There is no law that requires you to keep a personnel file on each employee. Specific employee records are what you must retain under federal laws. Although the records that you must keep vary, based in large part on the number of employees you have, it's best to adopt a procedure that will permit you to establish compliance with all of them. As a practical matter, personnel files are the easiest means of keeping track of employee information to comply with these legal requirements and for your own business purposes.
Start each new employee's file with the basic identification information you accumulated about the new employee during the hiring process. A personnel file should be established for every new employee that documents his or her dealings with your company from application through termination and beyond. Records should only be kept for employees. If you deal with independent contractors, personnel records aren't appropriate. A person who performs services for you is your employee if you can control what will be done and how it will be done.
Basic information.
Information collected about employees and retained in personnel files should be strictly job-related. You might consider keeping some of the records required by law in files separate from an employee's personnel file and limit the personnel file to information that applies only to the individual employee (such as resumes, performance evaluations, and work history). If required files are kept in separate files, they may be easily produced to prove compliance to government agencies as opposed to providing personnel information that is irrelevant to the government investigation. The same is true for sensitive personal information, such as drug test results, credit checks, and medical information. Keep it separate and in a secure location that employees can't access.
Expect each employee's personnel file to grow over time, as documents supporting employment actions (promotions, demotions, raises, transfers, disciplinary action) are added. Ultimately, the file will contain the information relating to the termination of the employee's employment.
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