When a Business Can Destroy Records
There are many legal facets that go into maintaining a business, including employee and customer record retention. In accordance with the federal law created to protect consumers and their personal information, The Fair Credit Reporting Act, amended by the Fair and Accurate Credit Transactions Act in 2003 (FACTA), businesses are required to implement policies to properly store and then later completely dispose of consumer information.
According to FACTA, consumer information is defined as "any record about an individual, whether in paper, electronic, or other form, that is a consumer report or is derived from a consumer report." 16 C.F.R. 682.1(b). This includes documentation that contains information about an individual’s creditworthiness, reputation, personal characteristics, mode of living, etc. and which is or can be used to determine the individual’s credit, insurance, or employment eligibility. All businesses that accept credit cards, banks, insurers, offers credit, and employers that maintain employee background records such as social security numbers must comply with these rules.
The length of time a document should be kept depends on the action, expense, or event which the document records. Generally, keep records that support an item of income or a deduction appearing on a return and keep them for as long as they are significant to the federal tax law. Unfortunately the Fair Credit Reporting Act does not create document retention periods, so remember that the period of limitations will be the period of time after which no legal action can be brought. Since there is no set retention period guideline, businesses must look to federal and state government timelines to determine how long records containing consumer information must be. Keep in mind that the federal and state government’s rules tend to change and they often provide different time guidelines.
It is important to make sure that you follow this procedure and properly get rid of customer information. Businesses that fail to completely dispose of records may be subject to civil liability for willful noncompliance or negligent noncompliance, which could result in the recovery of damages and court costs and attorney fees. In addition, a business that fails to comply with the correct disposal requirement may be subject to administrative enforcement.
Below is a list of a few records and their related California and federal record retention periods:
TAX RELATED RECORDS
California Law Statute- 6 years (Cal. Rev. & Tax. Code § 19704)
Federal Law Statute- 4 years (Internal Revenue Code § 3402)
Employers must maintain the following records for four years for each employee: the employee's name, address, account number, total payments made and date of each payment; the period of the employee's service; the total remuneration constituting wages which are subject to withholding; collected taxes; explanation(s) for any difference between remuneration and taxable income; the fair market value of any non-cash remuneration; an IRS Form W-4, and documentation concerning the employee's tax status.
California Law Statute – 2 years, but 3 years for records relating to deductions made from an employee's wages after employment is terminated (Cal. Govt. Code § 12946; Cal. Lab. Code § 1174, CA Family Rights Act)
Federal Law Statute- 3 Years, Fair Labor Standards Act, Family and Medical Leave Act ("FMLA") and ADEA, but ERISA related records must be maintained for 6 years.
Payroll records should include employee names, addresses, occupation, hours worked by day and week, wages paid each pay period, the date of wage payments, straight-time and overtime payments and also deductions.
HIRING RELATED RECORDS
California Law Statute- 2 years (Cal. Govt. Code §12946)
Federal Law Statute- 1 year
Job applications including personnel and employment records related to hiring must be retained for at least one year from the date of hiring or from the date of the relevant personnel action. Employers must also maintain, job advertisements, job applications, job descriptions, and job orders regarding recruitment. Keep in mind though that Immigration and Naturalization Service Form I-9s must be maintained for three years from the date of receipt or one year after the termination of employment, whichever is longer.
RECORDS RELATED TO WORK RELATED INJURIES AND ILLNESSES
California Law Statute – 5 years
Federal Law Statute- 5 years from date of injury or illness (8 Cal. Code Regs. § 14304-14311)
All employers are required to complete and maintain a OSHA Log 200 - "Log and Summary of Occupational Injuries and Illnesses" and an annual summary of work-related illnesses and injuries. This log must contain information about work-related injuries or illnesses that result in work restrictions, motion restrictions, lost workdays, a transfer or termination, the need for medical treatment, a diagnosed work-related illness, loss of consciousness, or death.
FAMILY MEDICAL LEAVE RELATED RECORDS
California Law Statute – 2 years (Cal. Gov't Code § 12945, 12946)
Federal Law Statute- 3 years (FMLA records for employers with 50 or more employees)
Firms with fifty or more employees must retain records reflecting dates or hours of FMLA leave taken by eligible employees, copies of written notices of requests for such leave provided by the employee to the employer, descriptions of policies and practices concerning benefits provided during such leave, premium payments for employee benefits and disputes over the designation of a leave as FMLA leave.
If you have any questions, or would like further assistance on business documents, please call us toll free at (888) 595-2747.
SunDoc Filings is not a law firm. These materials do not, and are not intended to, constitute legal or tax advice. Please seek legal or tax advice before deciding on your records policy.