How to decide on HR policy for your small business

An HR policy sits alongside your marketing strategy and financial policy when it comes to day-to-day operations. But it’s so much more than just a set of rules and regulations, it’s a document which defines your business

An HR policy is often perceived as being a collection of rules and regulations, and sometimes, a disciplinary stick with which to threaten employees.

However, correctly written, an HR policy can help define the very DNA of your business, inspiring staff as to what they are working towards.

What is an HR policy?

An HR policy sits underneath the company’s reason for being, alongside the marketing strategy and financial policy. HR procedures sit underneath the HR policy in order to support the business.

An HR policy ensures employees know what’s required of them inside the business and helps ensure everyone is working within those guidelines.

In short, an HR policy is really a guide as to how a business can achieve its goals.

It covers two core areas: managing business risk, such as data protection and privacy issues, health and safety or working from home; and how to help employees do their job, whether that’s managing absence, days off sick, holiday entitlement or ensuring business continuity.

Karen Watkins, founder of specialist SME HR consultancy Rowan Consulting, says: “I hate the word policies and procedures. Policies and procedures convey the idea that we’re going to smack your hand if things go wrong, which puts a lot of people off.”

In truth, there’s no such thing as a single HR policy. Really, it’s a whole series of issues, each of which has its own policy, coming under an HR policy umbrella, most of which are contained in a staff handbook.

Think of an HR policy as being bundled together from many different sources. Your staff handbook could contain 30-40 different such policies.

An HR policy is an umbrella term that includes existing legislation on areas such as:

  • Recruitment
  • Payroll
  • Equal opportunities
  • Diversity
  • Rewards and benefits
  • Grievances
  • Employee relations
  • Maternity leave
  • Working from home
  • Disciplinary
  • IT systems
  • Data and privacy
  • Data protection
  • Terms of employment
  • Holiday entitlement

Watkins says: “The whole HR industry is built around how robust are our policies and procedures, yet they’re the furthest thing from any small business owner’s mind. These people are entrepreneurs. They think and they’re creative. It should be called, ‘How do we run our business’? That’s really what we’re talking about.”

For example, HR policies formulated during Covid were tweaked to help staff function in our “new normal” – such as data risk when remote working from an internet café and protecting client data on your own device – reflecting how our working lives have changed post pandemic.

When it comes to HR policy, says Alison King, managing director of Bespoke HR, “get the basics right, do them well, and you can build up as you go along”.

It’s easier to add to your HR policy rather than change things already set in stone. So start with the basics and bolt on.

Donna Obstfeld, founder of DOHR, compares a business which doesn’t have an HR policy to a balloon with a slight tear in it. At first, you don’t notice it. It’s only when the business grows and something goes wrong, air escapes and the whole balloon deflates.

>See also: A guide to outsourcing HR

How do I go about writing my own HR policy?

Many small business owners are put off establishing an HR policy because of what they perceive as the amount of work involved. But it’s not that difficult, although you do have to be careful – particularly when it comes to issues around employment contracts.

The first question you should ask is, what is your small business trying to achieve? What is it you trying to do?

The most important thing to bear in mind is what happens when your business grows? You need to have all the basics in place but not every single thing. You can always add to your HR policy in the future.

Before you start and tie yourself in to obligations, which may have to untied later, think deeply first, explains Watkins. Many business owners, wanting to be generous, over compensate from the start, as opposed to what the bare minimum – which can create problems.

Says Watkins: “Think about what you want it to deliver for you. It’s not a pic ‘n’ mix and it’s not one-size-fits-all.”

>See also: 6 HR software tools you can use for small business

But I don’t need an HR policy, do I? I just employ family members and friends

Many family businesses employ relatives or best friends, and therefore owner-managers feel they don’t need anything written down – this is just between friends, right?


HR becomes increasingly important as you grow and have expectations of your staff or want to promote a company culture.

And you absolutely need to have a written-down staff policy, especially if you’re employing family members. You still have a responsibility to protect their employee data, as well as customer data, regardless of how well you know them or the size of your business.

Just doing things on a nod and a handshake may seem the easiest thing to do at the time, but it’s crucial to have a written employment contract or staff handbook when things do go wrong.

For example, before the Covid-19 pandemic and the launch of furlough, many companies hadn’t issued staff contracts, leaving everything unwritten, which created problems when trying to claim furlough from the Treasury.

“Just leaving things unsaid or unwritten can come back and bite you,” says King. “When things go wrong, it can get quite messy.”

Obstfeld has come across plenty of examples of families and friends tearing themselves apart because everything was either left unspoken or was based on a verbal agreement.

Obstfeld says: “As with any kind of insurance, it’s only a problem when it becomes a problem. And that problem only occurs when if somebody does something wrong or somebody takes you to an employment tribunal and you have to rely on your HR policy.

“We’ve seen examples of companies with one or two employees who don’t have any kind of written-down HR policy who have left themselves wide open. There’s no buffer or leeway if there’s an employment case against them.

“Unfortunately, it’s when those relationships go bad that there can be the most trauma. I’ve seen brothers in law rip families apart because there’s no director service agreement or shareholder agreement. In some cases, when you’ve got a partnership between a husband and wife, it’s about the whole foundation of the business collapsing. There’s no documentation about how the business would continue if the partners split up or how things would be divided.”

>See also: Top 10 HR tips

Is there a minimum number of employees you need for an HR policy?

No, you should have a policy in place the moment you hire your first employee because it sets the tone, especially if you want to grow your business.

Having an HR policy in place starts you off on the right track from the very beginning.

The first thing that an employer needs when taking on an employee is write an employment contract. That contract of employment becomes your mandate to manage because both you and your employee has signed it. It must include all the things that you’re going to provide, such as which days they are employed, working hours, where are they expected to work, how much annual leave they are entitled, and their salary.

The employment contract could be just the bare minimum, or it could include some of the key HR policies in there. You don’t need a massive staff handbook if you’ve only got one or two employees.

>See also: 7 of the best HR consultancy companies in the UK

What if I want to write my own HR policy? Where can I find information?

If you’re planning to write your own staff handbook, the website of conciliation service Acas is a good place to start, which has lots of sample policies and best practice examples.

Other places to look if you’re creating your own staff handbook are the government’s own website, Enterprise Nation and the website of the CIPD, the organisation for HR professionals. And Small Business also has its own HR section.

Banks and insurance companies are also a useful resource for HR policy templates.

The employment contract could contain all the major statutory provisions, such as statutory leave, statutory sick pay, statutory maternity policies, and you can add in passing that all other statutory provisions apply.

“But we find that a lot of employers don’t actually understand what the word statutory means,” says Obstfeld. “What it means is the minimum and often they want to be more generous.”

One thing to bear in mind is that if you’re getting stuff online, you’re given the minimum barebones benefit.

What people pull off the shelf is the bare minimum, not accounting for part-timers or employees who have different religious holidays, whether it’s Eid for Muslim workers or Hanukah for Jewish staff.

Obstfeld adds: “What we find is that a lot of employers want to do something more generous than statutory requirements, but having written it themselves they don’t have a policy which allows them to do something different.”

Should my HR policy have a mission statement?


The easy part is creating a pic ‘n’ mix handbook about the legislation side, the hard part is communicating your company ethos, defining the essence of your business.

Obstfeld says: “To me, that’s really important. I come from a business perspective rather than a legal perspective. Quite a lot of handbooks will tell you about things from a legal perspective. We talk about a company culture, what it’s like to actually work here, what our values are, how do we recruit staff to those values, how do those values go through every single thing that we do? Some companies never think about this. It’s never been verbalised, never been communicated.”

Your handbook should state a message from yourself about what your values should be. Remember that you are the captain and the one who steers the ship. It’s the stuff you hang your hat on and what you believe in.

But do keep your corporate values simple and only have 3-5 of them. Don’t overcomplicate the message.

What are the dangers of writing your own HR policy?

King says many small business owners wrongly assume establishing an HR policy is more complicated and onerous than it actually is. Often, complications happen when they try to write the staff handbook themselves.

When you download information from the internet, it can be highly onerous and unnecessary. The danger is that you can potentially overcomplicate and place unnecessary rules around your business. You don’t need to list every single policy. You need them to fit your business. One size really does not fit all.

When you’re formulating an HR policy, think about the problems your business actually faces – whether it’s poor internal communication or high staff turnover, or a history of data leaks – and have your HR policy address them.

The most common problem with a self-written HR policy handbook is that a single sentence can blow up in an owner’s face.

Writing your own HR policy becomes especially dangerous when it comes to employee contracts and owner-managers have not fully understood clauses or terms.

And if you do download sample policies from the internet, the danger is if you leave things out or change them, you could unwittingly be breaking the law.

Generally, companies will make a change which makes an HR policy illegal or they’ve pulled something off the internet that is so incomprehensible that that they don’t understand what it is they’re applying and try to change it, putting them in breach.

What are the advantages of having an HR professional write your staff handbook?

Employing an HR professional to write your staff handbook could actually save you money, for the reasons mentioned above. It’s difficult to undo things already written down. Once you’ve issued your self-written staff handbook, it’s too late.

>See also: Outsourcing HR v inhouse HR management

How often should a staff handbook be updated?

Legislation changes all the time, either because of new legislation going through parliament or because of case law. Employers need to change their policies and procedures regardless of the number of employees they have.

“Most employers won’t know the law has changed until they have a problem,” says Obstfeld. “How can small business owners keep up with changes is always a challenge.”

What’s more important than simply updating statutory legislation, which changes every two or three years, is how your company culture itself has changed.

For example, over the past couple of years, many small businesses have had to completely change their working-from-home policy to enable flexible working and what that means for IT policy.

So when it comes to writing an HR policy, remember it’s more than just keeping up with changes in employment law – it’s a tool for defining the very purpose of your business.

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...

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