How To Create an Employee Handbook for Your Small Business: The Ultimate Guide

An employee handbook is a document that covers company values, policies, procedures, and legal obligations. Without one, managers spend more time answering questions and employees aren’t clear on what’s expected of them. Additionally, business owners can face legal trouble if they don’t have a clear process for handling sensitive employee issues.

A well-written employee handbook provides your team with clarity on company standards, procedures, and expectations. Plus, you’ll have a reliable, handy guide to follow for any employee or employment matters.

In this article, we provide you with step-by-step guidance on creating your small business employee handbook and a comprehensive sample employee handbook that you can download and customize according to your needs.

Why You Need an Employee Handbook

With an employee handbook, small business owners and managers can:

• Stay compliant. All businesses need to adhere to local, state, and federal employment laws, so your employee handbook should align with legal requirements and employee rights. This is a great way to ensure you’re not breaking the law and helps safeguard your business in case an employee sues. 

• Set clear expectations. A small business employee handbook lets you share company culture, values, and standards with your employees. Your team will be clear on what’s expected of them and the consequences if rules are broken.

• Establish consistency. Employee handbooks for small businesses provide clear, consistent employment rules. These apply to everyone in the company, regardless of their department, location, or seniority. It’s a good way to ensure that all employees receive the same treatment. 

• Reduce legal risk. Employee handbooks provide transparency on discrimination, harassment, employee termination, and other legal requirements. This not only reduces the risk of lawsuits but also protects you if you’re sued, so long as you’ve followed lawful procedures.

• Offer easy onboarding. New hires can use an employee handbook to understand your business’s mission, policies, employee benefits, and more. This helps them settle in quickly and get answers to any questions they may have about your business’s work practices.

• Save time. With a comprehensive employee handbook, small business managers can save a ton of time when faced with employee issues. They can instantly refer to the handbook for guidance instead of spending valuable time trying to find a solution. 

How to Create an Employee Handbook for Your Small Business

Step 1: Include the essentials

The first step to writing an employee handbook for small businesses is to decide what topics it will cover. Below are the essential elements we recommend including. 

Company values and mission statement 

For your employees to be committed to your business, they need to relate to its mission, goals, and core principles. Prioritize these at the beginning of the handbook so that workers know how important these elements are and can access them easily. 

This first section should start with your company’s mission statement. Make sure your mission statement is clear, concise, and reflects the overall purpose of your business. It should inspire and motivate employees, customers, and other stakeholders. 

Next, you should outline your business’s core values and principles—for example, excellence, integrity, and innovation. Define each of these clearly, explain why they’re important to the company, and discuss how they’re reflected in daily operations. This way, employees know how they’re expected to display these values in their work. 

General employment policies and information

All employee handbooks for small businesses contain a general employment policies section. Here, employees can find critical information about employment practices at the business including: 

Hiring policies

Use this subsection to inform employees of the hiring process at your company, including the application process, onboarding requirements, and background check.

Additionally, use this space to explain what types of employment your business offers, such as at-will employment. This is when you or your workers are free to terminate the employment contract at any time without cause, and with or without a notice period.

Finally, this is a good place to discuss any probation periods for new hires. Discuss the duration of probation, plus whether or not they’re entitled to time off and benefits during probation. 

Working hours

Clearly define working hours for full-time and part-time employees. Remember to outline differences in employment status, benefits, and time off policies between the two. 

Breaks and meals

The law typically requires employers to provide workers with meal times and rest breaks during working hours. Your employee handbook should outline minimum and maximum times for breaks. You can also choose to specify how and when you want to provide these breaks—for example, halfway through a worker’s shift, or in staggered breaks so not all workers are on a break at the same time.

Additionally, be transparent about whether employees are paid during rest breaks. Also, clarify if they have any other restrictions, such as staying within a certain area or job site while taking their breaks.

Time off and leaves of absence

Employees should be clear on what their time off allowances are. This includes paid time off such as vacation time, sick days, bereavement leave, days off for jury duty, or personal days. 

Employees also need to understand the longer leaves of absence your business offers. These may include military leave, extended medical leave, sabbaticals, or parental leave. 

Make sure that you’re staying compliant with legal requirements on time off and absences as well. For example, some state laws require that you offer maternity leave if your business reaches a certain number of employees. 

Importantly, specify the permitted days for all the different types of time off long-term leaves, any restrictions on when employees can take them, and if leaves are paid or unpaid. 

Finally, this section should also include information on how to request absences, absence eligibility criteria, and the return-to-work process. 

Performance management procedures

Small businesses should include performance management processes and procedures in their employee handbook. This should cover performance expectations, promotion criteria, and the performance review and appeal process.

You should also explain your performance improvement process. Discuss what steps you take to get underperforming employees back on track and what issues could lead to employment termination. 

Safety and security procedures

Any employee handbook for small business workers will cover safety and security rules for workstations or job sites. This includes safety information about fire drills, evacuation procedures, and medical emergencies. Ensure that your handbook adheres to relevant regulations by the Occupational Safety and Health Administration (OSHA) and Workers’ Compensation regulations.

Moreover, security procedures could also cover data protection, password policies, and physical security measures, such as accessing secure areas.

Resignation and termination processes

Employee handbooks should provide clear guidelines on resignation and termination procedures. Employees need to know how to resign and what their notice period is. You can also include information on handovers, exit interviews, and the return of company property. 

For terminations, provide details about why contracts can terminate—for example, for misconduct, underperformance, or layoff.

Also include your business’s severance policy, including what severance pay they can expect, how it’s calculated, and the conditions for payment.

Finally, you can also use this section to tell employees how they can access employment reference letters or join company alumni.

Non-disclosure or confidentiality agreement

This is a topic you’ll find in any employee handbook template. Non-disclosure or confidentiality agreements prevent workers from sharing sensitive business information with external parties or using it for ‌personal gain. This may include trade secrets, business plans, customer data, or other private information. 

The handbook should state how long the non-disclosure agreement lasts, the consequences of breach, and any exceptions, such as when disclosure is required by law. 

Anti-discrimination and anti-harassment laws

This section of the employee handbook is required by federal law and aims to prevent discrimination and harassment at work. It should also meet all relevant state law requirements.

Clearly explain how your business defines discrimination and harassment, including prohibited behaviors. This could include sexual harassment, gender discrimination, racial discrimination, or other forms of discrimination and harassment.

The handbook should outline your business’s procedures for addressing discrimination and harassment. This should cover how to report complaints, what investigations take place, and what the consequences are for offenders. Plus, you could choose to discuss your business’s approach to training employees around discrimination and harassment at work.

Finally, if you’re an equal opportunities employer, this is a good place to highlight this. Discuss your approach to hiring, promoting, and compensating employees without discrimination. 

Code of conduct

This part of the employee handbook focuses on employee behavior and conduct within a business. Employees are expected to adhere to the rules laid out in the code of conduct. Ensure that you also highlight the consequences of breaking the code. 

Here’s what to include: 

• Professionalism: How employees should treat colleagues, customers, and others at work. 

• Dress code: What employees can and can’t wear on the job. Include any specific restrictions, such as operating doctors and nurses being restricted from wearing long-sleeved clothing or nail polish.

• Ethics: Company definitions and standards on dishonesty, fraud, and illegal behavior.

• Drugs and alcohol use: Rules around drug and alcohol use in and outside of work. Highlight the consequences of breaking the rules. 

• Use of technology: Rules relating to how employees use company mobile phones, work emails, the internet at a workstation or job site, or work-related apps.

• Social media policy: What employees are and aren’t allowed to post about your business or their jobs on social media. This could also include other restrictions, such as the business not tolerating employees posting hate speech or inappropriate comments on their social media accounts.

• Conflicts of interest: The company’s policy on situations where an employee’s personal or financial interests interfere with their ability to act in the best interest of the company. 

This should include policies on accepting gifts from customers, prospective employees, or vendors. It should also include your business’s stance on romantic relationships between employees or with customers or other stakeholders, plus the hiring of relatives, friends, former colleagues, or acquaintances. 

Further, it should cover the topic of employees having financial ownership in the company or employees engaging in activities that compete with the business. 

• Solicitation: Your business’s policy around solicitation of any kind, including bribery, trying to sell services to other employees or customers for personal gain, or poaching colleagues to a new company when employees move on. 

• Expenses and reimbursements: The process for claiming work-related expenses. Be specific about what counts as a work-related expense, like travel or training. 

• Reporting breaches: How workers should report any breaches of the company policy or code, and how these will be dealt with. 

Compensation and benefits

Employees will frequently reference the compensation and benefits section. It provides important information about employees’ pay and company benefits. 

In this section, cover how employees are paid—for example, hourly, daily, weekly, or monthly. You should also explain when employees can expect to be paid in the event of a holiday or other circumstances that might delay payment. For instance, if payday falls on a national holiday or weekend, workers will be paid the next business day.

Also, cover how wages are calculated—for example, how hourly employees should record their time and the pay rates for their work hours. Make sure to align with legal requirements such as minimum wage, overtime pay, and rest break policies.

You can also include the different payment methods available, such as direct deposits, checks, or pay cards. 

Further, outline what deductions employees can expect from their paychecks. These could be required deductions, such as federal and state taxes, or voluntary deductions for benefits like health savings accounts. Also, it’s crucial to mention if your business deducts pay for sick leave or other absences.

While you don’t need to list out the details of every benefit you offer, you should cover the basics. For example, specify what health insurance plans are offered, if dependents are covered, and when annual open enrollment takes place.

Similarly, lay out basic information on other benefits including paid time off (PTO), retirement plans, life insurance, gym discounts, and so on. This is a great way to let employees know what they’re eligible for and show off the on-the-job perks you offer.

Disciplinary and gross misconduct policies

Employers often need to resort to disciplinary action when employees violate company rules. The handbook should clearly outline what the disciplinary process is. Explain the investigation process and expected outcomes including verbal and written warnings, or termination in cases of gross misconduct.

Give examples of what behaviors count as gross misconduct, e.g., theft, drug use, discrimination, etc. Additionally, specify what termination due to gross misconduct means with regard to the notice period, references for future employment, and unpaid bonuses.

Disclaimer and signature

Include a disclaimer that states that the employee handbook isn’t a contract. This will prevent employees from suing you if handbook procedures aren’t upheld. 

You may also find an optional signature section in a sample employee handbook for small business workers. This is where employees can sign to acknowledge that they’ve received a copy of the handbook and read and understood it. Again, this helps protect the business in case an employee files a wrongful lawsuit under the pretense of not knowing company rules. 

Step 2: Ensure it reflects company culture

Your employee handbook is a great tool to showcase what your business stands for and what employees can expect from company culture.  

Use a tone of voice that matches your business’s identity, such as warm or formal. Also, craft your policies to align with company values. For example, you may show zero tolerance for discrimination but may be more lenient with your dress code. Adjust each section as you go so the handbook truly represents your business and its culture.

Step 3: Check that it’s compliant with labor laws

Employee handbooks that are written by human resources or business owners may benefit from legal review. This is because regulations vary by factors such as work location, number of employees, and types of workers. An attorney who reviews the document can ensure that it covers all relevant federal, state, and local laws. This helps protect your business in the event of a lawsuit. 

Step 4: Make it simple to read and easy to find

Be mindful of excessive jargon and other complex terms, especially if you’re using a free employee handbook template for small business owners that might include words and phrases your business wouldn’t use. Your handbook should be simple to read and easy to understand.

Moreover, make the handbook accessible. Consider storing it on a shared drive where employees can easily find it. 

Connecteam is a great app for storing and sharing important company documents. You can use it to store your employee handbook securely. What’s more, your workers will be able to access this from anywhere on their mobile phones. You can sign up for a free trial to test this and many other powerful operations, HR, and communications tools. 

Step 5: Publish it and review it regularly

Once you’ve had your handbook reviewed and decided where to store it, you can publish it for your employees to read. 

Additionally, we recommend that you have a designated owner or team to regularly review and update the handbook based on employee feedback and changing laws. 

Step 6: Use support—download our comprehensive sample handbook!

Creating an employee handbook can be overwhelming. Luckily, you don’t need to write one from scratch. You can look at other companies’ handbooks as a reference or ask a paid professional to write one for you. 

The most effective way to create a handbook, however, would be to use a free employee handbook template for small businesses. Download our comprehensive template below and simply customize it to your business’s rules and procedures.  

Summary

Creating an employee handbook is an important step for any small business. It helps set clear expectations for employees and ensures that you’re complying with local, state, and federal regulations. 

A good employee handbook will be comprehensive, covering employment information, compensation and benefits, discrimination and harassment policies, employee conduct, and more. It should be simple to read and understand, plus easy to access from anywhere. It’s also advisable to have an attorney review your employee handbook and assign a designated owner to update it regularly so it’s always aligned with legal requirements and business policies.

By creating an effective employee handbook, you can foster a culture of transparency and safety for your employees and protect your small business from legal risks.