Most small business owners do not have employee manuals. There are two schools of thought on this topic. If your business is located in an "at will" state (i.e. the employee is considered to serve at the will and pleasure of the employer), then a lack of an employee manual will prevent the employee from accruing any employment rights. You can fire them for any or no reason. This is helpful for very small businesses where the owner does all personnel supervision personally.

When you have managers or multiple locations, an employee manual can be very helpful. While you will limit yourself somewhat by specifying how certain personnel activities can take place, you will also state your expectations of employees. An employee manual will also prevent you from being successfully sued for inconsistency - treating employees differently when it comes to warnings, time off, firing, etc. Then if one manager treats a personnel action differently than another manager, you can claim that the first manager acted contrary to state company policy as published in the manual. Also, the manual can be helpful in states that have passed their own labor laws that modify the common law "at will" legal doctrine.

You can now purchase software packages and fill-in-the-blank basic employee manual kits from most office supply stores.

Most small businesses conduct informal evaluations of employees, but rarely are they formally evaluated. You may want to consider annual or quarterly brief chats about employee performance. At a minimum you should give public recognition when an employee is doing good work. Keep criticism for private conversations, and be sure to make a few notes that you include in the employee's personnel file, so you can evaluate any change in performance over time.

You should be aware how firing an employee can affect your state unemployment taxes. Your state legislature sets a base rate of taxation. The quarterly unemployment taxes you pay go into a savings account with your company's name on it. Unfortunately, the only people authorized to make withdrawals from that savings account are ex-employees.

If an ex-employee is awarded unemployment, the state looks at the account balance. In the typical small business, one claim can wipe out several years worth of tax deposits. The state will then adjust your tax rate upward (often dramatically) for several years until the deficit is fully paid back. On the other hand, if there are no claims, over time the account should become overpaid, so your tax rate will drop - in a few states to as low as zero! So when you consider firing someone, you may want to consider the tax effect on you. If the person quit or fails to show for work, in many states you have the opportunity to deny the unemployment benefits claim, thus preventing your tax rate from soaring.

Workers compensation insurance is a sore topic for most small businesses. Workers comp is very expense. Most states will let you chose not to provide workers compensation coverage if you have below a very low minimum number of employees. Also, small corporations can usually exempt officers from coverage. Coverage is usually purchased from property and casualty insurance companies through your local insurance agent, although some states have set up their own coverage pools, and made workers comp a tax. You can sometimes lower the rate you pay by carefully classifying workers based upon what their job duties are (and splitting job classifications) rather than simply letting the insurance agent pick the higher priced classifications.

Don't overlook workers compensation coverage. Because of the high cost, many businesses ignore it. However, an increasing number of states are requiring verification of coverage - often with the annual W-2 reconciliations. This is an easy way to catch scoff laws.