Skip to content
Employee Handbooks vs. Employee Contracts: Why You Need BOTH!

Employee Handbooks vs. Employee Contracts: Why You Need BOTH!

Let's dive into an important topic that often confuses employers: the difference between employee handbooks and employee contracts.

While they serve distinct purposes, both are essential tools for maintaining a productive and compliant work environment. Here are the legal differences and why you need to utilize both in your workplace.


Employee Handbook: Your Guide to Company Policies

An employee handbook is a comprehensive document that outlines the rules, policies, and expectations for employees within an organization. It serves as a valuable resource for both employers and employees, ensuring consistency, clarity, and fairness in the workplace. While employee handbooks can vary from one organization to another, they typically cover general essential areas, including:

  1. Introduction and Company Culture: The handbook often begins with a warm welcome, sharing the organization's mission, values, and overall company culture. This section helps employees understand the company's vision and fosters a sense of belonging.

  2. Employment Policies: This section outlines the company's policies regarding employment, such as equal opportunity, anti-discrimination, and harassment prevention. It may also cover topics like attendance, leave, dress code, and workplace safety.

  3. Code of Conduct: A code of conduct sets behavioral expectations for employees and provides guidelines on professional ethics, conflict resolution, and social media usage. It helps establish a positive work environment and sets standards for employee behavior.

  4. Benefits and Compensation: Employee handbooks often explain in depth the benefits package, including healthcare, retirement plans, paid time off, and other perks employees are entitled to. For PTO purposes, it will outline exactly what the employee needs to do to request and receive legitimate vacation and sick time. This section ensures transparency and informs employees about the value they receive.

  5. Disciplinary Procedures: This outlines the company's disciplinary procedures, including the steps taken for addressing employee misconduct, poor performance, and policy violations. It provides a fair and consistent approach to handling disciplinary issues.

    It is important to note that an employee handbook is not a binding contractual document but it is a “how to” guide on how to be successful within the company. Employee Handbooks are oftentimes used as a form of evidence during a workplace legal dispute. Thus, it is important to have a handbook for your employees to understand exactly what you expect from them and to protect your business should a dispute arise with an employee. 

    Employee Contract: The Legally Binding Agreement

    Unlike an employee handbook, an employee contract is a legally binding agreement between an employer and an employee. It serves as a formal record of the terms and conditions of employment that the employee has agreed to. 

    Some key elements typically found in an employee contract include:

    1. Employment Terms: An Employment contract outlines essential details, such as the job title, job description, start date, compensation (salary/hourly), and working hours. It establishes the fundamental framework for the employment relationship.

    2. Confidentiality and Non-Disclosure: Employment Contracts often include provisions to safeguard sensitive company information, trade secrets, and intellectual property. This protects the employer's proprietary rights and prevents employees from disclosing confidential information.

    3. Non-Compete and Non-Solicitation Clauses: Employee contracts may include restrictions on an employee's ability to compete with the employer after leaving the company or solicit clients or coworkers. These clauses safeguard the employer's interests and prevent unfair competition. Make sure you check your state-specific laws on non-competes though because laws vary from state to state. 

    4. Termination and SeveranceContracts specify the conditions under which employment can be terminated by either party and the notice period required (at-will employment). They may also address severance packages, including any financial compensation or benefits an employee is entitled to upon termination.

    5. Intellectual Property Rights: Contracts often define ownership and control over intellectual property created by an employee during their employment. This ensures that inventions, designs, or other creations developed within the scope of employment belong to the employer.

    It is important to have all employees sign an employment contract before becoming a team member of your company. Each Employee Contract with each employee will likely be slightly different, varying from team member to team member and position to position, so it is important that these contracts are customized to each employee’s situation. In the event, there is a dispute between an employee and the business the employee contract is the binding contract that will determine the outcome of the suit. This is why having an employment contract signed by each employee is so important for your business. Meanwhile, remember that the Employee Handbook is more of an all encompassing document for all employees to review and agree to company-wide policies.


    Having an employee handbook and employee contract in your business arsenal is the best idea for your business. Not only will they benefit your business, but they will also help your employees understand you better and how your business operates. Increasing communication with your employees is always a good thing, and having the right legal documents in place can really help with that. It's a win-win situation, my friend!



    THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.
    See our full disclaimer here.

    Previous article Personal Branding: Pros and Cons of Naming Your Business After Yourself
    Next article How to Effectively Manage Clients Who Won't Sign Cancellation Contracts

    Leave a comment

    Comments must be approved before appearing

    * Required fields

    Join the Community

    Join the Community

    Be a part of 8000+ TLP Community Members in this safe space and get real-time answers from Paige and her legal team daily!

    Join Now