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Does a small business owned and operated by a family need the professional employee handbook management practices used by other small to mid-sized companies? The short answer to that question is “yes,” but most family business owners would disagree. After all, we are talking about family, here. Do you really need protection practices like a handbook, safety policy, notification compliance and employment documentation to work with your wife, children, brother or other family members?

Absolutely. Regardless of whom you employ, both state and federal laws require that you treat your employees equally, safely and inform them of their rights. Family is still entitled to unemployment compensation, OSHA protections, equal rights and workers compensation in case of injury. (There are some exemptions for family members who are part owners.)

Unclear Lines of Communication Can be Cleared up with An Employee Handbook

The lines between family and employer/employee relationships get blurred with the business. This can cause breakdowns in how efficiently the business runs as well as resentment in the structure of the business. Treating your family as families at home, and as employees at work clarifies those boundaries and improves relationships all around.

What about the perspective of non-family employees? Managing relatives to a different standard than non-family employees is a real morale killer and one of the best ways to guarantee continuous turnover. Professional employee management practices ensure that everyone is pulling their weight and not taking advantage of the clan connection.

The professional employee handbook management practices used by larger companies do more than protect a business from unemployment or workers compensation claims or lawsuits. They create a structure for employees to do their best. Employees are the most productive when they know exactly what their duties are, and the standards they are expected to meet. Having things like a handbook, job descriptions and procedures for handling conflict creates an atmosphere of security. Employees take their job more seriously because they know their paycheck isn’t subject to family politics.

All of that may sound like a lot of paperwork, but there are affordable management systems available for the small business. An hour or two on a slow afternoon and you are ready to manage both groups for maximum productivity.

The final point I want to make is that over the years, I have worked with many small business owners who placed complete trust in their family employees. They are stunned to find out their son has stolen from them or their daughter is having an affair with a married employee. These are the kinds of situations all companies guard against. In the business, the son doesn’t consider taking without asking is stealing because it is “his” money. The daughter doesn’t consider her behavior inappropriate because “who’s gonna fire me?’

The family-run business can create a sense of entitlement of ownership in members who have no ownership position. Brothers will enter into bad contracts they are not authorized to negotiate. Sons will decide to go in a direction that the true owners have not approved if the proper management structure has not been put in place. Setting boundaries for family is more important, in my opinion, than for non-family employees. It protects this all-important asset that supports everyone – the family business.

I own and operated such a business. I know that we start businesses to make a better life for the people we love the most. But just because they are related to us doesn’t mean they don’t make mistakes or poor decisions. Professional management practices, including an employee handbook, allow members to grow and learn in the business without putting it at risk. And that is why even a family-run business needs human resources management systems.

Here’s an excellent summary of ways to mitigate tensions in this type of business, provided as a free PDF download by the Small Business Administration.

And, of course, our own “Your Employee Handbook” contains clear, concise, and fair policies that will help improve communication among all employees, including family members. Click here for more information.

Employee identity theft can be thwarted when you apply various data-protection strategies.

• Storage: At this point in history, you may be one of many businesses that probably keep employee information (active and terminated) in file cabinets as well as electronic data on company computers/servers. You want to initiate specific policies that require files to be stored in locked cabinets and limits which managers/employees control the key(s) and access. Similarly, computerized employee data should be password-protected, so only authorized personnel can log into that system.
• Information Distribution: Your employee-data system should also include a stringent policy that employee information is never released to anyone other than the employee. The only other reason you would ever release such information is in response to a subpoena signed by a judge and presented by an officer of the court.
• Clear the Desks: Even when payroll or other authorized personnel have accessed employee data, that information should be returned to file cabinets immediately and not left on anyone’s desk. Computer-based data should not remain on screen and authorized personnel shouldn’t remain logged into the employee information sub-system on your server while they’re at lunch, on break or not at their desks for an extended period of time.
• Social Security Number Masking: Follow the lead of many companies, especially those doing business on the Internet, and don’t identify your employees by their complete Social Security numbers. Instead, mask the first five numbers, and only use the last four.
• Shred and Its Dead: Add to your procedures, a policy that requires any authorized personnel who use or make copies of employee information to shred it immediately, during the day or before the end of the day. Too many identity thieves are just waiting to look through your company’s trash in the refuse bin in the alley behind your facility.
• Government Support: Visit the Social Security Administration Web site at ssa.gov for more information.

Employment background checks have also been added to the hiring process at many companies because of potential terrorists. These don’t have to be persons from other countries that violently disagree with western politics, culture or capitalism. For most companies, “terrorists” are more likely to be someone that has a grudge against the company and surreptitiously tries to become an employee to retaliate; or someone could be angry with a spouse and stalks him or her to the workplace and perpetrates domestic violence. Employment background checks can also be a useful tool to reduce the number of supposedly qualified candidates that are hired, and then quickly fired because their résumés or statements inflate their true skills.

Employment background checks, as regulated by the government, also have additional implications for employers and employees. These checks are not required of all employees by law, except when potential employees will be interacting with children, the sick and elderly. Employers should ask their attorneys for details about federal and state laws that may affect their background check policies. Some employers have the staff and prefer to conduct employment background checks internally, while others will use third-party vendors that are skilled and equipped to provide those services.

Many small-business employers will find it easier and less costly to pay a fee to an outside agency, rather than spend the time and money to plan, implement and manage an internal process. Those outside agencies are bound by the Fair Credit Reporting Act (FCRA) (and state-specific regulations), which states that not all information discovered during background checks can be shared with employers. For examples, bankruptcies more than 10 years old can’t be reported, nor civil suits and arrest records more than seven years old. A third-party employment background check company is also required by law to obtain permission from the candidate to conduct the check and provide him or her with a copy.

Employee retention can become more tangible for you when you start to develop two value concepts in your employees: trust and commitment. In most situations, people return like for like: Show that you trust and are committed to your employees before you expect them respond with equal trust and commitment. As a business owner, you initiate that reciprocal process by addressing, and then fulfilling, the issues or needs that are most important to your employees. You also want to foster a workplace environment that doesn’t drown individuality with too many rules and rigid procedures. In fact, individuality is a factor that motivates employees to take the initiative, become unexpected leaders and help you improve productivity and the processes that drive it.

Employee retention can also be strengthened by mutual trust when it’s reflected in your leadership. Employees should clearly understand the decisions you make, but not as edicts or commands. Instead, your decisions should be interpreted as being made for the common good, and with empathy for all those your decisions affect. You can also take these actions to create a trusting relationship between you and your employees.

• Be visible. Don’t remain in your office all day or spend all your time with other executives and/or managers. Circulate throughout your business during every day, and don’t just observe.
• Interact with your employees, so they know you’re approachable and are willing to listen to their comments and input. Join them for lunch occasionally.
• Share the burden. Jump into the production process and help employees clear a bottleneck. If you see an employee struggling, then sit with him or her to overcome the challenge.

Your trust and commitment will return in the form of employees that are willing to work longer hours and adopt these and the other strong values of your company as their own. That strengthens your relationships with your employees and makes retention less of a problem.

Employee-turnover costs can be calculated accurately and become valuable business statistics when a system is first planned and implemented. Such a system should include a number of elements.

• A comprehensive list of which costs will be measured, so the various parts (executive, finance, labor) of the business are making assessments and decisions with common data. That list could contain: exit costs, recruiting, interviewing, hiring, orientation, training, compensation and benefits during training, lost productivity, loss of customers, reduced revenues, administrative costs, lost expertise and temporary worker wages.
• Meet with your top-producing employees regularly to determine why they continue to work for you, what might cause them to leave and how you can help them to be more productive. Ask the same questions during exit interviews.
• Employee-turnover-cost assessments can then be done periodically. Make sure to divide your statistics and assessments into three groups: low-wage, middle-wage and high-wage employees. Your analysis will reveal who is leaving and why, and what it is costing to replace them.
• A method to measure the success of whatever steps you take to control or reduce employee-turnover costs.

Employee-turnover costs that are accurate and recorded, calculated and assessed regularly become valuable business tools for ownership. Now, you are in a better much position to decide which solutions can specifically address, for example, a higher-than-average turnover of managers. Knowing your employee-turnover costs, which solutions you can implement and measuring their results mean you’ll prevent most of your turnover problems. That advanced knowledge is likely to result in more optional solutions and a successful effort to reduce employee-turnover costs.

The Society for Human Resource Management (SHRM) determined that a single $8.00-per-hour employee could cost $3,500 to replace, which includes recruiting, interviewing, hiring, training, loss of productivity, etc. The research of other labor industry and business groups revealed the following employee-turnover costs: 30–50% of entry-level employees’ annual salaries, 150% of middle-level employees and as much as 400% for executives and employees with specialized skills.

Employee-turnover costs can also be understood when the research is applied to real-world examples. Let’s say your small business has two managers/supervisors and they drive most of the productivity of your company on a day-to-day, hour-to-hour basis; therefore, losing one of them could have a significant impact on your productivity and bottom line. Let’s also assume that their average annual salary is $40,000. According to the research, middle-level employees cost 150% of their annual salaries in turnover costs. Let’s use 125% to be conservative, which calculates to a cost of $50,000 to replace one of your managers.

Employee-turnover calculations for entry-level, or the lowest-paid, employees reveal a similar eye-opening result. For every five of these employees you lose per year, it could cost you as little as $17,500 (5 employees X $3,500, based on SHRM study) or as much as $40,000 (5 employees X $8,000, or 50% of an annual $8.00-an-hour salary, based on the other studies).

The smart strategy is to separate your employee-turnover costs and analysis into two categories: the less-productive employees, most of whom you would want to replace, and the highly productive employees that you want to keep. Once you study the research and examples above, and then calculate employee-turnover costs for your business, you’ll discover that the cost of expanding your benefits package or providing more incentives, bonuses and other employee perks cost much less than the cost of replacing your best employees. Give them more reasons to stay and you’re likely to retain more of the employees you want, and even motivate some of those that were underperforming to become valuable employees and not turnover statistics.

Employee evaluations will be more positive for you and your employers when you are prepared for disagreements with these steps:

• Listening is your most important tool. If an employee disagrees with a fact in your evaluation, such as how many sales calls he or she made per day, then recheck your source and ask the employee how he or she arrived at a different number. If the disagreement is about your analysis of his or her specific performance, then ask for an explanation of why, for example, he or she continues to answer the phone incorrectly or isn’t more friendly with customers.

• Employee evaluation disagreements can be reduced or resolved quickly if you have in a place a continuous evaluation process throughout the year. Because you’ve developed a plan with each employee, coached and encouraged them regularly and prepared well for the annual evaluation, you are more likely to know in advance where disagreements may occur. With that knowledge, you can have responses ready.

• When you do meet with each employee for the annual evaluation conference, review what he or she has done best first, and then discuss where he or she needs improvement. This same technique applies to your stack of evaluations: Meet first with the employees that have scored high; they’re not like to disagree. You’ll be better prepared to face the challenges of those employees with less favorable evaluations, which you should conduct last.

• Employee evaluations will also be more positive experiences if you demonstrate a willingness to listen to the employees’ explanations and points-of-view about the issues in disagreement. Asking for more information or nodding your head can motivate employees to be even more open. Give any employee the opportunity to express himself or herself and you may be surprised to hear that he or she now understands your point and is at least in partial agreement.

A well-conceived wage plan benefits employers when wage increases are based on employees’ productivity. This is the primary incentive that drives employees to do their jobs better and more efficiently. Employers also benefit from a wage plan that carefully matches job skills to each wage classification. Only then do employers know they are paying exactly what the job is worth, without overpaying.

A comprehensive wage plan also protects employees. They want to be assured that they are being fairly paid in comparison to workers at other companies doing the same job. They also want a detailed plan; so there are no ambiguities about promotions, wage increases, seniority and qualifications for additional benefits and bonuses. Employees will also want a guarantee of a minimum wage, so they can be assured of some level of income if, for example, a recession causes wage freezes, or even reductions.

A carefully developed wage plan can also benefit customers, which, in turn, is an advantage for employers and employees. Higher productivity and greater efficiency usually result in lower per-unit production costs; savings that can lead to lower consumer prices, which prompts customers to buy more product, thus increasing profits and wages.

The employee evaluation process is one of the systems of many small (and/or struggling) companies that those owners think are unique. They make the same mistake with human resources, sales, marketing and many other aspects of their businesses. There may very well be unique elements of any business, but what is usually not unique are the systems or processes to sell, market and promote—and manage employees. This applies to the proven process of evaluating employee performance, and the most important principle of that process is that employee evaluation is a continuous process.

This best-practices method of employee evaluation has four steps, or stages, throughout the year.

Step 1: Manager/evaluator meets with each employee to create a plan that describes how the employee will do his or her job and what goals he or she will accomplish during the next year. Not only do employees understand what they must achieve, but also they realize their employer has an exact list of expectations to which employees have agreed to fulfill.

Step 2: Managers help employees execute the plan they created. Throughout the year, the manager and each employee work as a team to make sure he or she reaches the agreed-upon goals and takes responsibility for doing the job successfully. The manager provides coaching and feedback and employees take the initiative to ask questions and for additional training. They also meet occasional to review progress or challenges.

Step 3: The manager prepares for the annual evaluation by first analyzing the plan he or she created with each employee at the beginning of the year and his or her notes about how well each employee has satisfied the plan’s goals. The manager will also complete all forms prior to the evaluation meeting with each employee.

Step 4: During the annual evaluation, the manager and employee exam the plan created 12 months earlier, the employee’s self-appraisal form and any other materials that the manager may have accumulated during the last year. They discuss the goals reached and missed, and what the employee will do to improve. They also schedule a meeting to create next year’s performance plan.

With this process, employees are better able to understand how their individual jobs fit into the company’s structure and how each drives the company’s success as well as their careers.

Those benefits start with an employee evaluation form that includes the following five sections. This is important information to know, so that you’re sure to select a comprehensive employee handbook package that includes this form and many others.

Basic employee performance is evaluated in section 1. The best of these forms will provide a scale of performance that can then be applied to various performance categories, such as job knowledge, teamwork, initiative and many others.

You can summarize the employee’s performance in section 2 of an employee evaluation form. Look for space to write statements about the employee’s strengths, weaknesses and how you (or the manager) will help the employee improve performance.

Employee accomplishments are described in section 3. The evaluator has the space to list the accomplishments of the employee since the last evaluation. This section also helps to compare the goals the employee set for this evaluation period and the goals that were and were not achieved.

Goal planning is the purpose of section 4 of the ideal employee evaluation form. In this section, the manager conducting the evaluation can note any additional training that would benefit the employee before the next evaluation. The manager can also explain what accomplishments he or she would like the employee to achieve.

Stating the goals for the next evaluation period is done in section 5. The manager and employee agree to specific goals and improvements that should be accomplished within a set amount of time. The employee will also agree to specific training to help him or her reach those goals.

Don’t spend the time and money to create your own employee evaluation form because, with what you’ve learned in this article, you’re very likely to find the perfect one.