Company Records: What to Keep, What to Dump

A records retention schedule ensures that an organization keeps the records it needs for operational, legal, fiscal or historical reasons, and then destroys them when they’re no longer useful. You may base your records retention schedule on your own experience and research of legal mandates or on what other companies are doing.

Whatever your method, use your retention schedule as a guide, not as an executioner. Retain records longer if litigation, a government investigation or an audit seems likely. In the event that a legal action does transpire, immediately cease all disposal activities.

You have to know what you have and how long to keep it—legally and for your own business purposes—before you can establish an efficient records management system. That’s why it’s important to inventory your records and draw up a company retention schedule.

You must also consider state and local statutes of limitations as well as regulations of government agencies that pertain to your business. State retention statutes vary widely on tax, unemployment and workers’ compensation records, as well as on environmental and other requirements. Check with your state and regional authorities for details. As an extra safeguard, have your CPA and your attorney review your records retention timetable before putting it into practice.

Timetable Tips

Whether you use the guidelines in this section or conduct your own research to establish a retention schedule, keep the following in mind:

• Don’t be a “just in case” hoarder; store records only for legal, operational or archival reasons.
• Retain and destroy documents systematically.
• Segment records according to a retention timetable.
• Don’t retain unscheduled temporary materials, such as drafts, reminder notes, work sheets or extra copies.
• Don’t hang onto documents just for their sentimental or public relations value. Information must earn its keep, like any other asset. A comprehensive record of the past that fosters a “company memory” can be an asset, but be sure to minimize your legal liability while doing so.

When No Requirements Exist . . .

What can you do if a law does not state a specific retention period?

This is not uncommon. There may not be a stated legal requirement for certain records, or the requirement may not include a specific retention period. You may have done a thorough search to locate certain records requirements but could not find any law addressing your particular documents. Or you may have discovered that certain records must be maintained, but you could not determine for how long. Statutes and regulations often contain a phrase, “The following records shall be maintained . . . ,” but they fail to tell you the retention period. Usually the phrase is interpreted as meaning “permanently” because there’s no permission given for destruction of the records.

How do you deal with this quandary?

Under the Uniform Preservation of Private Business Records Act (UPPBRA), whenever a law does not specify a retention period, businesses should keep their records for three years. If you destroy them sooner, you risk subjecting your organization to legal problems. However, only eight states have adopted this act or something equivalent. Courts could certainly require you to hold records long enough to permit the state to monitor compliance with its regulations—a “reasonable” period of time. Based on federal records and the UPPBRA, a three-year retention period should be sufficient.

How long should you keep records if you cannot locate any legal requirements referring to them?

Assuming your legal research was thorough, it is best to maintain the records for three years. You must, however, document your search effort and the assumptions you used to set the three-year period. Then, if you missed a legal requirement during your search, you have documentation to show the judge or regulatory agency that your organization had made a good-faith effort to comply with the law.