Keys to Creating an Effective Employee Handbook

A new hire reviews chapter from the employee handbook

An employee handbook is a written resource, whether print or digital, that formalizes those policies for every employee to reference. Major sections include details of all required company policies, a code of conduct and information about benefits and compensation.

Most companies have policies or procedures governing their employment practices, but they're sometimes maintained informally. This can lead to inconsistent application and confusion about employer and employee rights and responsibilities. A handbook formalizes those policies so that employees have a written resource to reference.

What is an employee handbook?

An employee handbook is a written resource that documents organizational policies. It may be offered in a printed or digital format, but in either case, it gives employees something to look to when they have questions about the organization's policies. Supervisors should give the handbook to all new employees during onboarding and refer to it whenever policy questions arise.

This resource typically covers:

  • Welcome statement and company background
  • Code of conduct
  • Required company policies
  • Benefits and compensation
  • Paid time off, sick time and vacation policies
  • Acknowledgment form

Why is it important to have an employee handbook?

When an organization first gets going, leadership might not have developed a formal handbook yet, relying instead on ad hoc decisions as issues come up. But it's essential as the company grows to make sure any policies are consistent.

The handbook is a resource for everyone in the organization that can answer common questions and give guidance on usual situations, such as the procedures for tracking your time or the cybersecurity measures you need to take. The policies in this document also tend to convey the company's values and culture. For example, a handbook might include a code of conduct to establish how employees are expected to treat each other.

Handbooks should be easy to access and consistent because it's important for all employees to have the same information about the organization's policies. This can save your HR team from answering the same questions repeatedly. It also empowers employees to handle straightforward issues in the workplace on their own.

Keep in mind that a handbook isn't static. It is a living document that evolves to reflect changing policies and organizational needs. Even if you already have one created, it's a good idea to update it periodically to ensure it still meets your needs and reflects your business accurately.

Sections to consider for your handbook

While there are suggestions for what to cover in an employee handbook, there are no hard rules for what must be in one. But most cover these key areas:

Welcome statement and company history

Handbooks present an opportunity to share the organizational vision with everyone. Many employers include a welcome statement that discusses those points along with a brief history. This background detailing the company's core values and general positions can set the tone for better understanding the policies.

Code of conduct

A code of conduct statement sets the foundation for a healthy, safe and respectful work environment. Beyond expressing the sentiment of playing nice, a code of conduct statement is often a reflection of the company's mission, values and culture. It can lay out the expectations for employee behavior when working internally and externally.

The code of conduct might address areas such as honesty, equity, inclusion, conflict of interest, compliance with the law and responsible use of technology, including social media.

Required company policies

While employers don't have to have a written handbook, they are subject to laws requiring them to maintain certain policies in writing. For example, a growing number of jurisdictions demand a company have policies on harassment, discrimination, leave of absence and other time off as well as workplace safety and health rules.

In addition, some state and local laws require that employers maintain a handbook to include certain information. For instance, Colorado requires employers with an employee handbook to include a copy of the Colorado Overtime and Minimum Pay Standards (COMPS) Order (or poster). As you create or update your handbook, be sure to review any required policies that apply to your business and include them.

Even when there isn't a specific requirement, certain policies are essential for conveying important information. Some examples include:

  • A prominent at-will-work statement at the beginning of your handbook (except in Montana, where at-will employment is not recognized). This statement reiterates that aside from certain exceptions, either you or the employee can terminate the employment relationship at any time and for any reason.
  • Employment classifications
  • Meal and rest periods
  • Timekeeping and pay, including overtime
  • Work hours and expectations for punctuality and in-person attendance
  • Employee conduct and types of behavior that might lead to disciplinary actions
  • Anti-harassment and nondiscrimination
  • Leave of absence
  • Workplace safety and health
  • Workers' compensation
  • Cybersecurity
  • Privacy

Benefits and compensation

Benefits include all non-monetary perks a company offers to employees, while compensation includes salary and any other monetary perks. Together, benefits and compensation are summated into total compensation, an amount that is usually much more significant than the base salary.

Outlining the components of benefits and compensation can be an effective tool to recruit and retain employees. Commonly offered benefits include health, vision, dental, life insurance and retirement.

Flexible, hybrid and remote work schedules are also becoming increasingly popular. Other ancillary benefits that can be attractive to employees include flexible spending accounts, payroll advances, educational assistance, family and medical leave, pet insurance and commuter benefits.

The handbook can outline additional opportunities for compensation, such as bonuses, awards, stock options, commissions and gifts.

Paid time off, sick time and vacation policies

Although paid time off (PTO), sick time and vacation policies fall underneath the benefits umbrella, companies sometimes group these three separately. The handbook should be clear about these policies, including what situations PTO covers, how much PTO, sick and vacation time the company offers, how employees accrue the days off and if employees can roll over unused time. The handbook should also outline any procedures for taking this time off.

Acknowledgment form

Each employee should be required to sign and date an acknowledgment stating that they're responsible for reading, understanding and complying with the handbook. You might also consider including a statement reinforcing the at-will employment relationship. Explain that the handbook is not an employment contract, management retains the right to interpret policies and the company reserves the right to revise the handbook at any time.

What to do once you've created the handbook

Ask a small cross-section of people within your company to assess the draft handbook and acknowledgment form for clarity, fairness and tone. Then, consider having legal counsel review your handbook for compliance with all applicable laws.

As you're building your employee handbook, develop plans for training supervisors on how to interpret and apply the policies, introducing and distributing the handbook to employees and reviewing and updating the handbook as laws or company practices change.

Learn more

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