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8/18/2020

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Essential HR Policies: What’s in your employment files?

 
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This week, we continue our series on Essential HR Policies by taking a closer look at what should be in your employment files.

Common Record-Keeping Mistakes

Most of our clients run their business or non-profit because they are pursuing a passion, not because they enjoy record-keeping. But failing to keep thorough and accurate payroll records makes it impossible for you to complete timely and accurate tax filings (including issuing W-9s or 1099s at the beginning of the year) which can expose you to penalties and late fees. And the lack of records means you can’t defend your organization from claims of unpaid wages, salary, or overtime.
If we went through your payroll files right now, could you provide documents in response to a claim that an employee was underpaid? Could you prove exactly what hours each employee worked and on what days? What they were paid for those hours? Did they work any overtime? In the event of a dispute over how much an employee was or was not paid, the burden is on you as the employer to prove that you complied with all wage and hour laws. 

If a government agency requested your payroll files, could you produce each employee’s full name, address, birth date, and social security number? Proof that each employee is eligible to work in the U.S.? Each employee’s start date? Termination date? 
​

Unfortunately, not being able to answer these questions and provide this documentation is more common than you might realize.
The burden is on you as the employer to prove your compliance with all wage and hour laws.

Legal Requirements

So what employment records should your small business or non-profit be keeping? And how long should you hold on to those files? Unfortunately, there is no one record-keeping requirement to rule them all. Different laws require employers to keep different records for different amounts of time. But here are some general guidelines to follow:
Pre-Employment Documents: 1-6 years

These documents can include job applications, resumes, job postings or ads, interview notes, etc. Employers should retain these documents in case there is a claim of discrimination in the employer’s hiring practices. While 1 year is a good minimum, there are good reasons for keeping these records for even longer, particularly here in Ohio. (Note: Some larger government contracts may require employers to retain these documents for up to 2 years.)
Payroll Records: 3-5 years
​

Ohio requires records of each employee’s name, address, occupation, rate of pay, amount paid each pay period, and hours worked each day and each week to be kept for at least 3 years from the date of termination or last entry (O.R.C. 4111.08). The FLSA (Fair Labor Standards Act) also imposes a 3 year record-keeping requirement. However, other agencies can request records going back even further. For example, the BWC (Bureau of Workers’ Compensation) can look back 5 years (O.R.C. 4123.24). 

Interestingly, Ohio requires employers to provide copies of an employee’s payroll records to that employee (or their representative) upon request. The mere failure to keep records or provide copies upon request is, in and of itself, a violation of the law that you as an employer can be sued for. 
​

In addition to what Ohio law requires, your payroll records should also include each employee’s social security number, date of birth (especially if you hire minors), the sex of each employee, total weekly earnings (broken out by regular earnings versus any overtime pay), any additions or deductions to an employee’s pay, the date the employee was paid, and the pay period covered by each payment. 
The mere failure to keep records can lead to lawsuits.
Personnel Files: 3-6 years 

The EEOC (Equal Employment Opportunity Commission) only requires records to be kept for 1 year following an employee’s termination, and the ADEA (Age Discrimination in Employment Act) requires records to be kept for 3 years. But here in Ohio, employment discrimination claims have a 6 year statute of limitations (i.e., the time in which a lawsuit can be brought). Because of this, it’s a good idea to keep both pre-employment documents and personnel files for a full 6 years.
​

Personnel files should include the employee’s application/resume, W-4, I-9, new hire reporting, signature acknowledging the employee handbook, performance reviews, any corrective action plans, accommodation requests, and any other records that relate to employment decisions (i.e., promotions, terminations, transfers, raises, etc.)
Written Employment Contracts: 8 years
​

If you use written employment contracts, you should keep your employment records (not just the contract itself) for 8 years because of Ohio’s statute of limitations for breach of contract claims. While it may seem unlikely to get sued by a former employee so many years later, you certainly don’t want to hurt your defense because of a lack of evidence on your part.

Best Practices

1. As an employer, you should have a complete checklist for on-boarding new hires (including all of the paperwork that needs to be completed) and a process for when an employee leaves your organization (whether voluntarily or involuntarily). 

2. You should have a time and attendance policy that explains how employees’ working hours are tracked and addressing common issues such as tardiness and absences. 

3. Because of the wide range of laws and tax filings that can implicate your employment records, every employer really should have a comprehensive document retention policy. A good policy will address what documents should be created and kept in each employee file, how long those documents will be maintained, and who should have access to the documents in each file. 
​

4. Backup! I cannot stress enough the importance of keeping a backup of all of your business’s or non-profit’s critical files, but especially those related to employment. “I lost all my records when my computer crashed” is not a defense.
If you have questions about your hiring process, record-keeping practices, or your employment policies in general, don’t hesitate to schedule a consultation.
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