Consultant’s Corner: Why You Need an Employee Handbook


Question: I run a small business and have less than 10 employees. Why should I have an employee handbook?

An effective employee handbook that lays out all company policies can be a great benefit to your small business. Although there’s no kind of legal requirement forcing you to develop a handbook, experts have found that companies with a handbook spelling out company rules, policies, and procedures have a more productive workplace.

Functions of an Employee Handbook

From a general business perspective, the number of employees, type and number of employee fringe benefit programs, and other factors influence the need for an employee manual. For example, the cost of an employee manual varies based on the number of company policies, type of employee fringe benefit programs, and amount of outside legal review required. Also, many employers with less than 10 employees often have condensed employee handbooks that are less costly to prepare.

Perhaps the number one job of the employee handbook is to spell out company policies for your employees. When employees know what their employer expects of them, from performance to attitudes to behaviors, the relationship between the business and employee is more productive.

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Some of the topics you might want to cover in your employee handbook include:

  • Definitions of full and part-time employment
  • Work times and shifts, and tardiness policies
  • Lunch and break periods
  • Vacation and sick leave policies and schedules
  • Dress and grooming codes
  • Drug policies and testing
  • Emergency procedures
  • Use of company property
  • Email, telephone, and Internet use and policies
  • Compensation and benefits
  • Holidays
  • Retirement plans
  • Performance evaluations
  • Promotions and job postings
  • Disciplinary proceedings
  • Termination

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Having an employee handbook that discusses these issues can protect you legally, as well. When new employees acknowledge in writing that they’ve received the handbook, they can’t later claim ignorance of your company’s policies. Remember, though, that the handbook defines obligations in both directions: the employee’s obligations to the company, as well as the company’s obligations to the employee. When the handbook is clear about policies and procedures, it makes it easy to determine whether or not your company is liable in any future disputes with employees.

How to Create an Effective Employee Handbook

To reap these full benefits, however, you must take time and effort to develop the employee handbook effectively or re-evaluate your existing one. Here are a few guidelines you can use:

  1. Have strong, clear writing. Your handbook needs to use direct, simple writing that is easy to understand. Don’t use complicated grammatical structures that confuse the reader, and stay away from overly technical legal jargon.
  2. Use a disclaimer to limit your liability. If you include a brief statement spelling out that the handbook is for informational purposes only, not a binding contract, and that you can change it at any time, you can protect yourself from employment discrimination suits. Put it in large, bold type in an easy to find spot. You might choose to include a statement that employment is “at will.” This means that either the employee or the business can end the employment relationship at any time.
  3. Get an expert opinion. Your employee handbook needs to conform to standards established by workplace laws. To ensure compliance, have an expert in employment law either write or review your handbook.
  4. Review and update. When company policy or even workplace law changes, you need to update the handbook appropriately. At minimum, have an annual review to make sure that everything is still correct. Whenever you do need to make a change to the handbook, follow this four-step notification process, the result of several court cases:
    1. Post a notice of an impending revision.
    2. Issue the revised handbook to your employees before it becomes effective.
    3. Include a statement on the front page giving the effective date of the handbook.
    4. Clearly revoke all previous editions of the handbook, both by putting it in writing in the new handbook and even by having employees sign a form acknowledging that the old handbook is no longer valid.

Having a strong employee handbook that clearly communicates your company policies eases your relationship with your employees, so that they know exactly what their rights and obligations are. By taking the time to create an effective handbook, your small business can reap the rewards.

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Bill Wortman

Bill Wortman

Bill Wortman is the Chief Business Consultant for, with over 40 years of business experience. In addition to 12 years consulting small business owners, Bill’s professional career includes a big-eight CPA accounting firm, national consumer finance, big-three automotive manufacturing, Arby’s fast food, marketing, and other industries. He’s held multiple executive-level positions and fulfilled the role of CFO at large, publicly held (NYSE, NASDAQ, and AMEX) corporations. In addition, he’s been an owner of private ventures involving residential real estate development and a General Motors new car dealership.