- Keeping documentation about your workforce helps you comply with government record-keeping regulations, it protects your small business from penalties, and it helps you defend your decisions if a wrongful termination lawsuit is brought against you.
- You can easily set up employment records by creating a checklist for what documentation to include and asking your staff to help you gather the information.
- Personnel files are private and confidential, so restrict access to only those people who need the information by storing it in a secure location.
Like many small business owners, you may have taken on the work of a human resource manager without realizing it. You might not have the resources or a large enough staff to justify hiring someone specifically for that position yet. For the time being, you're responsible for everything related to your team, including creating and managing their personnel files.
Why your small business needs personnel files
Establishing and maintaining employment records may be low on your priority list, but they can help your company in several ways, such as:
- It allows you to make more informed decisions. Personnel files can give you a clear view of your team's work history, including performance goals, attendance records and even disciplinary action. This information can be vital when deciding whether you're going to promote someone, give them a raise or fire them.
- Good record-keeping can protect your small business from steep fines and penalties. Federal and state agencies require you to keep employment info for a certain length of time. Personnel files can ensure you have copies of all necessary data.
- It can help defend your company in wrongful termination lawsuits. Proper documentation won't prevent former employees from suing you after they've been fired, laid off or suspended. But it can mean the difference between winning and losing the case. Work records can support the decisions you made throughout the person's tenure, like terminating them, and show that your reasons were justified and legal.
How to set up and manage personnel files
Since it's essential to your business to maintain personnel files, follow these six easy steps to help you create and manage your team's records.
1. Take stock of what documentation you already have.
You probably have a lot of information about each worker, such as resumes and W-4 forms. Search through emails and paperwork to gather what you already have.
Then use the following checklist to help you identify any gaps:
- Job description
- Application and resume
- Job offer letter
- Signed acknowledgment of employee handbook
- Emergency contact info
- Benefits forms
- State and federal W-4 forms
- Payroll documentation, including wages paid each pay period
- Performance reviews
- Complaints from customers and/or co-workers
- Praise from customers and/or co-workers
- Awards for commendations for excellent performance
- Attendance and tardiness records
- Certification showing completion of training programs
- Written warnings and other disciplinary actions
- Any contracts, written agreements, receipts, and acknowledgments between you and the employee
- Documents related to the worker's departure from your company
2. Ask for help from your team.
Let your staff know you're creating personnel files for each of them so that everything is in one secure location. Then ask for help collecting any missing information, like emergency contacts. Give everyone a list of what you need from them and set a deadline to provide the info.
3. Secure your files and create policies for who can access them.
Store the documentation in a protected location either online or in a locked filing cabinet. This will keep everyone's information safe from unauthorized access.
Since employment records are private and confidential, make it clear who can view the files. Generally, you and the employee can view the information. You may want to give the employee's supervisor(s) limited access to certain pieces of information their employees' files. For anyone who can view files, set clear guidelines about
- How far in advance they need to request access
- What information they can see
- Where they're allowed to view records
- Whether they can make copies
- Whether they can amend documentation
For example, you might permit an employee to look at their folder, but they
- Must request access at least 24 hours in advance
- Can only review the information in your presence
- May ask you to make photocopies
- Can attach notes of explanation or clarification but cannot alter original documents
5. Create files for new hires.
Whenever you have a job opening, create a folder to collect candidates' applications and resumes. After you've hired someone, move the individual's info to a separate employment record. That way, you'll have a secure folder at the beginning of their tenure and won't have to go through emails or paperwork later to piece together the worker's data.
6. Regularly perform an audit.
Periodically revisit each team member's records to ensure everything is accurate, updated and complete. Reviewing each folder annually, such as before annual performance reviews, can show you what has – or has not – changed from the previous year.
When you're auditing each file, ask yourself the following questions:
- Does the folder contain every written evaluation of the employee?
- Have written warnings been removed after an appropriate timeframe?
- Do the records reflect all the worker's raises, promotions and commendations?
- If the team member was on a performance improvement plan or probationary period, does their file reflect their current status?
- Is there a signed acknowledgment that they have read and understood the most recent version of the employee handbook?
- Does the folder contain current versions of every contract or agreement with the worker?
How long you should keep documentation
Generally, you need to save general employment records for at least one year after someone leaves your company. This documentation includes:
- Job application and resume
- Educational transcripts
- Documentation that supports your hiring decision
- Signed W-4 forms
- Payroll deduction authorization forms
- Records showing changes in the employee's status, such as a promotion, transfer or pay raise
- Disciplinary reports with dates, reasons, and details
- Performance reviews
You need to store info about how wages are calculated for at least two years. This data includes:
- Vacation and sick time details
- Time and attendance records
- Wage rate tables
- Work schedules
- Any wage additions or deductions
Typically, you need to keep most attendance and payroll data for at least three years, including:
- Full name
- Social Security number
- Birthdate if the worker is younger than 19
- Day and time the employee's workweek began
- Daily hours worked
- Total hours worked each pay period
- How wages are paid, such as $12 per hour, $480 per week, or $25,000 per year
- Regular hourly rate
- Total daily or weekly straight-time earnings
- Total weekly overtime earnings
- Total wages paid each pay period
- Paydays and pay period covered by each paycheck
- Collective bargaining agreements
- Sales and purchase records
The IRS recommends that you keep employment tax records for at least four years after the tax is due or is paid, whichever is later.
Personnel file do's and don'ts
To keep your small business compliant and protect yourself from potential lawsuits, follow these simple guidelines.
- Offer training to anyone who will add documentation. Make sure supervisors know what info to include and how to take notes that are not biased. For example, show them how to notate specific patterns of good and bad behavior that justifies any actions they took, such as issuing a written warning.
- Ask your staff to acknowledge paperwork before filing it. Having an employee sign anything that goes into their record signifies that they're aware that the document exists. It also gives them a chance to include any clarification or explanation.
- Keep job applications and resumes for candidates. Storing all candidates' info can protect you if you ever need to justify a hiring decision.
- Keep hard copies in a secure area. Your team's employment records should be safe, so keep them locked up and only give access to the people who need it.
- Back up info online. Upload documentation to a protected location, like an online document warehouse, so it's only accessible to the people who need to view the data.
- Include staff opinions, gossip, and unfounded rumors. Anything in a personnel file may be used in a potential lawsuit, so be careful what you include. A former employee might use opinions and gossip from their record to say you fired them for unjust or illegal reasons.
- Include work authorization data and medical info. You should create at least three separate files for each of your workers:
- Personnel files, including employment history and payroll info
- Work authorization, including Form I-9 and supporting documentation
- Medical info, including physical exams, medical leave, and workers' compensation
- Store protected information. Including information like the person's race, national origin, marital status, religious beliefs, or sexuality could be used against you in a lawsuit.
- Forget to include positive information. It can be easy to overlook praise from customers, co-workers and supervisors. By adding both the good and the bad, you'll have an accurate view of the employee's work history.