Retention policies vs retention labels in Microsoft 365 is one of the most common questions compliance teams ask. Both tools help organizations decide how long to keep or delete emails, files, Teams chats, and even Copilot data, but they work very differently.
In this guide, I’ll explain what retention policies are, what retention labels are, how they differ, and when you should use each. By the end, you’ll know how to build a layered retention strategy that balances simplicity and compliance.
Every organization produces a crazy amount of digital stuff every single day and typically include emails, chats, Teams messages, contracts, reports, AI-generated content from Copilot, and so on. Some of it you need to keep for years, some you need to delete quickly, and some you need to lock down as records.
Microsoft 365 gives you two main tools for this job: retention policies and retention labels. They sound similar, but they behave differently. Understanding the difference is the key to building a smart information governance strategy.
Retention Policies: The Big Blanket
Retention policies are broad rules you apply to entire locations. Think of them as a giant blanket you drop on top of a mailbox, a SharePoint site, or even a Teams chat.
- What they cover: Exchange, SharePoint, OneDrive, Microsoft 365 Groups, Teams chats and channels, Viva Engage (Yammer), Skype for Business, and Copilot or other AI chats.
- How they work: Once a policy is published, every item in that location follows the same rule. Example: “Keep all Teams chats for 3 years, then delete.”
- User experience: Completely invisible. Users don’t see badges, warnings, or labels.
- What happens when content is moved: The retention stays with the location, not the item. If a file is moved, a hidden compliance copy is kept in the background.
Retention policies are your safety net. They make sure nothing disappears too soon, but they don’t give you fine-grained control.
Retention Labels: The Precision Sticker
Retention labels are like putting a sticky note directly on an item that says “handle me this way.” They are much more flexible and powerful.
- Where they apply: Individual emails, documents, or files.
- How they’re applied:
- Manually by users.
- Automatically with conditions (keywords, sensitive info types, trainable classifiers, metadata, Syntex models, or defaults on libraries and folders).
- What they can do:
- Travel with content when it’s moved inside the tenant, they don’t stick with the document outside M365 (unlike Sensitivity Labels).
- Declare items as records (making them immutable).
- Start retention from creation, from labeling, or from a specific event (like an employee leaving).
- Support multi-stage disposition reviews so humans approve deletion before it happens.
- At the end of the timer, delete, relabel, or hand content over to review.
- Provide proof of disposition for up to 7 years.
Retention labels are your fine-tipped marker. They give you precision, control, and auditability.
The Big Comparison
Here’s a single table pulling everything together.
Declare recordsNoYes
| Capability / Workload | Retention Policies | Retention Labels |
|---|---|---|
| Scope | Entire containers (mailboxes, sites, accounts, chats) | Individual items (files, emails) |
| Workloads covered | Exchange, SharePoint, OneDrive, M365 Groups, Teams chats, Viva Engage, Copilot chats, Skype for Business | SharePoint, OneDrive, Exchange, M365 Groups |
| User visibility | Invisible | Visible in item details, columns, and properties |
| Manual apply | No | Yes |
| Auto apply | Always on, but no conditions | Powerful conditions: keywords, classifiers, sensitive info, Syntex, metadata |
| Event-based retention | No | Yes |
| Disposition review | No | Yes (multi-stage supported) |
| Actions at end of retention | Delete or retain-and-delete | Delete, relabel, send to review, trigger a power automate flow |
| Content moved | Retention stays with container, not item | Label travels with the item (within tenant) |
| Audit | Admin activity changes | Item-level retention actions |
| Proof of disposition | No | Yes (up to 7 years) |
| Search and reporting | Policies don’t act as search filters | Labels appear in Content search, Data classification – Activity explorer |
| Integration with other solutions | NA | Deeper integration with: – Syntex (models can stamp labels) – Insider Risk / Adaptive Protection (apply labels to risky content or hold deleted files) – DLP (labels can be used as conditions to block sharing) |
When to Use What
Here’s the simple way to think about it.
- Use retention policies when you want broad, automatic coverage across the enterprise. They’re great for:
- Deleting Teams chats after 3 years.
- Keeping all emails for 4 years.
- Governing Yammer, Teams & Copilot conversations at scale.
- Use retention labels when content is valuable, regulated, or needs to be treated as an official record. They’re perfect for:
- HR records, contracts, or finance documents (all the different categories in your retention or disposal schedule)
- Anything that needs a disposition review.
- Scenarios where retention should start from an event like contract expiry.
- Integrating with other compliance tools like Syntex, Insider Risk, or DLP.
A Few Extra Insights
These don’t always jump out in the docs, but they matter in practice:
- Policies are the enterprise broom. Most organisations use them mainly for delete-only coverage, especially for chats and collaborative content.
- Labels are the record room rules. They give you defensible proof of why content was kept, when it was deleted, and who approved it.
- Labels can chain. At the end of retention, a label can automatically switch to a different one, something policies can’t do.
- AI is part of this. Copilot chat is covered by policies, but Copilot-created files in SharePoint or OneDrive get labels like any other file.
- Last accessed (Preview). Soon you won’t just dispose information based on when something was created or modified, but whether anyone has actually touched it in years.
Wrapping It Up
Don’t think of this as policies versus labels. The best approach is to layer them together:
- Retention policies as the safety net for everything.
- Retention labels for the important stuff that needs records management and audit trails.
That way you cover your entire tenant, meet legal and regulatory requirements, and still have the flexibility to treat your crown-jewel records properly.
Licensing details deserve their own deep dive (and I’ll cover that in a future post), but for now just remember policies = broad blanket, labels = precision sticker. Use both wisely and you’ll have a retention strategy that actually works.
