Setting HR Policies

Linda Fang is the Principal Attorney at Banyan Legal Counsel, a law firm that supports businesses with employment law and business startup and expansion. In this guide she lays out what policies you should have in place for your employees in general, and how to to think about your processes around hiring, onboarding and offboarding employees, managing remote workers, protecting your company’s intellectual property, and more.

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Questions covered in this guide

At what stage do you need to get serious about formalizing HR policies and procedures?

Definitely by the time you have 5-10 employees – Five employees is a threshold for certain laws to kick in in some states. In general, it’s much easier to formalize policies and procedures in advance, rather than after problems have arisen.

As you establish policies, how do you memorialize them and make them accessible to employees?

The old paper handbook doesn’t work well anymore – People will not look at it or forget about it altogether, especially with many employees working remotely now. 

You can put together a “handbook” a lot of creative ways using technology. Companies should use whatever tools they are already using for internal communication, such as a shareable, living document in Sharepoint or a knowledge hub inside their company intranet. I’ve seen some companies create their handbook in Trello, where each policy or topic is a card or a board that can be updated frequently. My recommendation is to use whatever method you think your employees are actually going to use.

What are the types of policies that you need to set in your employee handbook?

Anti-discrimination Policies

Anti-discrimination, harassment, and retaliation policy – it’s important to have a statement upfront that the company does not condone these things and to set out a process for what happens if an employee has a complaint. There should be a short description of what each item is, along with examples, and it should be tailored to the workplace.

Where to go with complaints – this should be included in your anti-discrimination, harassment, and retaliation policy. You need to tell employees where they need to go if their direct manager doesn’t respond and how the company is going to investigate complaints.

Equal Employment Opportunity (EEO) – this can be adjusted to fit with the type of the company, or it can be more of a general statement. What needs to be included can also be dependent on your jurisdiction (e.g. some states have said it can be workplace discrimination to treat employees differently based on hairstyle or certain types of dress). Usually, an EEO statement will also go into your job descriptions.

Timekeeping and Time Off

Timekeeping policy – if you have hourly or time-based workers, you need to decide how time will be tracked and where and how employees will report the time that they work. For all employees, how will they ask for time off and how are they expected to let their co-workers know that they will be out?

Sick leave policy – this can differ based on the state or local jurisdiction where your company is located. If you have employees in a state that has a paid sick leave law, there are details that you will likely need to decide, such as whether employees will accrue sick leave or get it upfront, how much sick leave they can accrue and carry over at the end of each year, what sick leave can be used for, and other rules.

Vacation and holiday policies – employers typically have more freedom with vacation than they do with sick leave because, except for in a few areas, vacation is not regulated by law. However, that means that employers need to be very clear about what they are providing when it comes to vacation, including:
  • How vacation accrues – employees will want to know if they get days off in January or if they accrue vacation days as the year goes on
  • How vacation carries over – do employees get to carry over some or all of their vacation time or is it “use it or lose it”? An important caveat is that some jurisdictions require a payout of vacation days when employees leave the company and/or prohibit “use it or lose it” policies. 
  • Whether your company offers paid holidays

Paid or unpaid family and medical leave – generally, this is required if you have 50 or more employees, but some states now have paid family and medical leave. If your company falls into these groups, you will need a policy that lets employees know who’s eligible, for what purposes, how much time off they may get, and whether or not it’s paid.

Benefits

Health, retirement, and some other benefits plans are regulated by ERISA  
  • Make sure you communicate the terms of your plan accurately – if you’re summarizing these benefits in an offer letter or an employee handbook, make sure that you’re representing the terms accurately because you can run into problems if what you say is different from the plan. 
  • Be sure to apply the plan to everyone equally – one benefit of health and retirement plans is that employers can get a tax deduction for what they pay into them, but if you violate the plans or discriminate against certain employees, you could jeopardize the tax-deductible status of your plans.

Workplace policies

Workplace conduct – this is also another area where you can inject some of your workplace culture. This section should include a description of what’s acceptable and not acceptable in terms of employee conduct. If a company has a progressive discipline policy, such as “we want to give everyone a chance to improve so we really believe in giving verbal warnings first, followed by write-ups, followed by performance improvement plans,” that can be included here.

Other policies specific to your company type – this depends on the individual workplace and may include things like a vehicle policy, employee credit card policy, background checks (including drug testing), expense reimbursement, and the like.

What policies and procedures should you set up around hiring new employees?

Make sure you’re registered as an employer in states where you have employees – generally, you need to be registered in the states where you have employees. Registering as an employer in a new state may involve registering the company to be an employer in the jurisdiction and it can also involve registering the company to do business there. There can be tax and licensing requirements in addition to the registration requirements.

An offer letter is highly recommended – some states and localities require employers to give written notices to all employees. An offer letter generally is not required, but with increasing employment regulations in many states and localities, it can be very helpful to have a document that makes sure both the employer and employee are on the same page about key details, such as compensation, benefits, start date, job title, job duties, supervisor, and other essential information. Having an offer letter can mitigate issues and disagreements with employees.

Establish a plan for when and how bonuses or commissions are earned – commissions and bonuses are the subject of employment disputes maybe even more often than salary. It’s important to define exactly when a bonus or a commission becomes earned or it’s completely at the company’s discretion. Some jurisdictions require commission plans to be in writing and signed by the employee and in some cases once a commission becomes earned, the company must pay it, even if the employee is no longer employed with the company.

You may want a confidentiality agreement (especially in tech) – sometimes called a confidential information and invention assignment agreement or a company proprietary rights agreement, this deals with information that the company wants to protect or make sure it owns.

If you run a background check, provide FCRA-compliant forms before running the check – there are certain disclosure and authorization documents that must be provided to an employee or applicant before you can run a background check. In some states, you can’t even ask about an applicant’s criminal history until after you have extended a job offer. If something shows up on the background check and you decide not to go forward with the hiring process (or you decide to terminate an existing employee), there are additional forms and requirements.

What policies and procedures should you consider to protect your company’s IP and human capital?

There are several types of IP-related agreements you might ask an employee to sign:

Confidentiality agreements – this is mentioned above.

Non-compete agreements – these prohibit an employee from going to work for a direct competitor or starting a company that directly competes with yours. Some states don’t allow these or place limits on the types of employees who may be covered by them, so you’ll want to check the rules in your jurisdiction.

Non-solicitation agreements – these prohibit former employees from taking your workers and customers. Some states also place limits on how these may be used.

Be careful and specific with these types of agreements – if you use these agreements, be sure to check that they are permitted and enforceable, e.g. California and some other jurisdictions don’t allow non-competes, and other states only allow them if the employee makes a certain amount of money and/or the scope of the agreement is reasonable.

Be selective about who you ask to sign – only use non-compete agreements for employees who have access to the most sensitive information at your company. 

Be specific about the details of the agreement – one of the biggest mistakes companies make with non-competes is they use very generic language. Try to be as specific as possible about who your former employees cannot go to work for, for how long, and why.

Be mindful of potential penalties for overzealous agreements – if your agreement violates the rules in the jurisdiction where your employee is sitting, you could subject yourself to penalties and/or lawsuits.

Non-competes are a good place to involve a lawyer upfront – a lawyer can help make sure that your agreements are legal and enforceable. It makes sense to think about this earlier rather than later because you can usually ask a new employee to sign a confidentiality agreement and a non-compete without paying them anything extra. If you don’t think about it until after a key employee has started working for you, you may have to pay them to get them to sign.

What policies and procedures should you set to manage departing employees?

Create standard procedures for offboarding departing employees, including:
  • Removing their access to your systems
  • Returning company property (e.g. laptops)
  • Participating in an exit interview, usually conducted by HR or someone other than the employee’s supervisor

When letting go of employees for any reason, it’s very important to document – document how you trained the employee, any performance issues that arose, and conversations you had with the employee. Make sure you document everything at the time it happens because if there’s ever a dispute or litigation, you’ll want to be able to show all of the issues that occurred with the employee. This is especially important with so many people working remotely right now.

Don’t skip your departing employee process for resigning employees – there’s a common misconception that if an employee resigns, then there are no issues. However, it’s important to understand why an employee resigned – if they were unhappy or if they felt like they were forced out. An employee can still sue for a wrongful termination based on a “constructive discharge,” which means that the employer made the work environment so hostile that the employee felt that they had no choice but to resign. Understanding why an employee may be leaving can be the key to retaining other employees.

Severance can be used to ensure that an employee will part ways amicably – if you want to pay severance to a departing employee, it’s important to ask them to sign a release agreement, which is an agreement that they will not sue the company for anything that happened during their employment. There are no laws that require an employer to pay severance, but there are laws that govern the release agreement, so this is another area where it’s important to get an agreement drafted by an attorney.

Be prepared to pay an employee’s final paycheck on their last day – in some states, such as California, you have to give the person their final paycheck at the time you let them go unless you give them at least three days’ notice. You will need to plan ahead if you’re in a remote work situation because it can take time to figure out their final paycheck and cut a check

What health and safety policies should you consider, especially related to COVID-19?

Keep track of evolving federal and local rules – monitor the evolving laws around vaccination requirements and indoor masking requirements for companies of your size.

If you’re at least partially back to work, have written COVID policies:
  • Exposure plan – in the event that someone in your workplace tests positive for COVID, or came into close contact with someone with a confirmed infection, what actions would you take? Do you need to report the positive case to public health authorities or OSHA?
  • Health safety policy – be aware of the new workplace conduct standards? How should an employee handle a customer who refuses to wear a mask or verify their vaccination status? What are the distancing and cleaning protocols that still need to be followed?
  • Return to work – will you fully or partially ask your employees to return to the office in person? How are you going to be calling people back and, in a hybrid work environment, how will you make sure you’re treating in-person and remote employees consistently?

It’s best practice to have a single COVID contact – this makes it simpler for employees to know who to notify if they find out they’re positive, need time off, or want to report a health and safety concern.

If you have remote workers, what policies and agreements should you establish?

Have a remote policy that requires your employees to tell you where they are – it may seem obvious, but it’s important for companies to know where their employees are working, whether it’s from the office, from home, or from a different state. This is important for legal and compliance purposes, but also because of workplace injuries, knowing where your company’s data is being accessed for cybersecurity reasons, and a host of other reasons.

Be clear about your expectations and work boundaries – talk to employees about what their remote work needs are so you can make sure they have everything they need and so they’ll know when they’re expected to be on the clock and available to work. Also talk about how your employees can set boundaries. When working from home, it can be hard to know when it’s okay to stop working and step away. Put these details in writing and communicate about them on a regular basis.

How should you think about when to spell out a clearly-defined policy, and when to have a “no rules” policy that leaves employees more freedom to exercise judgment?

Companies that have spent a lot of time around culture and training can have looser policies – especially if you have clear methods of communication and employees feel comfortable providing feedback. As your workplace culture and communication get stronger, you can start to shave away some of the unnecessary details.

In a typical workplace (especially a new one), more guidance is good – clarity makes for better compliance, and employees like to know what’s expected of them. For example, unlimited PTO may sound amazing, but it assumes that the employee understands a number of things about the culture, and studies have shown that most employees with unlimited PTO take less time off than employees with a set PTO amount. Simply saying that “we trust you to take PTO when you need it” doesn’t tell the employee anything about the company’s expectations. 

When is it important to consult an employment lawyer, and when can you afford to work off of templates and established best practices?

Non-competes and severance agreements – as mentioned above, these are areas that tend to be heavily regulated and you don’t want to do things wrong.

If you’re willing to be really thoughtful and diligent, you can do a lot yourself – if you’re willing to do research, think about cases that could come up, and plan for how your company will operate, you can put together a lot on your own.

If you want to be hands-off, an employment lawyer can help put better policies together – pulling a document from the internet won’t tell you whether it’s up-to-date or compliant with the rules of your jurisdiction. If you want something “one and done,” an employment lawyer can do that for you.

How widely does employment law vary from state to state? How should you set policies that work in multiple states if you have a widely-distributed employee base?

Unfortunately, employment law is highly variable based on the laws of different states – and even some cities are coming up with their own employment laws. Even if you are familiar with federal employment laws, there may be additional state and local laws that provide stricter rules. Make sure you understand the laws of your jurisdiction.

Big companies have only one policy for all U.S. employees; why can’t I? – yes, companies like Amazon and Google may have one policy. That’s because their rules are generous enough that they comply with the laws of every state and locality where they have employees. Most small businesses can’t afford to do that, so they have to follow different rules for employees in different jurisdictions.

If you’re a startup providing minimum benefits, you’ll need a different addendum for each state – generally speaking, depending on where your employees are located, you’ll need to have different policies for employees in different states.

What are the most important pieces to get right?

Document everything that you’re doing, as you do it – when hiring, use an offer letter. When forming policies, document them in your handbook. When you start thinking about firing an employee, document the path that led to that decision.

In the current era of remote work, remember that tone matters – when writing an email or shooting off a Slack message, don’t forget that things don’t always come across the same way in writing as it would if you were in person. If you have employees working remotely, take a pause before you communicate to make sure what you’re trying to convey comes across the way you mean it to.

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