Celebrate Earth Day By Taking Your Records Electronic
Due to ever-increasing governmental regulations, as well as the critical role records play in running a business and measuring its progress, even the smallest of businesses face substantial recordkeeping requirements. While going completely paperless is probably not possible, making use of electronic record creation and retention can not only reduce your carbon footprint, it can also store and organize vital information safely and free up valuable physical space.
Electronic recordkeeping is not a one-size-fits-all process—the nature of your business and your personal preferences play a big part in setting up a system that works for you. However, there are several electronic record creation and retention guidelines that apply to just about every business that you can use to create your own best practices.
The Type of Record Determines the Policy
Just as is true for paper records, recordkeeping and retention requirements apply to electronic versions of records. The format and length of time that electronic records must be created and kept in is determined by the record’s function and purpose.
Legally required records. Federal and state laws require every business to create and retain records of some kind, with tax, employment and entity-related records being the most common. The federal and state laws applicable to your business dictate the records that you may create in an electronic format and the requirements as to how they are kept so that you are in legal compliance.
All employers must verify employees’ identity and the eligibility to work in the United States by completing and retaining federal Form I-9, Employment Eligibility Verification. Employers may electronically complete and store Form I-9. However, the Department of Homeland Security imposes rules specific to completing and retaining the electronic version of this form which every employer must follow.
Retention periods for records--electronic or paper--are based on the category of records involved. The specifics of how the records must legally be kept often incorporate required access to the records by the applicable federal and state agencies.
- Every business has tax record retention requirements which are necessary to support income and deductions.
- If you operate your business as a corporation or limited liability company, you will have organizational record retention mandates imposed on a state-by-state basis.
- Businesses with employees have payroll tax, Fair Labor Standards Act (FLSA), Occupational Health and Safety Administration (OSHA), and personnel record retention requirements that they must properly fulfill.
- Your business may also be required to follow industry-specific record retention requirements, such as the Health Insurance Portability and Accountability Act (HIPAA) privacy rules.
Consult with your legal advisor to ensure that you are in compliance with the recordkeeping requirements for your business, particularly if the nature of your business involves the need to keep records for multiple agencies and/or states. Once you know what your specific record requirements are, you can ascertain whether an electronic retention alternative is available and a good fit for your business.
Accounting and general business records. Keeping good accounting records (for example, accounts payable and receivable ledgers) may not technically be required by law, but is an essential part of making your business a success. Guidelines exist for the information to keep and the accepted retention periods for these types of records, but business owners are basically free to choose their recordkeeping method.
That being said, unorganized or otherwise poorly kept records make it difficult to use this valuable information to monitor the progress of your business and may hamper your ability to secure financing. In addition, generally, the same books and procedures that are used to keep your tax records are used to keep accounting records so that you can gauge how your business is doing financially. Because the same records are used for both tax and financial purposes, it makes sense to keep one set of records.
You’re likely to find that electronic alternatives enable you to maximize the value of the information contained in these business records to grow your business.
Electronic Records Must Be Kept Securely
Electronic records, including word processing documents, spreadsheets, digital images and email, are subject to and must be protected from the same physical-type threats as their paper counterparts--flooding, fires, weather disasters, theft and vandalism. In addition, electronic records face unique threats such as viruses, data corruption and password theft.
Many of the same actions necessary to protect paper records apply to electronic records as well. Fire and water detection systems and security measures for your workplace are a necessity to protect your business's records. However, electronic records require the added protection of a secure password system and installing up-to-date virus protection and firewalls.
Be mindful that records that must be kept confidential in paper form are subject to the same criteria in an electronic format. This is particularly important for information contained in employee personnel files, health-related information, and any information that could lead to identity theft and related crimes if it fell into the wrong hands.
Backing-up electronic records is essential. Proper practices for both paper and electronic record retention requires a back-up of information on a regular basis and the storage of the back-up information “off-site”—meaning that the information must be stored somewhere in addition to your hard-drive, your server, or on physical media at your place of business. To avoid running afoul of legal mandates, not to mention disrupting vital business operations, don’t neglect this critical step in your recordkeeping process!
Discarding Electronic Records At the Right Time, In the Right Way
Disposing of records appropriately is the last step in the recordkeeping process, but by no means the least important. When the required or recommended retention period for an electronic record ends, you must have a process in place that destroys the record completely so that the information within it is unrecoverable. Electronic destruction methods range from sophisticated overwriting of files to the physical destruction of electronic storage media (for example, disks). These tasks can be outsourced to companies that specialize in the destruction of electronic records.
It can be tempting to retain electronic records indefinitely rather than go through the hassle of appropriately disposing of them. We're here to tell you that giving into this temptation can cost a business owner big-time. How? Despite the fact that electronic record storage is generally cheaper than paper storage, it isn't free in terms of hard drive space, software and the manpower involved in maintaining files.
However, the most important reason to get rid of records you no longer need or are required to keep is the same one that applies to paper records--the records you could and should have discarded may be subject to discovery and used against you in a lawsuit. And once a lawsuit is commenced, a litigation hold goes into effect, which prohibits you from destroying records relevant to the case.
Therefore, make sure you have an electronic record destruction policy in place to avoid finding yourself in a trap of your own making.