I once worked for someone who claimed he could tell everything about you by the trunk of your car. His trunk was the automotive equivalent of a zen garden: seemingly empty, yet stocked with everything from a mylar thermal blanket to a light-up sign you could place in the road in case of an accident.
I made a mental note never to open my trunk in front of him.
When it comes to your business records, you want to be that guy. Proper small business record keeping is much more than a legal requirement. It protects your legal rights, informs planning, and promotes operational efficiency.
To get there, you need to create a document management system detailing what documents to keep, how long to keep them, and how to dispose of them when the time comes.
Document 1: Founding documents
If you’re operating a sole proprietorship, your founding documentation might be little more than an application for a federal Employer Identification Number (EIN). Once you form a business entity such as a partnership, corporation, or LLC, however, you will have corporate documents such as:
• Partnership agreements
• Articles of incorporation or formation
• Fictitious name registration and proof of publication
• Certificates of authority from other states
• Board of director information
Founding documents are permanent company records that you should store for the life of your business.
Document 2: Employee records
Federal laws require businesses to keep employee documents for varying minimum time periods. If a complaint is filed against your business, the record keeping requirements extend until the claim is resolved.
Minimum time periods for employee documents are as follows:
• Recruiting records: The Equal Employment Opportunity Commission (EEOC) requires you to retain job advertisements, position descriptions, applications, resumes, interview notes, and screening documents such as credit records and test results for one year from an employee’s date of hiring or termination, whichever is later.
• Employee contracts: Signed employee handbooks, employment contract forms, nondisclosure and noncompete agreements, written policies, policy changes, and other employee agreements should be securely stored for at least one year.
• Disability records: Under the Americans With Disabilities Act, all disability information, including requests for accommodations, must be kept in a separate, secure file for one year.
• Medical and benefit documents: Health and medical records your business collects should be kept separately from personnel files in a secure location for one year. Benefit plans, offers, and enrollment documents should be kept for the same period.
• Personnel records: Performance appraisals, compensation records, promotion documentation, time cards, disciplinary records, separation documents, and references should be securely kept for two years.
• Payroll records: Under the Fair Labor Standards Act, the Equal Pay Act, and the Age Discrimination in Employment Act, you must keep payroll records, supporting documents such as time cards, and any documents that could support a claim of pay bias for two to three years. Since pay discrimination complaints may concern long-standing disparities, you may want to keep relevant pay records on file indefinitely.
• Family and Medical Leave Act (FMLA) leave: Keep records of all FMLA leave requests and documentation for three years.
• Work authorization: Employers must keep I-9s for every employee for three years after their hiring date or one year after termination, whichever is later. You only need to keep pages with signatures. You’re not required to make copies of identity documents, but if you do, be sure to treat all employees identically and store them with I-9s.
• Accidents: The Occupational Safety and Health Administration (OSHA) requires most employers to keep records of accidents and injuries for five years. This doesn’t include minor injuries that require simple first aid.
• Workers’ compensation records: If your work involves hazards that could lead to long-term illness, OSHA requires you to keep records of employee exposures and related medical documents for 30 years.
These are just the minimum requirements for business paperwork enforced by federal authorities. Many legal and financial advisors recommend retaining documents for far longer periods.
Document 3: Tax returns and other financial records
The Internal Revenue Service (IRS) requires businesses to keep the following tax records:
• Tax returns: Keep your business tax returns and supporting documents for at least three years.
• Sales tax registrations and returns: Sales tax records must also be kept for three years.
• Financial records: Invoices, receipts, bank statements, and financial statements should be retained for at least three years.
• Payroll tax records: State and federal laws require payroll tax records to be retained for anywhere from four to seven years.
• Business asset documents: Deeds, titles, purchase records, records of appreciation, and ownership documents should be kept on file for the life of the asset.
• Loans: Loan documents should be retained for the life of the loan.
• Other financial documents: Many financial professionals recommend keeping business forms such as bonds, financial statements, journals, and ledgers permanently.
Since the IRS can investigate as far back as six years if it suspects a major tax violation, you may want to play it safe and hold onto all tax records for at least six years.
Document 4: Contracts, licenses, and other legal documents
Even small businesses generate a fair amount of legal and administrative paperwork.
Examples of legal documents you need to store include the following:
• Business agreements with vendors, affiliates, and independent contractors
• Licenses, permits, and certifications
• Annual reports filed with the secretary of state
• Certificates of authority for operating in other states
• Indemnity agreements
• Insurance policies
• Patents, trademarks, and copyrights
• Real estate records
• Board meeting minutes
Your business should retain all licenses, contract agreements, and other legal documentation as long as they remain in force and for a reasonable period thereafter.
The Uniform Preservation of Private Business Records Act (UPPBRA), enacted by many states, provides a baseline of three years unless a more specific retention period is specified.
To protect your business, you need to keep legal documents for at least as long as the statute of limitations lasts for potential disputes and legal challenges. Statutes of limitations are legal deadlines for filing specific types of legal claims, and they vary by state.
For example, statutes of limitations for breach of contract claims range from three to 15 years in different states.
A place for everything
In the digital age, it’s easier than ever to organize, retain, and secure documents. With an orderly document management plan, you, too, can motor on knowing you have a tool on board for every contingency and a way to find it when you hit an unexpected bump in the road.
The post A Guide to Business Documents Your Small Business Needs appeared first on The blueprint and is written by Elizabeth Gonzalez
Original source: The blueprint