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Your business can enhance communication with its employees, help ensure compliance with the law, and possibly even avoid legal problems, by creating an employee handbook.

by Edward A. Haman, Esq.
updated September 24, 2020 · 4min read

An employee handbook can be a useful tool to let employees know the benefits of working for your company and what is expected of them, as well as protecting your business from lawsuits and other claims relating to employees.

Not required to have an employee handbook, some laws require employers to communicate certain information to employees in. Is intended for business and limited non-business use, and that employees should have. Should also be aware of state and local “ban-the-box. An employee handbook that is built correctly, and includes all of the proper information, is an excellent tool in protecting your business from the myriad of potential legal issues that may arise from hiring employees.

Purpose of an Employee Handbook

The more people a business employs, the more challenges there are in communicating with its employees. A well-written employee handbook can help with this communication by ensuring that necessary comprehensive information is given to all employees in a consistent manner.

An employee handbook can outline employee benefits, let workers know what is expected of them, and facilitate better communication with managers. It also demonstrates the company's desire for good relations with its employees, and provides a source for employees to quickly get answers if questions arise.

Employers and the Law

One important part of running a business with employees is being aware of laws that relate to being an employer. For example, you will need to comply with laws regarding such things as tax withholding, workers compensation, unemployment compensation, minimum wage, overtime pay, nondiscrimination, sexual harassment, and accommodating employees with disabilities. State or federal law also may require that employees be given leave for such things as jury duty, court appearances, voting, and military service.

There are numerous federal and state laws that may affect the employer-employee relationship. Their applicability to your company may depend upon such factors as the nature of your business activities, and the number of employees you have. For example, the federal Family and Medical Leave Act (FMLA) applies to companies with at least 50 employees.

Such laws may require that legal notices be placed in conspicuous places in the workplace, in which case it is not necessary to duplicate the information in the employee handbook. However, you may wish to do so in order to provide your employees with a single place to look for all necessary employment information.

Employee Contracts

In addition to an employee handbook, you also may want to enter into a formal employee agreement with some, or all, of your employees. This may be necessary if you wish to have the employee legally bound to confidentiality, nondisclosure, noncompete, and ownership of intellectual property requirements.

Some companies use a single, comprehensive employee agreement. Other business may use separate employment, confidentiality, nondisclosure, and noncompete agreements.

Contents of an Employee Handbook

Employee handbooks vary in length, design, and detail. However, essentials for an employee handbook include statements that:

• The employee handbook does not constitute an employment contract.
• Employment is 'at-will,' and that either the employer or the employee may terminate the employment at any time, with or without notice or reason.
• Your company is an equal opportunity employer, and has a policy against unlawful discrimination and harassment in the workplace.
• The terms of any employment contract or specific benefit plan document will control in the event of any discrepancy with the handbook.
• Changes may be made to the handbook at any time, with or without notice to the employee.

Other subjects commonly covered in employee handbooks include:

• A general statement of the company's mission, values, and philosophy
• Company work hours, days of operation, and paid holidays
• Policies and procedures for evaluating employee work performance, such as annual performance reviews and improvement plans
• Policies regarding vacation time, as well as leave—with or without pay—for such things as illness, bereavement, and other personal time
• Permissible and impermissible use of company property
• Confidentiality requirements
• Policies regarding employment outside of the company
• Grievance policies and procedures
• Dress code
• Prohibition of alcohol or drug use in the workplace
• Social media use and content guidelines
• Notices about special legal and ethical concerns related to government regulation of your business
• Disciplinary policies and procedures, which may include what specific actions may be taken for specific policy violations and for repeated violations
• A list of employee benefits, although benefit details are usually set out in the particular benefit plan documents

Any of these, or other, subjects can be covered comprehensively in the handbook, or can be summarized in the handbook and covered in more detail in a separate document. For example, the handbook may simply indicate that the employee will have an annual performance review, with the criteria and procedures for review being contained in the particular employee's employment contract or in some other document.

It is also standard practice to have the employee sign an employee handbook acknowledgement form at the time a copy of the handbook is given to the employee. This will prevent the employee from later claiming they were not aware of the handbook, in the event disciplinary action becomes necessary.

Disadvantages of an Employee Handbook

There is always the risk that a court may determine that the employee handbook is binding, and penalize the company for not following the policies and procedures outlined in the handbook.

For example, a court might decide that you were wrong to fire an employee if the handbook says that a written warming is the result of a first-time violation. Especially if a detailed and progressive employee discipline policy is to be described, it would be wise to have an attorney review your handbook.

Creating, and periodically modifying, an employee handbook can be a time-consuming process. Such time and effort may not be practical for a small company with only a few employees. However, creating an employee handbook can be an important part of your company's plan to hire and retain good employees. Even if you only have a few employees now, a basic employee handbook can be created, and then expanded as your workforce grows.

Though you’re not required by law to have an employee handbook, recording key policies can protect your business. Plus, it gives your employees the clarity they need to know how things work.

Small Business Handbook

What is an employee handbook?

An employee handbook—or employee manual—is an important living document for your employees that outlines your company policies, history, and culture for current and future employees. Though 87% of small businesses sized 10-200 have employee handbooks, HR experts agree that it’s best practice to start a handbook as soon as you hire your first employee, as it defines expectations and can protect you legally.

Now back to business: here are the main policies you’ll want to record in that employee handbook:

1. Onboarding and joining the team

One of the top motivations for businesses to create an employee handbook is to train new hires. So kick things off by laying out the basics that every employee should know before the shimmy through the front door.

The employee onboarding section may include your:

• At-will employment clause
• Equal employment opportunity statement
• Conflict of interest statement
• Confidentiality agreement
• General details, such as directions to the office, team structure, and key contact info

A quick reminder about at-will employment

If there isn’t an agreement clearly stated in your employee handbook, then this type of employment is assumed in all states besides the Treasure State (also known as Montana).

Here’s an example of a sample at-will clause you can use as a model:

“Keep in mind that [your company] is an at-will employer. This means that either party can end the relationship at any point for any reason, with or without notice.”

Small Business Employee Handbook Template

2. Code of conduct

Even the most free-flowing organization has boundaries. Your code of conduct section should spell out the “10 Commandments” for life as a member of your team. If there’s anything that’s frowned upon, this section should cover it. For example, you can explain your:

• Dress code policy
• Anti-discrimination policy
• Anti-harassment policy
• Substance-free workplace policy
• Taking disciplinary action

3. Office environment

What’s life like at the office? This section of your employee handbook explains how, when, and where employees are expected to get things done. You’ll want to include hot topics like:

• Work hours
• Your work-from-home policy
• How to keep the workplace safe
• Americans with Disabilities Act (ADA) accommodations
• Use of company equipment

4. Communication policies

How does your team interact with each other? What about customers, vendors, and other partners? Some of this may seem like common sense, but it can still be helpful to spell it all out in your employee manual.

Set out your expectations for channels like:

• Email
• Social media

5. Compensation and performance reviews

Not to downplay other critical policies, but the next two sections are ones your employees will likely flip back to frequently.

Here’s a look at the policies you’ll want to cover:

• Job classification details
• Salary and bonuses
• Promotions and transfers
• Travel and expense policy

6. Benefits

Woohoo! Here’s where you list out the benefits you offer your team and explain how they match up with the values you celebrate. When someone’s finished reading this section, they should feel knowledgeable and well taken care of.

Open with a quick-reference section that outlines details such as which types of workers are eligible, when benefits kick in, and your plan’s policy number. Then, start with the essentials and work your way up to the icing-on-the-cake benefits:

• Health, disability, life, and workers’ comp insurance information
• Other leave policies, such as parental leave, sick leave, or jury duty

7. When someone leaves

It happens: Sometimes you just need to part ways. This section of your employee handbook should explain what happens when someone quits or gets terminated.

Explain the offboarding basics, such as:

• When your employee will receive their final paycheck
• How exit interviews work
• How Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits work if someone is laid off or fired.

8. Your company story

And last, don’t forget to share who you are and why you’re here! (Okay, this isn’t really a policy, but it’s still important).

From your original vision to how your company came into being, your company’s story is the underlying foundation that inspires people to show up and do amazing things every single day. Bring new employees into the fold by sharing this history with them.

Ask yourself:

• Who is your company and what do you do?
• Why does it matter?
• Why should others care, too?

What do other small businesses have in their employee handbook?

Gusto conducted a survey of more than 330 businesses to find out what they’ve prioritized in their employee handbooks.

Here’s a behind-the-scenes look at the most common employee policies businesses include in their handbooks.

Business In A Box Employee Handbook Sample

Your employee handbook isn’t just a helpful reference doc; it captures the culture, values, and personality of your company.

Basic Employee Handbook Template Free

Give every policy careful consideration and take time to make your employee handbook shine.