Business Law 101 / YEAR END PAPERWORK

By Albert L. Kelley

Happy New Year! For many businesses, this is the busiest time of year-not because business is up, but because there is much to do to end the old and start the new. This is a period to close old files and open fresh ones. But the first step is to know what to keep and what to discard.

Hopefully, the business files have some organization. If not, now is the time to organize. Separate the files into basic categories: correspondence, contracts, client files, employee files, payroll, receipts, billing records, safety reports, etc. If the categories are too general, it won’t aide organization much; if they are too detailed, they can be unwieldy. Set aside as many financial records as you can. These will be crucial as the tax filing deadline (March 15, for businesses) approaches. This is also a good time to consider purchasing a computer if the business isn’t using one yet. With software such as QuickBooks, bookkeeping is made much easier and at year end, the computer provides a detailed summary for your accountant with just a couple of key strokes. The savings in taxes and time will likely offset the cost of the computer over time.

Once the files are organized, you can determine what to keep and what to throw away. Start with some common sense. If the file has to do with an existing matter that you are currently working on, don’t throw it away. Keep it in an active folder where you can access it for later use.

There is no law requiring you to keep receipts, however, again common sense says not to throw them away. Even if your bookkeeping system is computerized, once you put the amount into the computer, place the receipt into a file (some highly detailed people choose to subdivide their receipt file by vendors. This provides certain advantages, but also increases file space). These receipts may become necessary later in the event the Internal Revenue Service decides to audit your account. The IRS has a period of three years to audit a return (six if they find you understated your gross income by 25%, and forever for a fraudulent return), so a good rule of thumb is to keep all income and expense records for at least three years.

Next, turn to the contracts file. If the contract has expired it should not be discarded for a period of five years. Under Florida law, parties may file suit under a verbal contract for four years and under a written contract for five years.

The next category is employee records. The Immigration and Reform Act of 1986 requires employers to keep all employee records for a period of three years or for one year after termination, whichever is longer. Failure to comply can result in fines up to $1,000 imposed personally on the business’ record keeper.

Employee retirement plans and records under ERISA (Employee Retirement Income Security Act) must be kept for a period of six years. Whenever the plan changes the six year period starts anew.

Next are payroll records. Under the Civil Rights Act, payroll records, as well as job applications, resumes, and personnel records must be kept for a minimum of six months, or until disposition of pending legal actions. However, under the Equal Pay Act, employee records regarding wages, hours and other terms of employment must be kept for two years. This also applies to any records that would support employment decisions. Finally under the Age Discrimination Act, employee records must be kept for one year, but payroll information and personal data must be kept for three years.

These are not the only retention requirements, but provide a good foundation. For further information on what records to retain and discard, talk to your attorney or accountant.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of Business Law” “Basics of Florida’s Small Claims Court” and “Basics of Florida’s Landlord-Tenant Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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