We talked to Katie Evans-Reber and Steffi Wu of Gusto (YC W12) about their new guide on how to create an employee handbook. You can download it here.

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Craig Cannon: Why do you think so many companies don’t have an employee handbook?

Katie: In my experience, it unfortunately becomes a lower priority, given all the other things that have to happen in a busy startup. And there’s a misconception on when you actually need one. There’s a trade off between when you actually need it, versus when you actually have the time to do it. Very often, startups won’t get their first HR person with a lot of HR experience until maybe around employee 100.

Craig: So when would you suggest people do it?

Katie: You could start off with a super basic handbook as early as 25 employees. Workplace rules and policies are not even the most important part of it. The most important part is documenting your culture as it’s evolving and your handbook is a really great place to do that.

Craig: Why do it at 25? Why not do it at one person?

Katie: You could definitely do it as one person, but maybe you don’t exactly know what your culture is until you’re at 25 people or 25 plus people. Your values are probably still evolving at that point and your focus is really on getting something tangible into the market to make sure that you even have a startup that will be viable past 25 people.

Craig: Got it. So what are the things companies should start thinking about in the early stages?

Katie: We pulled tips and advice together in our guide to creating an employee handbook. You need to ask yourself why you need this handbook – what are you trying to accomplish? Are you trying to simply lay out when people should come into work in the morning and what your PTO policy is? Or are you actually trying to document your values and culture? There are two really different ways you can go about it.

At Gusto we believe company values are important, so we recommend that you start off your handbook in the way that we’ve presented in our template: explaining why it’s important, why you should be reading it, and what the values and motivations are behind it.

Craig: So what are your pro tips for defining your values?

Katie: I think you need to understand what, as a founder, your motivations are for starting your business and then spend some time defining what the company means to you. Then, as your culture evolves, as you grow, you might have to revisit those values. But make sure that you start out with the core four or five things that are really important to you.

Steffi: I would add that it’s different for every company. We never say, “Hey, this is what your values should be.” We think the handbook is a way for companies to step back and reflect on, “What does it mean to work here?”

On one side it’s compliance and policy and these are the rules and guidelines. And then on the other side, there’s the more qualitative, “Why do we have these guidelines? It’s because we value X.” We’re not gonna tell you what X is, but we do think that companies should carefully consider why they have their policies.

Katie: A good example at Gusto is our unlimited PTO policy. It might seem like everyone in Silicon Valley has an unlimited PTO policy, but we have a specific company value that’s tied to it – ownership mentality. We want you to feel ownership over your work, over your time, and we also want you to be able to take ownership over the amount of time that you need to reflect and recharge.

Steffi: But unlimited vacation may not work for every company, so it depends on what a company values and how people want to run their business. One thing about a policy like ours is sometimes it can actually discourage people from taking vacation. So our founders and leaders regularly take vacation to show, “Hey, we want you to be doing this. Everyone can and should take the time to recharge.” And so everyone at the company does that as needed.

Craig: Yeah, that makes sense. What about if someone is at a company and they don’t have an employee handbook that specifically dictates something around paid time off, unlimited paid time off, whatever. What would you advise them to do?

Katie: That would depend on what stage of the company. If you’re at 25 people and you haven’t written anything down about a PTO policy and people are beginning to have questions about it, that’s a really good indication that it’s time to write a handbook.

Craig: And so what about an employee who just wants to have a handbook? How would you suggest they bring it up with their leadership team?

Steffi: If you have someone who wants to do that, what they’re effectively saying, is “I actually don’t know policies that would help me do better work.” And “I want to be part of building the right culture here and I’d really like to see that structure in place.”

We advocate having this early because it helps you grow in the right way.

Craig: So what about common pitfalls? What are the things that people making their first handbook don’t think about?

Katie: People often get stuck on the mandatory policies that need to be in there, as well as the actual language they are required to use. And while those two things are important, documenting your culture and your workplace norms and your values should also be top of mind as people begin to create their handbook.

Don’t worry as much about the exact legal verbiage. Trying to write it in a way that is digestible and relatable for people is an important part of getting people to actually read it and digest it.

Craig: Do you advise companies do anything, as far as ensuring that people actually retain the information?

Katie: We do. We determine the “why” behind some of the benefits that we offer and we talk about it a lot. So new hires will come in, they’ll read the handbook, they’ll get an explanation there, as well as chance to discuss them in an onboarding workshop that follows . And then, at our all-hands meetings, we’re constantly talking about it, reinforcing the idea and the “why” behind all the things that we do.

Craig: And as your company grows, is there a point at which you rewrite the whole thing? Do you just keep editing it? How do you handle that?

Katie: So you definitely review it. We review ours twice a year to make sure that, from a legal perspective, there’s nothing that we should add or modify. The FMLA (Family and Medical Leave Act) changes on a yearly basis. There are just things that need to be updated and maintained. We also make sure that as a company, we still believe in what we’ve written about our culture.

Craig: Cool. What are other common questions do young companies have for you guys? I’d like to cover those here.

Katie: Sure. They usually want to know what policies they should include, and luckily there are lots of resources for that. Our guide to creating a handbook is one great resource that you can go to. It has links for all of the information that you need and all the policies are in there. You could also download a template from SHRM, the Society for Human Resource Management.

I think the top questions are probably, what policies should go in there? What should our policies be? How do we want to think about vacation?

Steffi: What happens when someone leaves?

Craig: Isn’t that pretty standard across the industry? Or are there big differences?

Katie: No, it’s not standard. Sometimes there are state-specific rules. But then there are things like, “Do I have to give this person their paycheck on the way out the door? Do I have until the next payroll to run their final pay?” And then, as a company, you should decide, “When do we want to put in a severance agreement?” There are lots of questions that come up around that particular topic. There’s also the question of, “What is our view as a company on, say, a severance payment?”

Companies do it very differently across industries and in the Valley, even. They have different philosophies on should they pay severance or should they not pay severance? So it really comes down to a company philosophy. At Gusto, we feel that when people leave, we should treat them as well, if not better, than the folks that are just coming in. So we put extra emphasis on making that exit process as smooth as possible, although obviously, sometimes it’s not possible. But all of those things should be documented in your handbook.

Craig: If someone wants to find their state level rules, where should they go?

Katie: If you look up the Department of Employment in your particular state, you’ll get to their website and you’ll be able to browse through a list of all of the policies on wages, hours, labor laws, etc. We do have a nice list in our guide, though.

Craig: Great. Ok, thanks guys!

You can download Gusto’s guide to creating an employee handbook here.