How Should You Set Up Your Employee Files?

Most HR legal experts recommend dividing employee files into three parts:

1. Compensation and benefits

2. Performance reviews and documentation of key events such as promotions and disciplinary actions

3. Medical documents

There are two good reasons to maintain multiple folders for each employee: the IRS and varying state laws on how medical information is maintained. You'll want to keep all salary information, overtime hours and benefits in one folder in case the IRS ever has questions for unemployment or tax purposes. You'll want to keep medical information in another folder — under an extremely tight lock and key — due to the high level of privacy it commands. Nothing upsets employees more than finding out that their sensitive medical information has fallen into the wrong hands. You could even be sued for not protecting that information.