Human resource policies are the formal rules and guidelines that businesses put in place to hire, train, assess, and reward the members of their work force. These policies, when organized and disseminated in an easily used form—such as an employee manual or large postings—can go far toward eliminating any misunderstandings between employees and employers about their rights and obligations in the business environment. "Sound human resource policy is a necessity in the growth of any business or company," wrote Ardella Ramey and Carl R.J. Sniffen in A Company Policy and Personnel Workbook. "Recognition of this necessity may occur when management realizes that an increasing amount of time is being devoted to human resource issues: time that could be devoted to production, marketing, and planning for growth. Effective, consistent, and fair human resource decisions are often made more time consuming by a lack of written, standardized policies and procedures. Moreover, when issues concerning employee rights and company policies come before federal and state courts, the decisions generally regard company policies, whether written or verbal, as being a part of an employment contract between the employee and the company. Without clearly written policies, the company is at a disadvantage."

It is particularly important for small business establishments to implement and maintain fairly applied human resource policies in their everyday operations. Small businesses—and especially business startups—can not afford to fritter away valuable time and resources on drawn-out policy disputes or potentially expensive lawsuits. The business owner who takes the time to establish sound, comprehensive human resource management policies will be far better equipped to succeed over the long run than will the business owner who deals with each policy decision as it erupts; the latter ad hoc style is much more likely to produce inconsistent, uninformed, and legally questionable decisions that will cripple—or even kill—an otherwise prosperous business. For as many small business consultants state, human resource policies that are inconsistently applied or based on faulty or incomplete data will almost inevitably result in declines in worker morale, deterioration in employee loyalty, and increased vulnerability to legal penalties. To help ensure that personnel management policies are fairly applied, business owners and consultants alike recommend that small business enterprises produce and maintain a written record of its HR policies and of instances in which those policies came into play.


Small business owners should make sure that they address the following basic human resource issues when putting together their personnel policies:

In addition, a broad spectrum of other issues can be addressed via human resource policies, depending on the nature of the business in question. Examples of such issues include promotion policies; medical/dental benefits provided to employees; use of company equipment/resources (access to Internet, personal use of fax machines and telephones, etc.); continuity of policies; sexual harassment; substance abuse and/or drug testing; smoking; flextime and telecommuting policies; pension, profit-sharing, and retirement plans; reimbursement of employee expenses (for traveling expenses and other expenses associated with conducting company business); child or elder care; educational assistance; grievance procedures; employee privacy; dress codes; parking; mail and shipping; and sponsorship of recreational activities.


Small business owners who have prepared and updated good personnel management policies have cited several important ways in which they contribute to the success of business enterprises. Many observers have pointed out that even the best policies will falter if the business owners or managers who are charged with administering those policies are careless or incompetent in doing so. But for those businesses that are able to administer their HR policies in an intelligent and consistent manner, benefits can accrue in several areas:

Curbing litigation. Members of the legal and business communities agree that organizations can do a lot to cut off legal threats from disgruntled current or ex-employees simply by creating—and applying—a fair and comprehensive set of personnel policies.

Communication with employees. A good, written human resource policy manual can be an enormously effective tool in disseminating employer expectations regarding worker performance and behavior.

Communication with managers and supervisors. Formal policies can be helpful to managers and other supervisory personnel faced with hiring, promotion, and reward decisions concerning people who work under them.

Time Savings. Prudent and comprehensive human resource management policies can save companies significant amounts of management time that can then be spent on other business activities, such as new product development, competitive analysis, marketing campaigns, etc.


Companies typically have to make revisions to established HR policies on a regular basis, as the company grows and as the regulatory and business environments in which it operates evolve. When confronted with the challenge of updating HR policies, however, it is important for small businesses to proceed cautiously. For example, if an employee asks the owner of a small business if he might telecommute from his home one day a week, the owner may view the request as a reasonable, relatively innocuous one. But even minor variations in personnel policy can have repercussions that extend far beyond the initially visible parameters of the request. If the employee is granted permission to work from home one day a week, will other employees ask for the same benefit?

Does the employee expect the business to foot the bill for any aspect of the telecommuting endeavor (purchase of computer, modem, etc.?) Do customers or vendors rely on the employee (or employees) to be in the office five days a week? Do other employees need that worker to be in the office to answer questions? Is the nature of the employee's workload such that he can take meaningful work home? Can you implement the telecommuting variation on a probationary basis?

Small business owners need to recognize that changes in HR policy have the potential to impact, in one way or another, every person in the company, including the owner. Proposed changes should be examined carefully and in consultation with others within the business who may recognize potential pitfalls that other managers, or the business owner himself, might not detect. Once a change in policy is made, it should be disseminated widely and effectively so that all employees are made aware of it.


Armstrong, Michael. Handbook of Human Resource Management Practice. Kogan Page, 1999.

Green, Paul C. Building Robust Competencies: Linking Human Resource Systems to Organizational Strategies. Jossey-Bass, 1999.

Johnston, John. "Time to Rebuild Human Resources." Business Quarterly. Winter 1996.

Koch, Marianne J., and Rita Gunther McGrath. "Improving Labor Productivity: Human Resource Management Policies Do Matter." Strategic Management Journal. May 1996.

Ramey, Ardella, and Carl R.J. Sniffen. A Company Policy and Personnel Workbook. Oasis Press/PSI Research, 1991.

Reece, Barry L., and Rhonda Brandt. Effective Human Relations in Organizations. Houghton Mifflin, 1993.

Roberts, Gary, Gary Seldon, and Carlotta Roberts. Human Resources Management. Washington, D.C.: Small Business Administration, n.a.

Rossiter, Jill A. Human Resources: Mastering Your Small Business. Upstart Publishing, 1996.

Ulrich, Dave. Delivering Results: A New Mandate for Human Resource Professionals. Harvard Business School Press, 1998.

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