What is a Document Retention Policy?

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Table of Contents

• Why Do I Need a Document Retention Policy?
• How Do I Create a Document Retention Policy?
• What Documents Should be Covered?
• Tips to Ensure Your Policy is Effective
• Key Takeaways

A document retention policy is a plan outlining how your business expects your employees to manage, retain and dispose of company documents and records. Over the lifetime of your business, your company will inevitably collect thousands of documents and records. You might store these documents in overflowing filing cabinets or they might merely take up storage space digitally. However, you should be aware that businesses must comply with a range of legal requirements that dictate how long they must keep documents. It is therefore important to have strategies in place for how you will manage your documents. A document retention policy is a good way to keep track of compliance with the various requirements for retaining documents. This article explains:

• why you need a document retention policy; and
• how to create a policy that best protects your business. 

Why Do I Need a Document Retention Policy?

A document retention policy is a good way for your business to set out how it will deal with its documents and records. This is important because you need to balance the competing priorities of: 

• retaining documents for legal requirements; and 
• not holding onto documents for too long because it can be expensive and pose a security risk.

For example, you may be holding onto invoices to ensure you meet your reporting obligations to the ATO. However, those invoices might contain personal information, which as its holder, you may incur the legal responsibility for sharing confidential information if that personal data is taken or accidentally disclosed. 

When thinking about your business’ document retention obligations, you will need to consider whether:

• certain documents hold particular significance for your business;
• there is a legal requirement in any legislation that you hold a particular document for a certain amount of time;
• you will require any documents in any current or potential future legal dispute (for example, in a court proceeding);
• the destruction of certain documents could cause a court to infer that you acted in bad faith (for example, that you destroyed documents to remove evidence);
• the information came from a source with certain retention requirements; and
• the purpose for which the information was collected is still relevant.

How Do I Create a Document Retention Policy?

Document retention policies will not be the same for every business. This is because each business: 

• conducts different activities with different levels of risk (for example, the tobacco industry);
• is controlled by different regulatory requirements;
• holds different types of documents; and 
• has unique financial and space constraints. 

For this reason, it is important that as a first step, you take the time to consider your own business’ situation. This will help you to put systems and strategies in place that are appropriate for your business.

You should also be taking a systematic approach to your document retention policy, as opposed to an ad hoc one. This will help your business: 

• be more efficient; 
• comply with legal requirements; and 
• reduce the risk of a court inferring that your business destroyed documents on purpose to cover something up.

When thinking about your business taking a systemic approach to document retention, you should consider the steps below.

1. Evaluate the Types of Documents That You Work With

Start by conducting an audit of your business, to find out what types of documents you hold and where you store them. 

Once you have a list of the sorts of documents your business works with, you should assess whether there are any legal requirements to retain your business’ documents and how long they should be retained for. Keep in mind most legal requirements will only state a minimum period that a document should be retained. To err on the side of caution, many businesses will add a period of time on top of the minimum period in case an unexpected event arises. 

For example, planning to hold your records for slightly longer than the legal requirements can be helpful if minimum retention periods are extended.

You should also account for: 

• any other reasons your business may need to keep documents longer than those mandatory periods; and 
• how long you will keep documents that do not have any legal requirements. 

For example, it is a higher risk to run a car manufacturing business than it is to operate a t-shirt shop. Therefore, you may want to hold onto some documents for longer because you know there is a risk of someone making a claim against you.

2. Plan to Store Your Documents

You need to work out how you are going to capture and store your documents. This may involve: 

• categorising documents; 
• arranging them in a logical manner so that you can find them easily; and 
• implementing a system of registration to record the existence of documents that you have.

These methods should also be considered for electronic documents as well as physical copies. You should also consider whether to restrict access to some documents to certain people within your organisation. 

3. Decide How You Will Dispose of Documents

Certain documents you retain may contain personal information that should be destroyed once it is no longer legally required to retain it. It is important to establish: 

• a process for how to dispose of documents; and 
• whether these sorts of decisions are to be made by senior members of your business. 

Any sensitive commercial information should be confidentially destroyed, for instance, by shredding the documents. If stored electronically, you should subject the sensitive information to secure electronic deletion.

4. Appoint a Document Retention Officer

Consider whether you will appoint someone as a document retention officer. This makes one of your employees responsible for maintaining and implementing your document retention systems. They will also become the first port of call for other employees who have questions. 

5. Draft Your Document Retention Policy

After considering the various points outlined above, it is time to draft your document retention policy. This should capture your new system and guidelines for employees in writing.

What Documents Should be Covered?

Your document retention policy should cover both physical and electronic records generated in the course of your business’ operations. This may include:

• paper documents, both originals and copies;
• digital documents and records such as emails, videos, audio and photographs;
• contracts, invoices, orders and insurance policies;
• corporate documents such as your shareholders agreements and company minutes and resolutions; 
• financial and tax documents;
• employee records; and
• data generated by your systems.

Tips to Ensure Your Policy is Effective

To ensure that your document retention policy is successful, you should:

• communicate the policy to all levels of your business; 
• train employees on how the policy works;
• appoint responsibility to different individuals to help implement and manage the policy;
• build automated processes to help with the retention and disposal of documents;
• ensure your business follows the processes it has decided on; and
• regularly review your policy in light of any changes in the law or your business.

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Key Takeaways

A document retention policy is a good way for businesses to document their intentions with regards to document retention and disposal. It should: 

• outline your business’ internal systems for retaining and disposing of documents; and 
• provide guidelines on how long different documents should be retained.

Importantly, the policy is only a statement of intent. You also need to make sure that all of your employees follow the document retention processes that you have decided to implement. If you need assistance with preparing a documentation retention policy, contact our experienced business lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.