How To Organize Employee Records in Your Small Business

How do you keep your employee’s paperwork? Do you have one folder for each employee? Or, are they all in one folder?  Do you know where all your employee paperwork is? Do you have subcontractors? Where are all the sensitive W-9 and W-2 paperwork? Are they in a secure place? Every small business needs to keep employee records. I have found that several small businesses do not know where all their paperwork is.  And, if this information falls into the wrong hands, you could be creating undue stress on your employee or subcontractor. To eliminate confusion with which tip relates to which type of personnel, I  marked an “E” or “S” at the beginning of each tip to help you organize your personnel files more effectively. The E stands for Employee and S stands for Subcontractor.

How To Keep Personnel Records Organized

1. E or S: Have an area for basic personnel files. This would include resume, W-4 form, copy of job description, benefits records (health and retirement), contracts (salary letters), and any discipline issues paperwork.

2. E: Store confidential medical records separately from where the basic personnel files are kept.  This will keep you in compliance with the various privacy laws.

3. E: Keep employee injury (Worker’s Comp.) paperwork in separate folders. For any injuries, you should have a separate folder with the paperwork related to the employee’s injuries. This will keep it easily accessible if you ever need to refer to this paperwork.

4. E: Have your payroll paperwork in a separately organized payroll binder. A binder is great because you can hole punch everything and divide it up by tax agency and add a section for employees pay stubs. Add a section in the binder for the I-9 employee form for your employees. And, at the end of the year, you can file the whole binder away for safe keeping. My clients really appreciate their payroll binder. Remember, you are an employee so don’t forget to fill out the paperwork for yourself and store it in the binder as well.

5. S: Keep Subcontractor invoices in their own folder per year and contracts/agreements in another more permanent folder somewhere else. Keeping them separated will minimize the likelihood that an important paper would be missing. I had clients that would constantly lose their agreement with their subs. It was very frustrating for both parties.

6. E or S: Create custom forms for personnel. If you have forms specific to your industry for your personnel to complete, keep blank copies in a  few “New personnel” packets. Also, include the federal and state forms that need to be filled out as well.  When you have a new employee, all the paperwork is in one place.

7. E or S: All personnel files are to be secure.  There should only be a small number of people who know where this paperwork is.  Filing in a locked cabinet like these below work nicely. If you can find a fireproof one, even better.

   
   

8. E or S: Protect your files that are digital with passwords. If you have it digital, make sure it is password protected.  Make your passwords as strong as possible using capital letters, symbols, numbers and lower case letter. Make it unique.

9. E or S: Create a personnel policy. This would include where all the different folders are, who can access them and when they can access them.

Unfortunately, the IRS does not give you much direction on how to keep this information so hopefully, this does.  They only list the following for business employment tax records. Visit IRS.gov to get more information.

What you need to keep in your employment tax recordkeeping?

• Your employer identification number.

• Amounts of tips reported

• Amounts and dates of all wage, annuity, and pension payments.

• Employees Names, addresses, social security numbers, and occupations

• Employee copies of Form W-2 that were returned to you as undeliverable.

• Sickness or injury dates and how much was paid to employees

• Employment dates

• Forms W-4, W-4P, W-4S, and W-4V copies

• Tax deposit dates and amounts

• Returns file copies.

• Tips Records

• Fringe benefits Records

The IRS recommends employment records be kept for 4 years from when the employee is terminated or leaves the company. So, for the 2018 tax year, you should keep these records until January 2022. For more information on tips on how long you should keep your business records, please visit my post.

I hope this information gives you some guidance on how to organize your employee records.