What’s included in a records retention requirement? Allow me to get a little Shakespearean on you. That which we call a records retention requirement, no matter the wording, would still have the same effect. If this were true, it would be sweet. Unfortunately, wording can create some major differences in retention requirements. A law’s wording, punctuation, definitions, and title headings can all shape the meaning of which records are regulated. This article will explore common traps you can fall into as you try to decipher records retention laws. But first, what are the components for a records retention law?
What Makes up a Record Retention Law?
Records retention requirements typically have three components:
• Regulated party (the person required to keep the records),
• Record description
• The retention period
All three areas can have phrasing issues that muddy up the meaning. This lack of clarity can create misunderstandings that can prevent you from your ultimate goal: compliance. Here are some common traps to watch out for:
Trap 1: Who Does What?
Like most laws, record retention laws often use passive voice. This means the regulated party is missing from the sentence. In fact, they can be missing from the entire section or chapter of a particular law. By using passive voice, these laws tell you what you need to do, but not who needs to do it.
Unfortunately, that isn’t the only trap used to obscure who does what. If passive voice doesn’t trick you, the use of vague regulated parties will. A classic example of a vague regulated party favored in retention regulations is “regulated entity.” Define a regulated entity too broadly, and you could create more requirements for your business than actually exist. Define it too narrowly, and you could open yourself up to audits, sanctions, and discovery headaches. These “entities” are rarely found in the definitions sections. Rather, their meaning comes from Titles and Headings.
One example of this is N.J.A.C. § 14:3-6.2 (a): “Each regulated entity shall maintain, readily available to Board staff, adequate maps and/or records….” In this case, the reader needs to look at § 14:1-1.3 to find the definition: “’Regulated entity’ means a person or entity that is subject to the jurisdiction of the Board, or that provides a product or service subject to the jurisdiction of the Board.”
How to Avoid it: Look for clues in Titles, Headings, and links to other sections. When you find the subject, highlight it or mark it so you can easily find it later.
Trap 2: What Record?
Some laws offer just one word to describe the thing you’re supposed to keep—a record, document, or copy. If the authority does name what you should retain, they’ll list a few broad, big-bucket-types of records under the type of document you should keep—payroll, invoices, personnel files, and so on. In addition to vague descriptions, a law can also be vague on the requirements for a specific format or a specific location for a record. For example, the law could require you to keep not just invoices, but electronic invoices; not just copies, but the original copies. These requirements all add to the conditions surrounding what kinds of records to keep in a record retention requirement.
Finding a full description of what to keep requires a search into other areas of the law, or even other laws. For example, Norway’s Regulations for completion and implementation of the Tax Payment Act (Tax Payment Regulations) § 5-11-2 (10) states, “The documentation shall be kept in Norway for five years after the end of the income year.” The “documentation” in this case refers to employee payroll information. But you wouldn’t know that unless you found all of the specifics on what documentation means, which are scattered throughout the section.
How to Avoid It: Be wary—simple descriptions often have hidden pitfalls. Be sure to find definitions or explanations for every requirement. Use a highlighter to mark descriptions. That way, if you get confused you can easily find the definition you need.
Trap 3: How Long Should I Keep the Records?
Word choice can create the most nuanced differences in a sentence and in the requirement. For example, the retention period might seem clear and easy at first: the law will say the retention period is just a few days, weeks, months, or years. However, this word choice is deceptive. Does the year start at the beginning of the next calendar year, the next financial year, or when the record was created or completed? What if the requirement doesn’t explain how long the retention period lasts?
Some laws try to help readers know which time period applies by using a qualifier, but sometimes laws do not contain these qualifiers, which leaves the reader to question how long the records should be held. Consider 14 CFR § 121.380 (c), which recommends this retention period: “…records specified in paragraph (a)(1) of this section shall be retained until the work is repeated or superseded by other work or for one year after the work is performed.” Without a qualifying phrase, the reader is left guessing which time frame to follow. This confusion can create serious problems. If you don’t hold records long enough, you can suffer from sanctions; if you hold records containing personal information for too long, you may face even bigger penalties.
How to Avoid It: If the punctuation or wording of a retention period is confusing, look in similar laws–they often have the same retention periods. When in doubt, reach out for help. Talk to other professionals to get their opinion. Never be afraid to ask questions.
These are just some of the many sand traps that await unwary readers of retention requirements. Don’t take record retention laws at face value. Look at all aspects of the requirement and ask industry experts before you apply retention requirements to your business records. If you have questions about a records retention requirement or are looking for a records retention system, contact Zasio.
Author: Whitney Nelson, Research Assistant at Zasio Enterprises, Inc.