he president of a large company was quoted as saying, "We've done away with our personnel manual. It got us into more trouble than it was worth." While most Human Resource Directors and corporate CEOs understand why policies, procedures, and forms are necessary to effectively operate any organization, there are a few who establish these because "that is the way it has always been done." At the same time, there are many attorneys who will tell you that policies and procedures only place the company in situations loaded with liabilities because no policy manual can be without implied contracts.

• There are no endeavors without risk, but in personnel management, risk must and can be diminished. The major points for establishing policies and procedures are:
   
• In the absence of policies, past and present activities become policy. Since many of these practices are or can be discriminatory (because of a lack of consistency), the company is in greater danger of law suits and claims with government agencies than if they had carefully spelled out the company's expectations of the employee.
   
• The contractual nature of policy manuals can be lessened considerably by providing management with sufficient discretionary powers to act in a number of ways under similar circumstances.
   
• There is as much danger in saying too much as too little. What a handbook should do is to provide the most positive way of maintaining management discretion while firmly communicating mutual expectations. Manuals which are more than 50 pages long are probably replete with implied contracts. Further, they call for more frequent updating than policies which have left sufficient discretionary powers to give leeway in various situations.
   
• Many policies and forms can and should have attendant disclaimers which articulate the rights of the employer and the obligations of the employee.
   
• The employee deserves to know what is expected of him/her and what he or she can expect in return. Since job satisfaction is based upon rewards and expectations, it only makes sense to establish "benefits" and disciplinary policies.
   
• By establishing well-written policies, the company can expect that supervisors and managers will (if properly trained) take approximately the same course of action in similar circumstances.
   
• Until the laws and labor codes in the U.S. catch up with the realities of the workplace in the 2000s, reduction of liabilities through structure and direct communications of rights and obligations are still best disseminated through a handbook.

When To Have An Employee Handbook: In previous writings, I have spoken about why most companies should have an employee policy and procedure handbook. When to have such policies in a formal manual is another question.

Many states have laws and labor codes pertaining to companies with just one employee. In most states with labor codes for example, all "wage orders" (e.g., hours of work, overtime, physical working conditions, and wages) apply to companies with just one employee. This is also true of the federal Fair Labor Standards Act. So, should you have an employee handbook for yourself? Of course not.

How about a company with 100 employees? Absolutely.

Fifty? Twenty-five? Well, we know that the number is between two and 100, right?
 

A well written employee handbook can and should reduce the company's liabilities based on misunderstandings of expectations.


The question to ask, then, is, "At what point does the company have sufficient employment liabilities to warrant an employee manual?"

Your employment liabilities start when you hire your first employee, but that doesn't justify a manual. It does justify some written policies, at least in the form of formal memos on company letterhead - signed for by the employee. The following policies should be included in memo form for your first employee: at-will employment, hours of work and attendance, holidays, vacations, sick leave if any, payroll deductions, and paydays.

An at-will employment policy makes most small business owners very nervous, but it is still a good idea to have one. Further, I strongly suggest having a job description written, however informally, defining the responsibilities of the position.

Judging from labor codes, a more complete and more formal handbook is warranted when the company hires its fifth employee. It is at this point that Fair Employment and Housing or EEO laws "kick in" including, in at last five states, maternity leave laws. Once a company has to have a policy regarding maternity leave, it must also have policies regarding the four to six other types of leaves since most are dependent upon the others.

There is no question but that at 15 employees, an employee handbook is a must: federal Civil Rights, Americans with Disabilities, and Pregnancy Leave Acts all apply to companies with 15 or more employees. So the answer to the question is that a formal employee handbook is desirable at five, essential at 10, and imperative at 15 employees.

Remember, however, that the reasons why a manual is necessary, i.e., to communicate the policies of the company, are more important than when. And the overall reason is to reduce your liabilities through misunderstandings of mutual expectations.