Employee Files: What to include, what to leave out, and what’s confidential

While dealing with lots of paperwork doesn’t rank as most HR professionals’ favorite task, proper recordkeeping for employee personnel files is a must for any organization.

Why is that?

There are many reasons why, including that it’s required by law.

For example, the Equal Employment Opportunity Commission (EEOC) requires that employers must keep personnel records for one year. In addition, if an employee is involuntarily let go, their employee file must be kept for one year following the termination date.

Besides complying with federal and state laws, keeping employee records helps you stay organized, aids decision-making, and protects your company if a terminated employee files a lawsuit. For instance, if your employment records contain all the disciplinary actions and policy violations committed by the offending employee, you’ll have a better chance of defending your decision to terminate an employee in court.

While it’s clear that you need to keep a separate file for each employee, which documents should you include in it?

After all, there are some documents that you’ll need to keep confidential, and there are some that you don’t even need to include in your personnel files. To clear things up, we’ve put together this extensive guide breaking down what you should and shouldn’t include in your employee files — so read on to learn more.

Why do you need to keep personnel files?

A dizzying amount of paperwork goes into hiring a new employee, including background checks, applications, offer letters, job applications, and more. That’s not even mentioning all the paperwork involved in the onboarding process, such as employee handbooks, contact information, and direct deposit/banking information — just to name a few.

As you can imagine, it becomes quite difficult to keep track of all these documents unless you store them in separate files for each employee, hence the need for personnel files. However, besides simply staying organized and complying with federal laws, personnel files provide a whole host of other benefits, so let’s take a look at them.

Track and improve employee performance

Without employee documents focusing on evaluating and monitoring performance and productivity, you’ll have no way of knowing if your employees are meeting your standards or not. Essential documents like performance evaluations and performance reviews will help you gauge employee productivity, and they’re both necessary to include in your personnel files.

They help maintain a safe workplace

Does your organization require mandatory OSHA training? Are your employees up to date with their fire safety and first-aid training?

Keeping safety records will make it easy to know if your team needs to update their training, helping you stay in compliance with any OSHA requirements. Besides that, your confidential medical records will let you know if any team members have disabilities that you need to consider when planning and assigning tasks.

They can minimize workplace disputes

Is an employee disputing a disciplinary action for being consistently tardy?

If so, then you’ll definitely want to have the proper documents on-hand to defend your managers. For instance, if you keep attendance records, you’ll be able to quickly find out if the employee in question was indeed consistently tardy or not.

It’s this style of fact-checking that will also protect your organization from lawsuits, which is why keeping employee files is so crucial.

Stay in compliance with state and federal laws

I’ve already mentioned that the EEOC requires all employers in the United States to maintain employee records for one full year. It also mandates that you must hold onto employee files for one year after their resignation or termination.

Besides the EEOC, the IRS also has requirements for employee documents, including which forms you need to have for each employee, such as W-4s. Additionally, the IRS requires that employers hold onto tax documents for 4 years after the tax becomes due or paid, whichever occurs later.

There are also state laws surrounding employee files, mainly involving employee access to their own personnel files. By practicing good recordkeeping, you’ll stay in compliance with all federal and state laws.

What should you include in an employee file?

Quite a bit goes into an employee file, and you won’t be able to lump everything into one folder. Instead, some documents must be kept separately in a confidential file to comply with federal laws.

The Americans with Disabilities Act (ADA) has some stringent requirements for keeping employee medical records — including that they must be stored in a confidential file independent of the rest of the employee’s documents. If it’s discovered during an audit that you’re storing sensitive medical information alongside general employee information, you’ll be in violation of The Americans with Disabilities Act. These types of violations can cost your organization $75,000+, so keeping confidential information separate is a must.

That means you’ll need to have a system in place to organize all your employee data that complies with all federal and state laws. Whether you’re using cutting-edge HR software or a physical filing cabinet, you’ll need to separate each employee’s file into two main categories — their main file and their confidential file.

Main personnel file

First, let’s look at what goes into an employee’s main personnel file. This includes all employee documents that don’t need to remain confidential, such as their contact information, job description, and performance records.

Recruitment documents

Human resources departments should retain documents related to the hiring process, especially if you need to refer back to them later. Also, you’re legally obligated to retain these records for at least one year by the EEOC.

These types of files include:

• Cover letters

• Resumes

• Employment applications

• References

• Interview notes

Remember not to include any pre-hire documents that must be kept confidential, such as an employee’s I-9 form.

Employment-related documents

Besides pre-hire documents, you should also hold onto all records documenting employment-related or business-specific agreements.

That includes:

• Offer letters

• Signed employee handbook (to confirm the employee understood your policies)

• Employment contracts

• Non-disclosure agreements

• Union agreements

• Business credit card agreements

• Vehicle reimbursement agreements

• Policy changes

You should include any type of agreement that relates to employment in this part of an employee’s main file, including any compensation arrangements (gas, credit cards, per diem, etc.).

Personal information

You’ll mainly want to include an employee’s contact information here, such as:

• Full name

• Date of birth

• Address

• Phone number (mobile and landline)

• Education

• Job description

• Qualifications

Other employee information, like their social security number and banking information, should NOT be stored in your personnel files. That’s because including that type of sensitive information in an employee’s general file violates their privacy and places them at risk for identity theft.

However, you should include an emergency contact for each employee in case you have difficulty reaching them.

Employee performance records

While it’s essential to include performance records to monitor and analyze your employee’s productivity — there’s no legal obligation here. That means there aren’t any crucial files that you must include by federal or state law. Instead, the documents you choose to include here are entirely up to your discretion and business strategy.

However, you’ll want to include a few key documents here to protect your organization from lawsuits, including attendance records, disciplinary actions, and performance reviews. That’s because these documents will provide evidence for why you chose to terminate a particular employee.

Here’s a list of the documents most companies choose to include in this section so you have a reference:

• Performance evaluations and appraisals

• Training records

• Career development plans

• Attendance records

• Disciplinary actions

• Any internal or external complaints made about the employee

• Demotion records

• Promotion records

• Self-assessments

• Records of any performance issues

If you keep all these documents on file, not only will you protect your organization from legal action, but you’ll also have a strong grasp of each employee’s performance, which can help improve productivity.

Termination/separation records

Besides keeping job performance records, you’ll also want to clearly document whenever you choose to part ways with an employee. Once again, the primary reason comes back to protecting your organization from legal scrutiny, especially when disgruntled ex-employees file lawsuits.

Not only that, but you’re legally obligated to keep employee records for one year following their termination, and that includes records documenting the separation process.

Here’s a list of the documents related to termination that you should retain:

• Exit interviews

• A written reason why the employee was terminated

• Employee termination or resignation letter

• Final employee performance evaluations

• Unemployment compensation forms

• A copy of the employee’s final paycheck

• COBRA notification

• A notice confirming the return of any company property

• Confirmation of vacation pay

If your organization involves any other type of exit paperwork other than what you see above, you should also include it in this part of each employee’s file.

Confidential personnel file

By now, we’ve covered everything that needs to go in your main personnel file for your employees. However, that’s only one half of the equation, as there are plenty of documents that federal laws mandate you have but must keep entirely confidential. Confidential documents include medical files, tax documents, employee benefits, payroll records, and more.

Federal laws like ADA and FLSA (Fair Labor Standards Act) pertain to your confidential files. In particular, ADA mandates that all medical files must be kept confidential, and FLSA states that you must retain all payroll records for at least three years.

Here’s what you’ll need to include in your confidential employee files.

Payroll records

First, you’ll need to keep all documents related to paying your employees for up to three years from their date of hire.

These documents include the following:

• Employee pay rate

• Pay stubs

• Bonus pay, commissions, and other additional earnings

• Total hours worked (each day and each week)

• Remaining time off

• Pay periods for wages paid

• Overtime earnings

• W-4s (Form W-4 and State W-4)

• Expense reimbursement information (the payment records, not the actual agreement)

• Time cards

• Payroll history

• Documents related to pay raises

While these records contain lots of sensitive information and need to be kept private, you should NOT include employee SSNs or bank account details in your payroll records. Instead, you need to keep them in a separate database.

The FLSA has a few other regulations related to payroll documents besides retaining them for three years. In particular, it requires employers to keep detailed records of hours worked by all employees — including overtime, weekly hours, and any additions or deductions from employee wages.

As long as you hold onto all the documents found in the list above, you’ll be in compliance with FLSA’s recordkeeping requirements.

Employee benefits information

Does your organization offer health insurance or other types of benefits? If so, then you’ll need to keep all documents related to them in your employee files.

That includes the following:

• Benefit information (i.e., health insurance, dental, vision, etc.).

• Enrollment forms for all employee benefits

• Declination forms for all employee benefits

• Form 5500

• 401k forms

• Trust reports

• Election forms

• COBRA documentation

You’ll need to hold onto these documents for six years following an employee’s separation date to comply with the IRS and DOL (Department of Labor). It’s also crucial to note that different state laws have varying retention standards for employee benefits documents, so be sure to look up the standards for your state.

Medical records

The ADA requires that all employers keep medical records separate from other employee documents. Which types of medical documents do you need to keep in your confidential employee file?

Here are the most common medical documents for employees:

• FMLA (Family Medical Leave Act) forms

• Documentations of any injuries

• Disability claims

• Doctor slips

• Accommodation requests (such as for anxiety, ADHD, and other disabilities protected under ADA)

• Drug test results

• Workers’ compensation claims

• Leaves of absence

You should also include any other document that contains private medical information in this part of your confidential employee file.

Tax documentation

The IRS requires that employers retain tax records for four years following the 4th quarter of that filing year. What types of tax records should you keep?

Be sure to hold onto the following tax documents for your personnel files:

• Your employer identification number (EIN, if you don’t have one, you can apply for one for free on IRS.gov)

• Any Form W-2s returned to you as undeliverable

• Income tax withholding certificates (W-4, W-4P, W-4S, and W-4V)

• Dates of employment

• Periods when employees were paid while absent or sick (PTO or paid time off), including payment rate

• Amount of tips reported (if applicable)

• Social security numbers of all employees

• The fair market value of any in-kind wages paid

Employment Eligibility Documents

Each employee’s Form I-9, AKA their Employment Eligibility Verification, needs to remain confidential. It’s a form that confirms the employee is legally permitted to work within the United States.

Why does it need to be kept separate?

There are a variety of reasons (I-9s contain sensitive information), but the primary reason is that the U.S. Citizenship and Immigration Services (USCIS) recommends that you keep them private.

Other confidential employee records

There are a few other types of employee documents that you’ll want to keep confidential, but they lack clear categories.

To compensate for this, you should include a ‘miscellaneous’ section of each confidential employee file that contains the following:

• Background checks

• Investigation records

• Banking credentials and direct deposit forms

• Employee Equal Opportunity (EEO) records

Final takeaways: What goes into an employee file?

Keeping organized personnel files is not only a legal requirement, but it’s also just good business practice. Having performance evaluations on hand will make monitoring your productivity a possibility, and keeping records of disciplinary actions and terminations will protect your organization from lawsuits.

Remember that certain employee documents must be kept confidential, such as payroll records, medical records, tax documents, and I-9 forms.