You should keep a personnel file for each of your employees. The files should hold every important job-related document, including job applications, offer letters, employment contracts, benefits and salary information, government forms, performance evaluations, and disciplinary actions.
However, there are some things you shouldn't keep in personnel files: I-9 forms and medical records. For each of your employees, you must complete and keep Form I-9, provided by the agency now known as U.S. Citizenship and Immigration Services (USCIS, formerly called the INS). You should keep these forms in a separate I-9 folder for all employees, however, not in the employees' individual personnel files. As to medical records, the Americans with Disabilities Act (ADA) imposes strict rules intended to maintain the confidentiality of information obtained through medical examinations and inquiries.
For more on personnel files, including tips on keeping them up to date, see Nolo's article What to Keep in Employee Personnel Files.