As a business owner, managing business records or creating a Records Retention Policy likely isn’t at the top of your “fun things to do” list. Records retention can be a daunting and unforgiving task. It’s the elephant in the room that every business must boldly confront. Spring is here, so while you’re tidying up other things in your world there’s no better time than now to get your business records in order, too.
But before you begin purging the business records in your cabinets, drawers and computers, review your organization’s Records Retention Policy. Don’t have one? Now’s the perfect time to put one in place.
The Records Retention Policy
A Records Retention Policy provides guidelines for identifying, organizing, retaining, managing, and disposing of business records. The policy outlines:
- Records categorizations
- Which records should be kept and for how long
- When, if ever, is file destruction is an option
A Records Retention Policy isn’t just for large companies or those in a highly regulated industry. Every organization – regardless of its size or the nature of its business – creates a staggering amount of paper and electronic business records.
According to one source, we create 2.5 billion gigabytes of data every day, which is equivalent to creating enough data to fill 10 million Blu-ray discs that, if stacked on top of one another, would be as tall as four Eiffel Tower buildings. Plus, scouring through disorganized documents in any size organization is wasteful. Hunting for records in a disorganized office is estimated to consume an average of four weeks of a manager’s time each year.
Business records include employment records, contracts with vendors and customers, leases, business licenses and permits, business entity documentation, accounting records, tax returns, and emails, just to name a few examples.
Here are a few reasons why every organization should have guidelines for handling these records:
- State and federal laws require that organizations maintain certain documents for a set period of time.
- Companies are required by law to keep all documents that are potentially relevant to a legal dispute that is pending. The same guidelines apply when there is threat or anticipation of a legal dispute.
- Organizing documents by assigned categories reduces the time-consuming and stressful task of sifting through piles of documents or gigabytes of data to find relevant documents.
- Routinely discard documents that are no longer needed. This not only reduces office and mental clutter, it creates a more productive work environment for employees. It also frees-up space for income-generating activities, which is a bonus for business.
Not having a Records Retention Policy or having one but not implementing the policy consistently and effectively results in haphazard retention of business records, legal headaches, exposure to potentially significant costs down the road, frustration, and inefficiency.
Not all Records Retention Policies should look alike. Each policy should be tailored to the type of business, its industry, where the business is located, where and with whom it does business, and consider other factors as well.
Does this seem overwhelming? Here are a few steps to get started on your Records Retention Policy:
- Consider the nature of the business and involve the organization’s IT, risk management, legal, and business teams. Involving personnel company-wide provides a more complete picture of the types of records and data the organization handles. It also gives all stakeholders an opportunity to share ideas about the policy structure and how to best implement it.
- List the categories of business records that exist. Carefully and thoughtfully categorizing the records will make it easier for employees to identify the types of records they handle and how they should manage them within the policy’s framework. The policy should address all types of records – paper and electronic. Emails, voicemails, and digital data from devices like laptops, tablets and phones (whether personal or company-supplied) all create records that require retaining.
- Each document category needs a retention period. A retention period details the length of time to keep records. Retention periods vary based on federal, state, and local laws and regulations and are sometimes industry-specific. Seek input from the organization’s legal counsel, accountant, tax advisor, IT professional, and other records management experts to ensure the retention period is appropriate.
- Consider the options for destroying records when their time comes. Generally speaking, once a business record’s retention period expires the record should be destroyed. However, there is an important legal exception to this general rule (more on this below). Because many business records contain sensitive, proprietary, confidential or legally-protected information, the organization should adopt a destruction policy that includes shredding. Sensitive cases require handling by a reputable third-party vendor who can provide a certificate of destruction for the shredding. This certificate is its own category of record that requires a retention period, probably one that is indefinite.
Records Retention for Small Businesses
Managing business records isn’t just for larger businesses with multiple employees and departments. Small business owners have an obligation to manage their organization’s records, too. This may seem a daunting task but there are records management experts and other businesses resources that can help. Small business owners can get their feet wet by reading information on the Internet such as this guide published by the SBA. But ultimately it is important for the business owner to work with outside experts to ensure its Records Retention Policy is appropriate for his or her specific business, especially considering the legal and business consequences if the policy is wrong.
The Litigation Hold Exception
Once an organization has implemented its Records Retention Policy, it should always destroy records based on the retention or destruction schedule, right? Wrong. There are situations where records shouldn’t be destroyed even though the retention period has passed. Litigation holds – also referred to as document holds – are issued by an organization when it anticipates or is actively involved in litigation or a legal claim or dispute. Ultimately, the goal of litigation holds is to preserve evidence. However, they also impose a “hold” on the destruction of business records that may be relevant to the legal matter. An organization that destroys records that are relevant to a pending or threatened lawsuit may suffer severe legal consequences for destroying evidence relevant to the case.
The “Clean Out”
Adopting a Records Retention Policy is just the first step in an effective records management program. It is essential that employees of the organization follow the policy, and this starts with employee education. Ideally, this type of education would be part of an organization’s broader compliance training program.
Proper implementation requires periodic “clean-out” days involving the right personnel. This includes representatives from the legal and business departments of the organization or outside professionals with the right expertise.
Some employees will welcome the chance to clean out their work areas when the time comes. Others may compare the task to a root canal. If employees understand the importance of following the process and if the organization creates a fun atmosphere, the clean out is more likely to be a success.
Here are a few ideas to motivate employees on “clean-up” day:
- Promote as a team-building activity using a fun theme
- Allow casual dress
- Provide lunch
- Give participants company promotional items like pens, mugs, or tote bags
- Hold a contest for prizes like gift cards
- Plan an Earth Day celebration