Employers should remember to take time to review their employee documentation, retention policies, and how this information is being saved on a periodic basis.  Beginning 2019 it is a great time to review these items to ensure compliance with the law and to make the best defense against litigation.  The first article in this series of posts covered hiring practices audit for 2019, this post deals with records.  The next post will cover topics for a wage and hour audit.  Five record retention issues employers should audit at the beginning of 2019:

1. Are employee time records maintained for at least four years?

The statute of limitations can reach back four years in wage and hour class actions under California law, and time records will be the primary issues in most cases.  California law requires employers to track start and stop times for hourly, non-exempt employees. The law also requires employer to track the start and stop times for the employee’s thirty-minute meal periods. The time system needs to be accurate.  Employer needs to be involved in the installation and setup of the system and not simply use the default settings for the hardware and software. Understand what the system is tracking and how it is recording the data.  Employers should also have a complaint procedure in place and regularly communicate the policy to employees in order to establish an effective way to remedy any issues.

2. Are pay stubs and schedules backed-up and saved by the employer? 

Under Labor Code section 226, employers are required to provide employees with pay stubs “semimonthly or at the time of each payment of wages.”   Section 226 requires that employers keep a copy of the pay stubs for “at least three years.”  Section 226(a).  As mentioned above, because the statute of limitations for labor code violations can extend back four years, many employers retain these records for a four-year period.

In addition, employers should also review where and how the pay stubs are being saved.  Electronic copies of the pay stubs are permitted under section 226 as long as the electronic backup accurately shows all of the information required to be on the pay stubs.

Employers should not rely upon their payroll company to retain copies of these documents.  First, the obligation falls on the employer do retain these, and many payroll companies do not necessarily save this information.  Second, if the company changes payroll companies, it may be difficult to access the payroll information from the former payroll company.

Often overlooked, but critical in defending wage and hour lawsuits are employee schedules.  Given the four-year statute of limitations for wage claims, many employers are also maintaining copies of employee schedules for four years.

3. Are employee files maintained confidentially and for at least four years?

California law does not define the terms “personnel records” or “personnel file,” and this creates considerable ambiguity about what documents should be keep in an employee’s personnel file.
While not legally binding on employers, there is some guidance from the Division of Labor Standards Enforcement(“DLSE”) expressing the following view:

Categories of records that are generally considered to be “personnel records” are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of “personnel records” (this list is not all inclusive):
1. Application for employment
2. Payroll authorization form
3. Notices of commendation, warning, discipline, and/or termination
4. Notices of layoff, leave of absence, and vacation
5. Notices of wage attachment or garnishment
6. Education and training notices and records
7. Performance appraisals/reviews
8. Attendance records

Employers should also consider placing the following documents in personnel files:

• Signed arbitration agreements
• Sexual harassment compliance records for supervisors
• Sign acknowledgements of policy by employee (for example, confidentiality/proprietary information agreements, meal and rest break acknowledgments, handbook acknowledgments)
• Wage Theft Protection Act notice for non-exempt employees
• If commissioned employee, written commission agreement signed by both the employer and employee beginning January 1, 2013.
• Warnings and disciplinary action documents.
• Performance reviews
• Documents of any grievance concerning the employee
• Documents pertaining to when the employee was hired
• Records pertaining to last day of work and documenting reason for departure from employment

4. Are Forms I-9 being maintained long enough and in a manner easily retrievable?

Employers must keep I-9 forms for three years from the employee’s date of hire, or one year after termination, whichever is longer. Employers have at least three business days to produce Forms I-9 during an inspection.  More information about the Form I-9 can be read here.

5. Are managers and supervisors trained about the company’s forms/documents available to them, what must be documented, and who is responsible for saving the documents?

Even if the employer has valid policies about document retention, it is irrelevant if the managers and supervisors are not also trained about the policies:

1. • Do supervisors understand which forms are available to them to document discipline, employee absences, and other routine issues?
   • Who is involved in reviewing disability accommodation requests and how are these documented?
   • Do the managers have standard forms for the following:
     • Employee discipline and write-ups.
     • Documenting employee tardiness.
   • How are employee absences documented?
   • How is the employee documentation provided to Human Resources or the appropriate manager?
   • Who is responsible for saving the document in the paper file or electronically?