Say Goodbye to Your Paper Files and "Hello" to the Digital Personnel File

HR departments deal with personal documents and retention periods on a daily basis. Most companies in Germany probably still use the good old paper file for this. The digital personnel file is the electronic counterpart to this paper file. Whether on paper or digital, there is no difference in content - all important information about the employment relationship must be stored here.

The only question is, who files the documents? You can only give employees access to paper files in person. The digital form, on the other hand, can be viewed and updated by employees at any time. Data can be structured and stored independently and released decentrally. With data storage, it does not have to be exclusively about documents in digital form. Data on job changes, salary changes or absences can also be recorded and evaluated.

Who uses a digital personnel file?

A digital personnel file can be used by any company that employs employees. The number of employees does not play a decisive role.

The range of digital solutions is now very diverse - for smaller companies, there are affordable entry packages with monthly license costs. As the number of employees increases, the monthly costs per employee usually decrease.

Due to the different price models, the digital personnel file is already an interesting alternative for companies with a few employees compared to the traditional paper file.

What should you pay attention to when choosing the right solution?

Anyone planning to introduce a digital personnel file should start with a list of the desired goals and consider which processes should be digitized with the introduction. The best-known provider does not necessarily have to be the right one.

I recommend writing down your own requirements in order to be able to compare them with the offers in the selection process.

The decision of whether the software with more features and a higher price is actually the right one is then much easier. When buying standard software, there is often a large discrepancy between the functions that are available, that are needed, and that are actually used in practice.

What does a digital personnel file cost?

The costs for a digital personnel file vary depending on the tool. There are different license models. Some offer their software for a monthly flat rate, where the number of employees has no influence on the costs.

Other providers calculate with a monthly price per employee. In addition, the contract term can have an effect on the price. The longer you contractually commit to software, the cheaper the price usually becomes. However, long contract terms always have the risk of lack of flexibility. A wrong decision can cost customers a lot.

Take a close look at the offered pricing model and compare prices and features of potential manufacturers. Do not only consider the ongoing fees. One-time costs for the introduction of the software or necessary training for users should not be underestimated.

My tip: Pay close attention to the wording in the contract when comparing offers. Prices usually refer to active employees, while with other tools ongoing costs for already departed employees are also incurred. This can quickly and unexpectedly drive up licensing fees. After all, you must keep some documents up to 10 years after leaving.

In general, some tools start with fees of 4€ per employee and month.

In addition to the price, the manufacturer should also fit your company. Is the software specifically designed for your company size? What references are given? How intuitive is the application to work with? Do you get personal contacts? If not, what does the support process look like and what response times can you expect? What options are there if the agreed Service Level Agreements cannot be met?

All of these are many questions that are worth asking in more detail beforehand.

In general, HR tools don't always have to cost a lot. There are also some free HR tools.

What are the advantages of a digital personnel file?

• Access to data is a big advantage of the digital personnel file. While access to the paper file is limited to one person, with the digital personnel file, several people can access simultaneously from different locations. And especially since the pandemic, we know how useful the factor of location independence is. The digitization of personnel files provides tremendous value for employees and employers, ensuring that workflows run smoothly even in home offices.

• Another advantage are the automatic reminders that are triggered based on the stored data via rules. The rules for retention periods are not infrequently controlled via the document structure. The HR department is reminded, for example, of pending violations of the retention period. Such automations relieve the HR department and allow it to focus on strategic tasks.

• Once retention periods have been exceeded, documents can be destroyed via rules and often without additional effort. This optimizes data protection and ensures full GDPR compliance.

• The flipping through files to find the right document also falls into the software's field of duty when it comes to the digital file. Documents are found quickly through integrated search features. Often, it's possible to search not only for the document title, but also for the content of scanned documents.

• Data storage of the digital personnel file is much more space-saving than the paper file. While the personnel file requires a lot of space for filing cabinets, which must also be protected from unauthorized access, the electronic form requires the space of a hard drive. The data is often stored in data centers outside the company and backed up daily. This makes it difficult for unauthorized employees in the company to access the data. Regular backups also better protect the data. In the event of a fire in the data center, a backup can be restored within a short period of time. The paper file would probably not be salvageable in the case of a fire.

What are the disadvantages of a digital personnel file?

• HR professionals often cite the lack of security of documents as a disadvantage. The fear of illegal access to sensitive data exists. Storage in foreign data centers could provide unauthorized individuals access to the documents. However, this fear is unfounded. The risk of unauthorized access is much higher in filing cabinets. On the one hand, it is much more easy to pick a lock, on the other hand, colleagues have a higher interest in the data, while employees of external providers have much less connection to the managed data.

Tip: When concluding a contract, however, you should definitely conclude a contract for order data processing (short: AV) with the provider. Without this contract, you are not allowed to process your employees' personal data with an external provider.

• The digitization of existing paper files means a large, one-time effort at the start of the project. Alternatively, only the documents from the project start are digitized. Especially in the transition period, this leads to the fact that it is not clear whether a document can be found in the old paper file or in the new digital personnel file. However, this disadvantage decreases with the duration of use.

• With the use of a digital personnel file, the paper file can be significantly reduced, but not completely replaced. In the event of a legal dispute, original documents with signature serve as document evidence. Employment contracts and dismissal documents should therefore continue to be filed in paper form. However, it is still worth storing these documents in the digital personnel file to ensure completeness.

How do you set up a digital personnel file?

In Germany, there are no precise specifications about the contents of personnel files. Not all employers therefore store the same documents. Each company decides on the content itself. It is important that all documents must directly relate to the employment relationship.

The structured setup of a digital personnel file aids in better classifying or finding the documents. However, documents cannot be assigned arbitrarily. A look at the statutory retention periods is helpful when setting up a file structure. Depending on how the integrated reminder and deletion function works, documents with different retention periods should not be stored in one directory.

Below is an overview of documents that are often stored in a personnel file:

Personal documents

• Application documents (CV, photo, cover letter, evaluation sheets)
• Work and residence permit
• Intermediate/employment references
• Certificate of good conduct
• Performance assessments

Activity-related documents

• Job Description
• Training records (certificates, confirmations of participation)
• Salary development
• Promotions / Transfers

Contract-related documents

• Employment contract
• Amendment contracts
• Declarations on secondary occupations
• Notice of termination

Social insurance documents

• Social insurance card
• Registration with the health insurance company
• Social insurance reports

Tax documents

• Payroll accounting
• Wage tax certificates

Others

• Warnings
• Correspondence

Retention periods: How long do data have to be stored?

This question cannot be answered generally. There are different legal bases.

In general, a personnel file must be kept for at least as long as the term of employment. Some documents must already be destroyed after leaving and others must be kept for years afterwards.

Tax documents, for example, have a retention period of six years after the employee leaves.

A good personnel file can distinguish between different rules and remind you, depending on the settings of the retention period, of the impending solution.

What must be kept in original form in a digital personnel file?

A digital personnel file has not yet fully replaced the paper file. It is recommended to continue storing important documents with signatures in the original. This is unfortunately necessary in order to be able to meet the burden of proof in labour court proceedings.

Some personnel file software offers solutions for digital signatures. The function reduces turnaround times enormously when multiple signatures are required, because the signature can also be performed independently of time and place by multiple users.

Whether a digitally signed employment contract is accepted by the competent labour court in a labour law proceeding can be very different. The judges decide in case of doubt on the admission of the digitally signed documents. Therefore, you should inform yourself in advance about how your responsible labour court deals with digitally signed documents.

If in doubt, keep all legally relevant documents with original signature in a paper file to be prepared in the event of a legal proceeding.

How is data protection ensured with a digital personnel file?

A major difference between paper file and the digital version is the location of data storage. While the paper file is kept on site in filing cabinets, the documents of a digital personnel file are on a server.

In the case of an in-house solution, the server is operated by your IT. In the now widespread variant of a Software-as-a-Service (short: SaaS) solution, the documents are stored outside your organization on a server of the provider.

When choosing a tool, pay attention to the location of the servers and contractually ensure that the servers are only stored on servers in the EU. Only then do you meet the requirements of the EU General Data Protection Regulation (short: GDPR). Also think about concluding a contract for order data processing (short: AV). This regulates the rights and obligations between both contracting parties.

The data transfer must by necessity take place via an encrypted connection. The use of SSL certificates should now be standard and ensures a secure data transfer.

Through the automated reminders, the digital paper file also offers advantages in data protection. This way, you receive a proactive notification when the retention period is reached and a document needs to be destroyed. With the paper file, a document may unknowingly remain in the paper file much longer, even though the retention has already expired.

Often, an automatic deletion process can even be set up, so that no manual intervention is needed when oversize. But be careful, in a good digital personnel file the documents can not be restored by the manufacturer.

Which HR tools offer a digital personnel file?

There are different software for digital personnel files. When choosing, you should especially focus on usability, the integration capability into your existing system landscape and data protection.

The software solves these requirements often very differently. You should get a good impression of the functions. With many providers, you can set up a free trial version within a few minutes and thus thoroughly test the software.

To make the entry or changeover as easy as possible, you should also inform about import possibilities. Inquire in which format the documents must be provided in order to enable a quick and clean takeover of the existing files.

As there are different technical possibilities, it is best to ask directly which possibilities are offered. The exchange before contract conclusion can possibly save a lot of additional effort.

These are some softwares that offer a digital personnel file:

• HR AppBoard
• Workday HCM
• rexx systems
• Personio
• HRlab

Also some of the Top 10 HR Software offer digital personnel files.
⁠You can find more potential providers on OMR Reviews in the HR Management category.