How to Set Company Policies to Avoid Problems

Some people view company policies as a sign of encroaching bureaucracy and hence avoid having written or established policies as much as possible. There are even a few publicized cases of relatively large companies that have enjoyed tremendous success without the benefit of company policies.

However, if you don’t have some company policies, you may soon find yourself in a situation in which you wish you did.

Policies can make it clear to employees what kind of behavior is expected in your workplace. They can set clear guidelines on what is and isn’t appropriate. And policies can help you avoid, or at least defend, against lawsuits.

Have established purchasing procedures

By having established procedures, including clear delegation of who is and who is not authorized to make purchases, written purchase orders with clear quantities, and pricing and shipping directions, you can go a long way toward avoiding problems.

Remember that, according to the law, a person who looks and acts like a manager at a business can be considered a person who is an authorized purchasing agent.

So avoid issues with your employees and your suppliers by establishing in advance who in your organization actually places orders, and the procedures they should follow.

For example, if you buy goods from a supplier and you don’t issue a purchase order, you may find that the price has suddenly gone up and you’re then stuck with the messy situation of paying the higher price or returning the goods.

Or you may find the supplier has delivered 7% more goods than you ordered because, according to their policies, going 10% over or under is acceptable.

Or let’s say you order office furniture from a supplier and then are told that the items are out of stock and will not be available for six months.

So, you verbally cancel the order and place a similar order with another furniture company. Then six months later the first furniture company ships you the goods. You say you aren’t going to accept them because you canceled the order.

The first furniture company says you can’t do that because they have your written purchase order but no record of the verbal cancellation, and the employee you claim verbally canceled the order with has long left the company.

In this case, if you had just canceled the order by email instead of verbally, you would have had a record and been fine. Now, instead, you have two sets of identical furniture and two bills to pay.

Employee handbooks keep everyone on the same page

If you have more than, let’s say, a dozen employees, you should consider creating a company policy book, often referred to as an employee handbook. This type of book lays out in clear, simple language the patterns of behavior that are or are not acceptable in your workplace. These policies should be aimed at both managers and staff alike. A well-done handbook will go a long way toward protecting you against some employment-related legal claims.

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If you do decide to create an employee handbook, have an attorney who specializes in employment issues review the document before you issue it to your employees.

Remember, too, that although you’re the employer, you must follow the rules outlined in your employee handbook yourself and meet any requirements or responsibilities you have set within. The courts have sometimes viewed company policy books as legally binding contracts between employers and employees. Numerous employees have won lawsuits against companies because the employer did not honor the terms or conditions in their own handbooks. So, don’t create one casually; have an attorney do it.

Sexual Harassment

Most women, and some men, have experienced sexual harassment during their careers. Many employees who do so become extremely upset by it. Even the perception of sexual harassment can have a very negative effect on an employee — and, oftentimes, on everyone else in the workplace.

As an employer or manager, take the high road. Make it very clear to people that your firm is strongly against sexual harassment, not just because it is unlawful, but also because it just isn’t right. Most, if not all, of your employees will appreciate your position. If there are objections among members of your staff, they aren’t the type of employee you want in your workplace, anyway!

Sexual harassment is one of the most common grounds for employee-initiated lawsuits in the United States. As an employer, you’re responsible for your own actions, the actions of your managers, and the atmosphere of your workplace. If the environment in your workplace is or may be deemed to be conducive to sexually negative behavior, such as sexually oriented joking, then you may be legally vulnerable.

You need to state a clear policy against sexual harassment within your workplace. You need to take appropriate action against any employee who either condones sexual harassment or violates sexual harassment policies. And you need to assign an impartial party as the person with whom sexual harassment complaints can be registered.

This allows employees to lodge complaints with someone other than their immediate supervisor, which could be a serious problem if the supervisor is the person the complaint is about.

Equal Opportunity

In hiring and promoting personnel, you need to make sure that you’re an equal-opportunity employer — that women, minorities, people of all ages, people of all religions, etc. have an equal chance of employment or promotion at your firm.

Under current U.S. law, you also need to undertake some expenditures, if necessary and with the value being dependent upon the size of your company, to employ physically challenged people.

Take the high road. Make an effort to hire and promote people equally. It’s the law, and it’s the right thing to do.

You want to make sure that all supervisors are careful not to discriminate in their hiring and promoting practices. You also want to make sure that they’re completely apprised of which questions are appropriate and legal to ask during interviews and which ones are not.

Being an equal-opportunity employer is not easy. Most people find it easiest to relate to those individuals who most closely mirror themselves. It’s a natural human tendency to hire and promote the people you like.

So if, for instance, an engineering department manager is a white male, you need to make sure he doesn’t overtly or subconsciously overlook any qualified nonwhite or female candidates when he’s interviewing for a new staff engineer.


Business dress in most workplaces today is considered fairly casual. Some companies that still have relatively formal dress may even designate a particular day, seasonally or year-round, as casual day.

And some companies waste a significant amount of time defining what is and what is not appropriate as casual wear. It really isn’t necessary, though, to spend too much time developing a dress code. Think simple.

If you don’t greet customers or clients in your workplace, you may want to skip having a formal dress code. One exception might be offensive dress — skimpy outfits or T-shirts that carry profane messages or images.

Of course, this liberal policy may result in a sloppy dress on the part of some employees, but the rewards you reap by showing respect for your employees will be worth it.

If customers or clients frequent your workplace, then set a few basic standards for dress for the employees who interact with the public — shirts, not T-shirts; slacks, not jeans; and shoes, not sneakers.

If somebody wears something really offensive to work, I would send him or her home to change, but do so nicely, and at least for the first time it happens, pay him or her for the time traveling home and back.


In all of my past businesses, I have avoided flextime. I have practiced setting regular office hours or shift hours — I have seen it as part of building a winning team.

You may want to make exceptions, such as offering certain employees reasonable flextime schedules to accommodate special needs. For example, if an employee needs to arrive later and leave later to manage childcare arrangements, you may allow them a working hour variance.

But you can still insist that all employees observe a consistent schedule if that’s your standard policy. As far as exceptions go, it would be a lot quicker to be flexible on a one-time rather than a routine basis.

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By setting reasonable office hours, you will appear fair to all employees and will avoid having to memorize myriad different work schedules.

With my latest business, I’m starting out experimenting with flextime, allowing people to set their own schedules as long as they work at least 40 hours per week in the office, including during the designated “core” office hours of 10 a.m. to 4 p.m. So far this experiment has had mixed results.

While it sounds great when you’re recruiting employees, I have found that once you start to offer a liberal work plan that employees can take it as a signal that they can further reinterpret the work hour policy just about any way they please.

More and more companies are offering flexible hours, but it can be a slippery slope. I’ve seen some companies initially offer flextime but then cancel this policy after finding that too many people were abusing it or that it was too difficult for people working and meeting together.


Avoid setting policies regarding personal phone usage, local or long-distance, or personal cell phones. The results of no policy may be reflected in your phone bills, but the results of a specific policy will be reflected in employee attitude. You will be viewed as petty and, for this, employees will resent you.

Obviously, if a particular employee abuses your liberal phone policies, then action is called for. Sometimes a chat will do, or you may have to make it difficult for the employee to access the phone altogether.

But people are human and there may be periods where their personal life issues make them feel compelled to talk a lot more than usual on the phone.

You may think, well, I understand if the issue is someone caring for a sick child or an aging parent, but I don’t understand when my 20-something assistant feels a need to talk with his or her friends about a recent romantic breakup.

My advice is that people are human — allow some occasional exceptions.


There will always be dating in the workplace, whether you like it or not. This is especially true if you have young, single employees on staff. And yes, it can happen with married people, too.

It certainly seems intrusive to regulate people’s personal lives. Weigh the considerations and make your own decision.

Things do get sticky in office romances — especially if the romance isn’t between peers. If a supervisor dates a reporting staff member, the staff member may receive a glowing, but undeserved, performance review.

Or, in the event of a breakup between someone in management and someone on staff, a recommendation that the staff member be dismissed for “unmanageable behavior” might result.

Issues of sexual harassment might be raised if a manager repeatedly asks a reporting member to date him or her.

Because these types of situations can breed tension and have potential legal consequences, you may want to consider prohibiting management from dating anyone who reports to them directly.


While smoking is banned in almost all workplaces, the “just outside the doors” smoking and smoking breaks can create tension between smokers and management, and resentment between smokers and nonsmokers.

You need to state a clear smoking policy. If even one person smokes at a company event, for example, then you aren’t working in a smoke-free environment.

You need to inform new hires of your smoking policy. If the new employee is a smoker, he or she might be upset to find that the designated smoking area is a ¼-mile walk outside or that smoking breaks are not something management is thrilled about.

Employee Loans

Many employees don’t have strong financial educations and don’t have the discipline to manage their finances. You may allow employees who have been with you for a few months to borrow modest amounts of money for short periods of time.

Don’t charge interest — it’s just too petty. But do deduct the payback out of each payroll check and have the employee sign a simple demand note stating the amount loaned, the payment schedule, and a clause stipulating that the loan be immediately payable in full should the employee leave the company for any reason.

Or you may decide you simply will not lend money to employees at all, period. Whatever you decide, be consistent.

If you do decide to lend, set a limit on the amount you’ll agree to lend to any employee — and do this in advance of any requests. Sooner or later, you’ll lose money when an employee leaves and you find that you can’t collect.

But despite this drawback, remember that, in the long run, an employee loan policy will strengthen your firm.

I lost about $2,000 when one long-term employee was fired and I was unable to recover my loan. But I have loaned money to hundreds of other employees over a period of years without incident.

Takeaways You Can Use

  • Even small companies need policies.
  • Small companies can easily trip up on employment law.
  • A well-crafted employee handbook can help.

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses, including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, a learning platform for starting and running a business.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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