Shred or Be Shredded: Best Practices for Document Retention

Lance Broberg,  |  November 10, 2017

Record keeping is a requirement of any business, and the IRS requires keeping records for seven years. This requirement has led some to believe that the maximum length of time records must be kept is seven years. Yet that is not the case. The decision to shred documents must be considered in light of several factors, taxation being but one. In some cases, if important documents are shredded, the business may later face severe difficulties.

Most important in any document retention situation is understanding the importance of various documents. A formal preservation and destruction policy will help limit exposure to litigation and other harmful consequences from not having vital documents when needed. Following are some record keeping best practices for individuals and businesses.

How Long Should Individuals Keep Records?

Individuals may think that the only records needed are related to their taxes, but given that most people either work for someone else or have a small business on the side, there may be times when keeping records longer than IRS recommendations is prudent. This article explores some of those exceptions.

The Role of Statutes of Limitations in Keeping Records

Both Arizona state and federal law have statutes of limitations that impact the length of time records must be kept. In situations that are criminal in nature, capital crimes have no statute of limitations. However, most businesses may not know that certain documents may be important to a criminal procedure (especially if the crime isn’t identified until years later), so retaining records for such situations is impossible. Civil matters on the other hand are easier to plan for.

For instance, any records related to minors should be kept indefinitely. This is because most civil matters can be litigated decades after the fact if a crime occurred when the person was a minor. So, minors who work for someone and businesses that employ minors may want to keep records longer.

How Long Should Businesses Keep Records?

How long businesses should keep records depends on the type of business. In general, anything that could relate to future litigation should be kept. Following are some document retention questions to ask when deciding to shred or retain records in a business:

• Are there pending or potential lawsuits that may be affected by certain records?
• Have employees made complaints that may later require the support of a record?
• Are there audits or administrative inquiries pending or possible in the future?
• Does proof of contract obligations need to be kept?
• What about payments, reimbursements, and performance reports?
• May changes in policies impact future operations or litigation?
• Are there any other reasons a particular document may be useful in the future?

The question of whether to keep certain documents or shred depends on the needs of the business and potential for events to change. Some decisions may come down to personal preference, but some may have to do with regulatory agency rules beyond the control of the business.

Different Rules for Different Types of Businesses

Healthcare organizations, financial institutions, schools, nonprofit organizations, general businesses, industrial suppliers, and manufacturers each have regulatory agencies that have oversight of their operations. Each may have to retain certain records longer than the so-called seven-year rule. Following are some examples:

• CMS Guidelines for Laboratory Storage of Records requires 10 years for pathology test reports (see 42CFR§493.1105 for more information). Disposal of these records could result in massive fines.
• Truck drivers and certain other employees must provide employment histories to prospective employers dating 10 years. Wise personnel staff would do the same when such rules impact their operations.
• Non-profit organizations are required to retain records of bylaws, audit reports, charts of accounts, payments, and purchases, employee discrimination reports, and many others permanently.

Every organization needs to know what must be kept and what may be discarded. This is why a written, formal preservation and destruction policy is vital to an organization. It prevents employees from guessing, which could result in untold harm to the company.

In What Format Should Businesses and Individuals Maintain Records?

Records today may be paper or electronic. In many cases, businesses keep both. Some may choose to keep paper records for a set time and then either destroy them or transfer them to electronic format. In some cases, there is no wrong way. In others, the originals must be preserved. Once again, much depends on the type of organization and the state and federal laws impacting the business.

Naturally, one concern with paper is the potential for personal information falling into the wrong hands; the same may be said for electronic documents. Security of documents becomes far more difficult as the files grow larger. The best way to be secure is to only keep what must be kept.

The business law attorneys at Tiffany and Bosco make it their business to help clients develop the right preservation and destruction policy for their company. Tiffany and Bosco will help you only shred what must be shredded and keep what must be kept. This will make securing documents and protecting your interests more efficient and effective. Contact Tiffany and Bosco today to see how they can help your business with the best practices for document retention.

Read more, “Words to Keep,” by Tiffany & Bosco or contact our Legal Business Solutions team if you have questions.

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