The Ultimate Guide to Creating an Employee Handbook

So, you’ve just crossed the finish line in the hiring process and now you’re ready to welcome your new employee into your small business. There are critical steps you need to take both to onboard and retain employees. A key link between these two is your employee handbook.

Your manual not only sets the stage for your company’s culture, vision, vibe, and rules of the road, but it also establishes your intention to communicate clearly. Also, certain elements within the handbook—such as perks, compensation, benefits, and a safe work environment—are essential for the retention of employees.

We’ll explore why you need an employee handbook as a small business owner (and the heartache and dollars you’ll inevitably save), what to include, how to create one, and how to make sure your employees make it one of the first documents they read on day one.

The Purpose of an Employee Handbook

A small business employee handbook is the operating playbook and communication tool you and your team need to codify the rules of the road for working at your company. A well-written handbook offers a breakdown of the standards, expectations, company policies and processes you expect your employees to follow, while also signaling to them how you’ll manage situations that arise.

Great employee handbooks for small businesses are documents that will excite and empower your employees, while reinforcing your culture and values. The employee handbook provides clarity and context—should any problems arise—so employees know precisely where to turn. New hires are given a copy of the employee manual with a form to sign, confirming they’ve read through it and understand its contents.

While the manual doesn’t guarantee compliance (and it’s not a formal employment contract), it does give all parties clarity on how to operate, and it can protect small business owners from legal action or even be used as evidence in an anti-discrimination lawsuit, for example.

Why You Need an Employee Handbook

Here are two staggering stats: First, according to a Gusto survey of small business owners, only 26% of small businesses with fewer than 10 employees had employee handbooks. Second, looking at the cost of possible employment litigation, according to a Court Statistics Project study, the median cost of an employment case that goes to trial is $88,000.

Consider that it only takes one lawsuit to deliver a crushing blow to your company, and the effects of litigation could go far beyond financial losses. A lawsuit can harm your business’s reputation, especially if it paints your business in a negative light and is publicized by local or national media. It also can put stress on you and your employees. You might have been able to prevent the lawsuit had you created an employee handbook.

It’s essential to have a playbook in place, because it not only articulates that all employees are treated equally and fairly, but also helps promote a positive, welcoming, productive, and safe working environment.

You may be wondering if having an employee handbook is mandatory for your business. While the Federal Department of Labor doesn’t require the actual creation of the document, you are required to inform employees of their rights in the workplace—whether that’s through visible workplace signage or a formal manual. Smart small business owners opt for both, to have all their bases covered.

You want first to review the Department of Labor’s mandatory workplace posters. and then search for any state requirements on your State Labor Office’s website.

If you operate business locations in different states, you may have to write and produce different manuals; contact your attorney for more information. For example, the Connecticut Department of Labor requirements may not be the same as the California Department of Industrial Relations requirements.

Remember, when you’re creating an employee handbook, you want to go beyond the bare minimum to also focus on policies—legal or otherwise—that have a direct impact on your small business.

The 10 Must-Includes in Your Employee Handbook

Wondering how to write an employee handbook? Don’t feel overwhelmed and think you have to include every single thought, law, or process in your handbook—it’s meant to serve as a general guide, and the details arise in the practice of using the guide. Focus on including these components of an employee handbook:

1. Company Overview, Vision, Mission, and Values

Define your company’s mission, vision, and purpose from the onset, so your employees can have complete clarity about, and alignment with, your company’s values. Your values and beliefs are the guiding principles—that which matters most to you—that drive every aspect of your business. It’s your moral compass and core, and gives you and your employees a sense of purpose and direction.

For example, Patagonia’s mission statement begins by announcing, “We’re in business to save our home planet.” Their core values are to build the best product, cause no unnecessary harm, use business to protect nature, and to not be bound by convention. Employees who join the company know they’re signing on with an organization that values environmental sustainability and responsibility.

Be clear about what you stand for, and you can empower your employees to be your best advocates. In this section, you may want to include:

• Welcome letter from the founder or owner
• The business’s origin story and operational timeline
• Photos of staff and the workplace
• Any powerful sales or statistics that would make an impact
• Any company-sponsored events, whether that means annual outings or sanctioned volunteer efforts

2. Compensation, Benefits, and Perks

This section is a crowd favorite and the first the employee will read in detail. Not only do they want to have a full and clear understanding of when and how they will be compensated, along with the performance review process, but they also want to understand the benefits and company perks for which they are eligible.

In terms of compensation, you want to define:

• Frequency of payment and time of payment. Do you pay employees weekly or every two weeks? Do paychecks arrive on a specific date and time within the month? Set clear expectations for when employees will be compensated.
• How they’re paid. Do you hand employees checks, offer direct deposit, or pay via an online processing company like PayPal or Stripe? Clarify how employees will receive their funds and if they need to provide information to ensure the payment process goes smoothly. For many businesses, it’s as simple as filling out a direct deposit form.
• Overtime policy. Clarify if you have an overtime policy, as well as its structure and what qualifies as overtime payment.
• Alternative compensation. Perhaps your compensation includes stock or escalating bonuses, or compensation related to reaching targets and sales goals. Define how and when employees can obtain this additional or alternative compensation.

Within the pay section, you also should outline expectations for performance reviews and salary/bonuses. Are you a company that gives structured annual or semi-annual appraisals, or is the process more laid-back and fluid? Do employees receive a certain percentage bonus based on the success of the business, or do they receive individual performance-based or “spot” bonuses? There’s no right or wrong procedure—simply be transparent about your review, raise, and bonus processes.

When it comes to benefits, you want to deliver a general overview of what you offer in terms of health care, dental, vision, life insurance, and retirement plans, including the eligibility requirements. In this section, you want to explain:

• Basic health, insurance, and retirement benefits and eligibility. For example, do you need to be a full-time employee to access specific (or all) benefits? Do you offer prorated packages? Let employees know when they can enroll and when they are eligible to receive benefits.
• Education and training benefits. Be sure to include tuition reimbursement or online courses, if you offer these benefits.
• Perks. From paid-for company phones and laptops, to free lunches, to flexible schedules and remote work, outline the pluses that make working for your company special and unique. Perks are how you can attract and retain top talent.

3. Code of Conduct

Make your standards general, so you don’t fall into the trap of including every single permutation of behavior. You want to give employees a basic understanding of what you deem to be acceptable. Areas to include within your code of conduct are:

• Dress codes
• Use of phones, email, and internet during working hours
• Meal breaks and rest periods
• Smoking, alcohol, and substance abuse guidelines
• Data management and customer privacy
• Conflict resolution policy
• Customer or vendor gifts (in any form) or bribes
• Ethical standards and policies
• Safeguarding of confidential information

The employee handbook also should address any disciplinary procedures you have in place relating to employee behavior in the workplace.

4. Anti-Discrimination and Equal Opportunity Policies

You’re required by law to explicitly state that your business adheres to nondiscrimination and equal employment opportunity laws in hiring and promotion, in accordance with the Equal Employment Opportunity Commission (EEOC).

You may also have to consider addressing, and complying with, the Immigration and Nationality Act (INA), which prohibits unfair hiring, firing, promotion, and recruitment practices related to an employee’s citizenship status, national origin, and their eligibility verification process. The law also outlines redress for retaliation and intimidation.

5. Family and Medical Leave Policies

If your small business has more than 50 employees, you need to have a Family and Medical Leave Act (FMLA) policy in place. The law requires that you provide up to 12 weeks of job-protected, unpaid leave during a 12-month period for events in an employee’s life including childbirth and childcare, caring for an immediate family member with an illness or serious medical condition, or tending to their own medical illness.

During the leave period, employers also have to maintain all employee health benefits. For more information, check out the FMLA Employer’s Guide. You also may need to review state laws to determine if you need to address any additional mandates in your employee manual.

6. Schedule, Hours of Operation, and Paid Time Off (PTO)

Here you want to clarify your hours of operation and when employees are expected to arrive and leave. You should include any observed holidays, any policies related to working during holidays or nonbusiness hours, and how employees will be compensated. You also may want to outline how employees can “clock in” their time, so their attendance is tracked and verified by their manager.

When it comes to PTO, you want to be clear about the amount of time allocated for sick days, short-term leave, and vacation, and, if there is an earned or accrual process, whether you allow days earned to “roll over” into the next year.

7. Workplace Safety and Security

To avoid any confusion and potential litigation, define the steps you take to ensure a safe physical and nonphysical work environment. Whether it’s policies and procedures to operate machinery, or your process for filing sexual harassment or bullying complaints, your employees should feel comfortable that they’re working in a safe environment. Also be sure you understand workers’ compensation rules and procedures.

8. Digital Conduct and Social Media Policy

Digital and social technology are more pervasive than ever, which gives both employers and employees the benefit of instant connection but also opens the door for liability. Make sure you define how your employees can (or cannot) talk about and represent your company on social media.

Both for onsite and remote employees, you want to set standards for protecting assets, internal documents, and customer information. This could mean logging into a specific network to access your email or documents when not in the office, or it can be how you manage your passwords.

9. Nondisclosure and Conflicts of Interest

Small business owners should protect the confidential aspects of their business that make them unique and competitive. To that end, you want to ensure that your trade secrets and all proprietary information stay within the company. It might be wise to have employees sign a nondisclosure agreement (NDA), which will stipulate rules around information-sharing.

Also, the gig economy is thriving, with 36% of workers taking on part-time hustles; you may want to consider defining the kinds of work and projects that are permissible while an individual is under your employ.

It may be helpful to engage an employment lawyer who can guide you through best practices for your industry, as well as assist you in crafting relevant language.

10. Important Disclaimers

Make certain, with absolute clarity, that employees know that:

• The handbook is not a binding contract and does not guarantee further employment.
• The handbook is the final word on all policies, superseding any memos or documents that may have been circulated to employees before its inception.
• Policies are subject to change. Not everything in the document is set in stone. You have the right to change policies as your business shifts and evolves; however, you also have to disclose any pertinent updates that would affect your employees.
• They have to read and acknowledge receipt of the employee handbook. Ignorance is never bliss, especially when it comes to employee rights and company procedures. Employees have a responsibility to inform themselves about the standards you’ve set and the rights they have.

How to Get Started

Don’t reinvent the wheel. Nearly every company has operating guidelines, so, if you’re stumped for content and creative, look no further than Google.com. Use your research as a means to spark inspiration for what to include, how to convey information, and how to design and package your manual. Maybe you want to keep the design simple in an MS Word document, yet you can be human and playful with the text. Or perhaps you have some budget to create an illustrated manual with your small business’s brand colors, fonts, and logo, so employees can feel committed to your brand from the get-go.

Also, you may already have created much of the copy you need for the handbook (such as values, services, and processes) in producing other documents, such as your website and internal policies. Consolidating information from existing sources—instead of opening up an MS Word document and starting from scratch—will save you time and help ensure your language is consistent for your current employees as well as new hires.

Step 1. Roll out the red carpet.

Your new employee is fresh off the interviewing and negotiation process, and you want the positive energy and excitement to continue. Your employee handbook is one of the first key encounters they’ll have with you onsite, and first impressions count. From the design and text, to the opening pages, you want to make your recruit feel right at home. Start with your business’s verve and passion. Open with your vision, mission, and core values. Explain the kind of business you want to operate and how your employees play a pivotal role in that story, and let them get to know you first before they fall into the labyrinth that is your legalese.

To help guide your thinking, look at examples of companies that communicate their core values in a way that is stand-out.

Step 2. Dive into policies and procedures.

Next, you want to get into the meat of the handbook. When including all of the components as outlined in the previous section, consider creating illustrated examples, so employees can gain context and clarity. Maybe you want to visualize elements of the manual with graphics, comic strips, photos, or illustrations. Get creative with how you represent information. We’ll dive into examples shortly.

Step 3. Review your handbook with key stakeholders.

Make sure you have trained professionals in the form of Human Resources representatives or consultants, as well as employment lawyers, who are up on the latest federal, local, and state laws. It pays to have them vet your document to ensure that not only have you articulated the information clearly, but also you’re not opening yourself up to uncertainty, misinterpretation, or downright liability. Spending the time now to have your material properly vetted will pay dividends down the road.

Step 4. Design and distribute.

The options are limitless. You can keep it simple with a word processed document you hand to new employees as part of their onboarding process, or you can design something visual and special that can be delivered in-person and accessed online. It’s really up to your resources, brand, and budget. The key here is to give employees all the information they need to be successful in your business. Packaging and design can heighten excitement and create more feelings of loyalty to your business as a living, breathing brand.

Step 5. Make regular updates.

Listen to your employees, peers, HR staff, and lawyers throughout the year. Our world is continuously changing—there’s new technology on the market every day—so it’s important to make sure your manual keeps pace with the trends and times. Consider reviewing it at least once a year and making material updates when needed.

Resources You Can Use If You Get Stuck

Here are several employee handbook templates available online:

• The National Federation of Independent Business (NFIB) template
• The National Council of Nonprofit Associations template
• RocketLawyer template

To get deeper insights into what to include in your manual, check out:

• U.S. Department of Labor. Familiarize yourself with the laws about equal employment opportunity, family and medical leave, etc. You also want to research laws at the state level to make sure you’re compliant.
• Occupational Safety and Health Administration (OSHA). They offer insights on employer responsibilities for providing a safe workplace.

How to Create a Handbook That Your Employees Will Want to Read

Employee handbooks have gotten a bad rap. They’re often described as the ultimate insomnia cure-all—a stack of pages written in dry legalese that only seem to catalog previous workplace issues or scare recruits into submission. They are not necessarily riveting nighttime reading.

However, your guidebook doesn’t need to be a boring training manual or serve as a flashback to George Orwell’s 1984. Remember, you’re creating a blueprint for how people should operate within your small business. From your culture, beliefs, and values to day-to-day policies that help ensure everyone has a fair, safe, and enjoyable working environment, employees should feel engaged and eager to get their day started.

Here are six hacks to get your employees hooked on your page-turner from page one.

1. Open with your vision, mission, and values.

Set the stage for your employees to participate in the bigger picture of your business. Help your employees feel they’re part of something larger than their timesheet.

2. Talk like a human.

Nothing makes people fall asleep faster than jargon-speak. Be positive, upbeat, and conversational. Remember, this isn’t a screed against past wrongs and employee snafus. Your handbook is a go-forward guide for your business to put its best proverbial foot forward. You still can be professional without using dull or stiff language.

3. Play up your perks.

People love to brag about their cool job perks. Consider front-loading the benefits page with your perks, or you can showcase images throughout the manual (and even your place of work!) that show happy employees immersed in your culture.

4. Consider packaging and presentation.

In the previous section, we talked about how you could create your manual. If you have a little budget and some creativity, you can have fun with a document that’s known for being dry. For example, Education First (EF) has a delightful, whimsical, and illustrated handbook that focuses on team spirit and the elimination of bureaucracy and hierarchy.

In other words, think creatively about creating an employee handbook that will not only inform your employees but also entice them to read the handbook and help them feel good about choosing you as their employer. Valve Software communicates its values through cheeky visuals, focusing on working hard while maintaining a sense of humor.

And talk about practicing what they preach: Trello created its employee handbook on its tech platform. Or perhaps you can borrow from Netflix’s simplified playbook. They don’t have fancy, interactive graphics, but their manual outlines their values and policies in conversational, plain-speak, that is, no translation required.

5. Be smart with formats.

Because of the internet, people are used to being bombarded by large amounts of information every day. As a result, they’ve trained themselves to read documents much like an online article where there are section headers, breaks, bullets, and brevity. Huge chunks of text are overwhelming, so make your manual palatable to the skimming eye. Ironically, employees will read more if you give them some visual breathing room.

6. Be fair and consistent.

This may sound obvious, but practice what you preach. Live the culture and belief system you described. Treat all employees equally with compassion and fairness, and, most importantly, be consistent in all of your actions.

Creating and sharing your employee handbook is one of several essential steps in the overall hiring process. From determining when you need to make a new hire to designing the onboarding process, understanding the implications of the actions you take during the hiring process is a great investment in your small business’s future success.

Now that you know how to make an employee handbook, sign up for our Small Biz Ahead weekly e-newsletter for more business insights.