Whether you are just starting up a new company or have been in operation for a while, business record keeping requirements are an essential part of running your business. You are responsible for establishing an effective system to store and maintain your business records whether your small business is a sole proprietorship, partnership, LLC, or corporation. Some types of records will help you to keep track of business details and plan for your business’s future, but others are required by law. Here are some of the records your business may be legally required to keep.
Employee Records
If you hire employees for your business, local, state, and federal laws establish business record keeping requirements that are extensive and and include both payroll and personnel records.
Payroll. Under the Fair Labor Standards Act, certain basic payroll records must be kept for three years for non-exempt (hourly) workers:
- Employee identification data such as full name, Social Security number, address (including zip code), birth date for employees younger than 19, gender, and occupation;
- Time and day an employee’s work-week begins;
- Hours worked per day and total hours worked for each workweek;
- Basis on which employees’ wages are paid (e.g., $9 per hour, $440 a week);
- Regular hourly rate of pay;
- Total daily or weekly straight-time (non-overtime) earnings;
- Weekly overtime earnings;
- Gross wages paid per pay period; and
- Date of payment and the pay period covered by the payment.
Certain records upon which wage computations are based—time cards, piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages—must be kept for two years. Employers are also required to maintain payroll records under the Age Discrimination in Employment Act (for businesses with 15 or more employees), the Americans with Disabilities Act (for businesses with 20 or more employees), and the Family and Medical Leave Act (for businesses with 50 or more employees).
Personnel. The Equal Employment Opportunity Commission (EEOC) requires companies to keep personnel records for one year. The records that private employers must keep include:
- Application forms submitted by applicants
- Records dealing with hiring, promotion, transfer, lay-off, or termination
- Rates of pay and compensation
- Tenure
- Selection for training or apprenticeship
Additional business record-keeping requirements include vacation and sick time, as well as other attendance information, which must be retained for three years. Also, benefit plan (retirement, health and wellness programs) documents must be kept for six years under the Employee Retirement Income Security Act (ERISA).
For California employers, more information can also be obtained from the Employment Development Department (EDD) and he Department of Fair Employment and Housing (FEHA).
Business Tax Records
Although the business you are in affects the type of records you are required to keep for federal tax purposes, your books must show your gross income, as well as your deductions and credits. In addition, supporting documents for purchases, sales, payroll, and other business transactions must be kept. Specifically, documentation showing your gross receipts, inventory, expenses, and assets must be retained. These records must be kept for as long as they may be needed for the administration of any provision of the Internal Revenue Code, i.e., until the period of limitations for that return runs out. Generally, the period is three years unless you fail to report income that should be reported, don’t file a return, or file a fraudulent return—in those cases, longer limitation periods apply. Also, employment tax records should be kept for at least four years after the date the tax becomes due or is paid.
Injury Reports
For many businesses with ten or more employees, the Occupational Safety and Health Administration (OSHA) and in California CalOSHA requires business records showing serious work-related illnesses and injuries to be retained for at least five years. Also, employers must complete and post a summary annually, even if no serious illnesses or injuries occurred during the year. Certain low-hazard industries are partially exempt from these requirements.
The following illnesses or injuries are considered serious:
- Work-related fatalities
- Work-related injuries or illnesses that cause loss of consciousness, missed work days, work restrictions, or transfer to another job
- Work-related injuries requiring treatment beyond first aid
- Work-related cases of cancer, chronic irreversible diseases, fractured or cracked bones or teeth, and punctured eardrums
Special recording criteria are in place for work-related needlesticks and sharp injuries, medical removal, hearing loss, tuberculosis, and musculoskeletal disorder cases.
Note: Although the information above regarding employee, tax, and injury records spell out what may be required under federal law, don’t forget to also comply with any state and local record-keeping requirements for these areas.
State Business Record-Keeping Requirements
State laws governing various forms of businesses, such as partnerships, limited liability companies, and corporations, require that each of these types of businesses maintain certain records. For example, a partnership must usually keep a current list of the names and addresses of each of the partners, the partnership agreement, income tax returns, financial statements, and other documents dealing with the business. Similar requirements are typically in place for limited liability companies. Corporations generally must maintain more extensive and complex records to comply with state law.
Licenses and Permits
Most businesses need to obtain some form of license or permit to operate legally under local, state, or federal law. For example, hairdressers and doctors require professional licenses, businesses that sell goods or services must obtain a sales tax license or permit, and some federally regulated industries such as aviation, alcohol, or agriculture must obtain federal licenses or permits. Once you have obtained all the licenses and permits required for your type of business, you should retain them in your records, as you may have to show them on occasion.
We Are Here to Help
If you need help navigating the maze of business record-keeping requirements under federal, state, and local law or have other questions about managing or operating your business, please give us a call. As business attorneys, we can provide guidance to help you comply with your obligations and avoid fines and penalties.
