Sensitive information including bank details were left exposed in an open skip belonging to Gloucester City Council.
The folder, containing 350 pages of payroll data, council tax arrears and payment errors dated in 2013 were found by a local Democracy Service reporter.
The reporter was alerted to the contents of the skip outside a former office of the city council.
The authority said the “file should not have been placed in the skip”.
A city council spokeswoman said: “We acknowledge that the file should not have been placed in the skip during the clearing of our former premises at the Herbert, Kimberly and Philpott Warehouses.
“We are conducting an investigation as to how that happened and we will take appropriate action. The council takes information security seriously, and we want to reassure everyone that personal and sensitive data shared with us is secure.
“We have spoken to the Information Commissioner’s Office and they have given us advice.
“After this conversation our opinion is that the incident didn’t require a formal report, however we have logged it and will be reviewing our internal processes accordingly.”
Smith’s waste management divisional manager, Peter Jukes, said the waste would have been recycled appropriately.
He added he is “not prepared to comment on anything further”.
The Information Commissioner’s Office has been approached for comment.