Part One: General Business Records
Do you have a filing cabinet full of business documents that you haven’t looked at in years? Do you need help determining what to keep and what you can shred?
If so, read on!
Federal Record Retention Requirements
Businesses must comply with certain federal laws that apply nationwide. Several more notable federal record retention requirements that warrant particular attention are enforced by the Internal Revenue Service (IRS), the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL):
- The IRS generally recommends that small businesses and self-employed individuals keep income tax returns and supporting documentation for 3 years from the date of filing or 2 years from the date you paid the tax, whichever is later.
- The EEOC, which enforces federal anti-discrimination laws, mandates that covered employers retain all employment records for at least 1 year from the date of a qualifying personnel action, such as termination of an employee. If an employer maintains a disparate pay scheme of any kind (e.g., it pays female employees less than male employees) any records explaining or justifying this discrepancy must be kept for at least 2 years.
- The DOL, which enforces federal minimum wage and overtime rules, requires covered employers to retain payroll records, collective bargaining agreements, and sales and purchase records containing specific identifying information for at least 3 years. Records related to wage computation must be kept for 2 years.
State Record Retention Laws
Like the federal government, the New York State Department of Taxation and Finance recommends that records related to business tax returns be maintained for 3 years, including canceled checks, receipts, and other sales records.
Be aware, however, that state record retention laws often are stricter than the federal rules. That’s the case for New York’s retention requirement for payroll records, which is twice the length of the DOL requirement at a period of not less than 6 years. This period also applies to documentation of each employee’s hours worked, gross wages, deductions, and net wages. New York also requires a business to keep at least 4 years of payroll records to comply with the state’s workers’ compensation law.
Similar to New York, New Jersey requires businesses to maintain detailed payroll records for a period of at least 6 years.
Best Practices
Even in the absence of a legal requirement, we recommend that you permanently keep certain important documents:
- Certificates of Incorporation/Articles of Organization, Stock Certificates/Ledgers, Bylaws, Minutes and Resolutions;
- Partnership, Shareholder, Operating and Buy-Sell Agreements;
- Bills of Sale, Title, and Insurance Policies for equipment and vehicles;
- Deeds, Mortgage Documents and Insurance Policies for real property;
- Patents, trademarks, and related filings; and
- Retirement and 401 (k) plan records.
Finally, business contracts, leases, and employment agreements should be kept a minimum of 6 years past the termination or expiration date. This is consistent with the rule of thumb that documents should be kept through the end of the longest applicable statute of limitations period, which is 6 years for breach of contract and fraud claims in both NY and NJ.
Get Advice from Full Spectrum Business Counsel
Proper record retention is not just about regulatory compliance. In the event of an audit or a lawsuit, being unable to produce required documents can be costly. When in doubt, it is always in your best interest to consult experienced business attorneys who can function as your outside “in-house” counsel advising you on these and other business practices. Contact Loganzo & Mantell PLLC today to schedule an appointment.
Loganzo & Mantell PLLC
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