and passports.
“Once the use of these items is done, they should be destroyed to prevent any unauthorized duplication or breach,” said Anderson.
Your employees may believe they can inspect their personnel file at any time, but this isn’t always the case. Many states have laws that require employees to obtain a court order before they can request access to their personnel files.
Additionally, there are federal and state laws that determine how employers can store certain information and which employees have clearance to access it. Anderson said most states only require employers to keep state- or federal-specific documents in the HR department or a locked cabinet, whereas other documents require special storage and restriction.
“The Americans with Disabilities Act (ADA) and the Health Insurance Portability and Accountability Act (HIPAA) require that confidential medical information should be kept separate from the personnel file so that no one but the designated HR or company official has access to them,” said Anderson.
Laws also regulate how long you must retain certain documents. For example, the Equal Employment Opportunity Commission requires employers to retain all personnel records for at least one year after the last date of employment, while the Age Discrimination in Employment Act (ADEA) requires employers to retain any employee benefit plan and written merit or seniority system for at least one year after the plan or system is terminated.
Personnel records can also be invaluable in the event you are sued by a current or former employee.
“[A personnel file] is usually the first thing your lawyer will ask for if the employee is suing (or threatening to sue) you,” said Weinstein. “Having it in one place, ideally electronically, so that you can provide it to your attorney for their review is very good practice. Not only will that save you in legal fees, but a well-maintained file could provide a nice legal defense to any claims.”
>> Read next: How to Handle a Business Lawsuit
Source interviews were conducted for a previous version of this article.