Part 2: what should be in a personnel file

An article in last month's issue outlined why maintaining personnel files is so critical - and explained some of the items that should not be kept in the files. 

But business attorney Cory King of the firm of Fine, Boggs, Cope & Perkins, in Carlsbad, California, and a frequent trainer at automotive industry events, said there are a number of key documents that should be part of your personnel files.

King reminds employers that state regulations on personnel files vary somewhat, and the information presented here is not a replacement for seeking legal advice about regulations in your state. But these are some general guidelines that can help employers comply with the law and better protect themselves in the event of a lawsuit.

What belongs in the file

King's list of what should be included in personnel files includes:

• The employment application. It's important that the application be complete and signed by the applicant prior to hiring. "If it's not complete and it's not signed, it's really not worth much to you," King explained.

• An at-will arbitration agreement. King said that although your application form and employee policy handbook may spell out some key agreements between the company and employees, he recommends having some of the most critical agreements on stand-alone forms signed by the employee and stored in the personnel file. One such document is a comprehensive at-will arbitration agreement, which makes it clear that at-will employees understand they can quit or be terminated at any time, with or without cause or notice. This form can also spell out how disputes will be handled (i.e. through arbitration rather than the courts).

• An acknowledgment of receipt of an employee handbook. The employees signature indicates he or she received an employee handbook and agrees to abide by company policies.
• An acknowledgment of the company's policy against harassment. "Again, a lot of these things will already appear in your handbook, but it's a good idea to have them as stand-alone documents," King said. A signature on such a form will further protect you if the employee later claims he wasn't aware of the company's harassment policy.
• Fair Credit Reporting Act (FCRA) forms. If you conduct background checks of an applicant prior to hiring - something King recommends - you need to have the proper FCRA forms related to such checks.

Background checks advised

"Background checks can cost you anywhere from $20 to $50," King said. "It's one of the best things you can do to make sure you're getting quality employees. When you do a background check, you get to find out what their credit is like, if they've been in jail because they embezzled a whole lot of money from their last employer, if they've been convicted of fraud, if they've been sued, if they've sued anyone.

"All of this is good information that's public record and that you can have through a background check. If you're not doing background checks, you need to do them. If you're going to do them, make sure you're filling out the proper FCRA forms."

• Drivers' license records. "If you have anybody getting behind the wheel of a vehicle, even if it doesn't leave your shop or your lot and stays on your property, you should have a driver's license record on them," King said. "I would be shocked if your insurance company isn't requiring you to do this. I guarantee they're pulling a DMV report on your people. You should have it as well, and keep a copy of it in the personnel file."

Financial and employment records

• Signed state and federal tax forms, such as the IRS W-4 withholding form.
• Other state forms. California, for example, requires a particular form regarding harassment, aside from any form you may have describing company policy. Some states require signed notifications about disability insurance or COBRA continued health benefits.
• Payroll deduction authorization forms. "If you're going to deduct something from somebody's paycheck, you need to have written authorization to do so," King said. Oral authorization by the employee is not adequate. Get it in writing, and keep it in the personnel file.
• Direct deposit authorization forms. Similarly, employees must give written authorization for an employer to provide direct deposit of paychecks.
• Compensation and status records. The personnel file should spell out the date the employee was hired as well as the dates of any promotions, job transfers or changes of status. A copy of the employee's job description should be in the file, as well as details about his or her pay plan. "This helps you keep track of things so you know what's going on, and if you ever do get sued by that employee, this is one of the first things your lawyer is going to want to look at and see when they were hired, what positions were they in, etc.," King said.
• Time cards or records. No matter how an employee is paid - hourly, commission, flat rate or salaried - they should be punching a time clock, King recommends. It's important to maintain a record of their actual hours worked, and these can be stored in the personnel files.
• Attendance, vacation and absence records. "Keep real close track of their attendance records," King said. "It's important not only for your hourly employees but for salaried management level employees as well. These types of issues come up quite often when somebody leaves. They will want to be paid for their vacation time. Some states require it; some states don't. But if you don't have the record [of their vacation time taken], you're at the mercy of the employee."
• Notices of lay-off, leaves of absence or other time away from work. "If they're gone from work, you want to have a written record of it in the personnel file," King said. This includes time off involving workers' compensation claims or under the Family and Medical Leave Act (FMLA).

Signed attendance sheets

• Copies of signed attendance sheets. When you hold safety meetings or training, or sessions explaining the company's harassment policies, or provide training for managers related to hiring/firing/discipline, make sure employees sign in on a sheet indicating they attended the session, King recommended. Then put a copy of the sign-in sheet in each employee's personnel file. "It's not mandatory or required, but if you're not doing it, you're leaving yourself open for a lawsuit that you might avoid if you just log the attendance," he said.
• Other education and training records. If you send an employee through I-CAR classes or other training or certification, keep a record of this in that employee's personnel file, King recommends. This will help you consistently keep all such documentation together.
• Performance-related notices. Records of all warnings, commendations, counseling, discipline or termination of employees should be kept in their personnel file. "If you write someone up, that goes in the personnel file and not somewhere else," King said.

Review files at appraisals

Records of performance appraisals - something King recommends employers conduct on a "regular basis" - should also be kept in the personnel file.

"You can decide what a regular basis is," King told shop owners at one industry gathering. "But I recommend at least regularly. Make sure you're honest about it. Don't say everything is wonderful if it's not. Nothing's worse that trying to get rid of an employee for misconduct or poor performance and you go back through the personnel file and every review they've ever had says 'excellent,' and 'wonderful.' Remember, in a performance appraisal, you're trying to help them improve."

A number of attorneys and consultants say the performance appraisal can also serve as a regular timeline for employers to privately review the employee's personnel file, making sure it is complete and orderly, and includes only what it should.

John Yoswick is a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988.