How to Create an Employee Handbook: Complete Guide for Small Businesses

An employee handbook is a document that communicates your company's policies, expectations, and legal obligations to employees. It protects your business from lawsuits, ensures consistent treatment of employees, and gives new hires a clear understanding of how things work at your company.

Think of it as the written version of all the things you would tell a new employee on their first day, plus the legal policies you hope you never need to enforce. When an employee asks "what is our policy on X?" or when a dispute arises about how something should be handled, the handbook provides the answer.

The problem: most handbook advice is written for companies with HR departments and legal teams. If you run a 15-person company, you probably do not have either. You need to know what is actually required, what can wait, and how to create something useful without spending months or thousands of dollars.

This guide walks you through how to create an employee handbook from scratch. I will cover what sections are legally required based on your company size, which state laws matter most, how to avoid the mistakes that lead to lawsuits, and how to roll out your handbook once it is done. By the end, you will have a clear path from blank page to signed acknowledgments.

Why You Need an Employee Handbook

No federal law requires you to have an employee handbook. But once you have more than a handful of employees, operating without one creates significant legal and operational risk.

A handbook serves three essential purposes:

• Legal protection: Documented policies provide defense against discrimination, harassment, and wrongful termination claims. Without written policies, it is your word against the employee's.
• Consistency: When policies are written, managers apply them the same way across the company. Inconsistent enforcement is itself a legal risk.
• Clarity: New hires know what is expected from day one. Existing employees have a reference when questions arise.

Only 26% of businesses with fewer than 10 employees have handbooks. Once companies reach 10-200 employees, that number jumps to 87%. The transition point is when informal verbal policies start causing problems: misunderstandings, inconsistent treatment, and eventually disputes.

Legal Requirements by Company Size

Federal employment laws kick in at specific employee thresholds. Understanding these thresholds helps you know which policies are legally required versus merely recommended. The Department of Labor provides detailed guidance on federal requirements.

The key thresholds are 15, 20, and 50 employees. Each threshold triggers additional legal requirements that should be reflected in your handbook:

• At 15 employees: Title VII requires anti-discrimination and anti-harassment policies. The ADA requires reasonable accommodation policies.
• At 20 employees: ADEA requires age discrimination protection. COBRA requires health coverage continuation information.
• At 50 employees: FMLA requires family and medical leave policies. The ACA has additional health coverage requirements.

If you are approaching one of these thresholds, update your handbook before you cross it. Do not wait until you are in violation.

Essential Sections Every Handbook Needs

Some handbook sections are legally required. Others are technically optional but create significant legal exposure if omitted. Here are the sections that should be in every employee handbook:

The At-Will Employment Disclaimer

The at-will disclaimer is not legally required, but it is the single most important section of your handbook. It establishes that either party can end the employment relationship at any time, for any lawful reason. Without it, employees may argue that other handbook language created an implied contract.

Courts have found implied contracts in handbook language that seems innocuous. Phrases like "permanent employee," "job security," or detailed disciplinary procedures that seem to guarantee steps before termination can all be interpreted as promises. The at-will disclaimer counteracts this by clearly stating no such promise exists.

Place this disclaimer at the very beginning of your handbook, not buried in the middle. Also include it on the acknowledgment form that employees sign. Some companies also include a shorter version at the beginning of each major section.

Note that at-will employment has exceptions in some states. Montana, for example, requires "good cause" for termination after a probationary period. And even in at-will states, you cannot terminate for illegal reasons (discrimination, retaliation, etc.). The at-will disclaimer protects flexibility, not illegal behavior.

Anti-Harassment Policy

Your anti-harassment policy must include multiple reporting channels. If the only option is to report to a direct supervisor, and the supervisor is the harasser, you have created a situation where harassment cannot be reported. Provide at least two options: report to direct supervisor OR report to another designated person (owner, HR contact, or external hotline).

Recommended Sections

Beyond the legally required sections, these policies reduce risk and clarify expectations. Include the ones that fit your business:

For small businesses, a few sections deserve special attention:

Remote and Hybrid Work Policy

If any employees work remotely, even occasionally, document the expectations. Cover equipment, work hours, communication requirements, and expense reimbursement. What seems obvious to you may not be obvious to employees. For guidance on structuring the onboarding process, see my guide on new employee onboarding process flow.

Family Employee Policies

If you employ family members, and 90% of US businesses are family-owned, you need clear policies on nepotism, supervision, and how family relationships affect workplace decisions. This prevents both favoritism claims and family drama from spilling into operations.

Owner-as-Manager Documentation

In small businesses, owners often serve as direct managers. This creates unique documentation challenges. You need to document your own decisions the same way you would document a manager's decisions. When you terminate someone, there should be a paper trail showing the reasons, even if you are both the owner and the person who made the decision. Without this self-documentation, you have no defense if the termination is challenged.

Technology and Social Media Policy

Define what employees can and cannot do with company devices and accounts. Address personal use of company equipment, social media conduct that affects the company, and confidentiality of company information online.

State Compliance Considerations

No state legally requires a handbook. But once you have one, it must comply with all applicable state laws. Three states are significantly more complex than others:

If you have employees in California or New York, your handbook needs state-specific addenda. A generic template will not cover the additional requirements. The recommended approach for multi-state businesses: create a core handbook with federal and universal policies, then add state-specific supplements for each location where you have employees.

8-Step Handbook Creation Process

Here is a practical process for creating an employee handbook from scratch. Total timeline: 2-4 weeks for DIY, 4-8 weeks with attorney involvement.

Step 1: Audit Current Policies

Before writing anything new, gather what already exists. This includes any written policies, offer letter language, verbal agreements you have made, and actual practices (even if undocumented). You may discover you have been promising things informally that you need to either formalize or stop promising.

Step 6: Legal Review

I recommend having an employment attorney review your handbook before distribution. This typically costs $500-$1,000 for a basic review. The attorney will catch issues like overpromising language, missing required policies, and state-specific problems. This is significantly cheaper than defending a lawsuit that a proper review would have prevented.

For a more detailed process on rolling out policies to new hires, see my guide on creating an employee onboarding plan.

Cost and Timeline Options

How much should creating an employee handbook cost? It depends on your approach:

For most small businesses with 5-50 employees, the sweet spot is using a template as your starting point and then paying for an attorney review. This gives you professional legal oversight without paying for full custom creation.

The DIY approach with free templates is viable for very small teams (under 10 employees) in straightforward situations: single state, no unusual industry requirements, and no history of employee disputes. Once you add complexity, professional help becomes worth the cost.

What an Attorney Review Covers

A legal review is not the same as having an attorney write your handbook from scratch. In a review, you provide your drafted handbook, and the attorney checks it for legal issues. They will look for:

• Missing required policies based on your employee count and state locations
• Language that creates unintended obligations or implied contracts
• Policies that conflict with state or local laws
• Outdated references to laws that have changed
• Missing or inadequate anti-retaliation and reporting procedures

A basic review takes 2-4 hours of attorney time and typically costs $500-$1,000. Ask for a flat fee quote upfront rather than hourly billing, and get an estimate of how many revision rounds are included.

When to Invest More

Consider spending more on professional handbook creation if you have employees in California or New York (complex state requirements), you operate in a regulated industry (healthcare, finance, government contracting), you have had previous employee disputes or lawsuits, or you are approaching 50 employees and need FMLA compliance. In these situations, the additional cost of professional creation is small compared to the risk exposure.

Common Mistakes to Avoid

These are the mistakes that most often lead to legal problems or ineffective handbooks:

The Enforcement Problem

The most dangerous mistake is including policies you do not actually enforce. If your handbook says three unexcused absences result in termination, but you have never terminated anyone for attendance, you have created a discrimination risk. When you finally do enforce it, the employee can argue they were treated differently than others.

Only include policies you will consistently apply. If you are not going to enforce a dress code, do not have one in writing.

Overpromising Language

Watch your word choices. Saying the company "will" do something creates an obligation. Saying the company "may" do something preserves flexibility. For example:

• Risky: "Employees will receive a verbal warning, then written warning, then termination."
• Better: "The company may use progressive discipline, including verbal warnings, written warnings, and termination, depending on the circumstances."

Rolling Out Your Handbook

Creating the handbook is only half the job. You also need to distribute it properly and document that employees received it. This is where many companies fail and lose the legal protection their handbook should provide.

A handbook that sits in a drawer provides no protection. For the handbook to matter legally, you must be able to prove that employees received it, had the opportunity to read it, and understood they were bound by its policies. This requires a formal rollout process.

The Acknowledgment Form

Every employee must sign an acknowledgment stating they received the handbook, had the opportunity to read it, and understand they are responsible for following its policies. This acknowledgment is your proof in any future dispute.

The acknowledgment should include:

• Statement that the employee received the handbook
• Statement that employment is at-will (repeat the disclaimer)
• Statement that the handbook may be updated and employees are responsible for reviewing updates
• Statement that the handbook does not create a contract of employment
• Employee signature and date

Store acknowledgments securely. Digital storage with electronic signatures is increasingly common and makes retrieval easier than paper files. At FirstHR, we built acknowledgment tracking directly into the onboarding workflow so new hires sign before their first day and the record is automatically stored.

Existing Employee Rollout

If you are creating a handbook for the first time or making significant updates, you need to roll it out to existing employees, not just new hires. Schedule an all-hands meeting to introduce the handbook, explain why it was created or updated, and walk through the most important policies.

Give employees a deadline to review and sign the acknowledgment. A week is typically reasonable. Follow up with anyone who has not signed. If an employee refuses to sign, document this and continue employing them, but note that their refusal to sign does not exempt them from following the policies. They are still expected to comply with the handbook regardless of signature.

Training on Key Policies

Do not just hand employees a document and assume they will read it. Schedule time to walk through the most important policies: harassment reporting, safety procedures, and any policies unique to your company. Document that this training occurred. For a structured approach to covering everything with new hires, see my guide on the 30-60-90 day onboarding plan.

Ongoing Maintenance

Your handbook is not a one-time project. Laws change, your company changes, and policies need to evolve. Seventy-five percent of small businesses never update their handbooks, which creates legal exposure when policies become outdated or no longer reflect actual practices.

Here is how to keep your handbook current:

• Annual review: Set a calendar reminder for January to review the entire handbook. Check for law changes, policy changes, and sections that no longer reflect how you operate.
• Threshold triggers: When you approach 15, 20, or 50 employees, review and update for the new legal requirements.
• State expansion: When you hire in a new state, add state-specific addenda before the employee starts.
• Incident review: After any significant employee dispute, review whether your policies were clear and adequate.
• Law change monitoring: Subscribe to employment law updates from your state labor department or an HR publication to catch changes that affect your handbook.

When you update the handbook, redistribute it to all employees and collect new acknowledgments. Keep records of which version each employee acknowledged and when.

What Triggers an Update

Beyond your annual review, certain events should trigger an immediate handbook review:

• Any change in federal or state employment law
• Crossing an employee threshold (15, 20, 50)
• Hiring your first employee in a new state
• Any policy you decide to change (benefits, PTO, remote work)
• After any employee complaint, grievance, or lawsuit
• When you realize you are not enforcing a written policy

Re-Acknowledgment Process

When you update the handbook, every employee needs to sign a new acknowledgment. This can be as simple as an email with the updated document and a link to sign electronically. Make it clear what changed: "We have updated our PTO policy and remote work guidelines. Please review and acknowledge by [date]."

Track who has and has not acknowledged. Follow up with employees who do not respond. Document everything. This paper trail protects you if an employee later claims they did not know about a policy.

Template

Here is a basic outline you can use as a starting point. Copy this structure and customize it for your company, state requirements, and industry.

EMPLOYEE HANDBOOK
[Company Name]
Effective Date: [Date]

================================================================================
WELCOME
================================================================================

Welcome to [Company Name]. We are glad you have joined our team.

This handbook describes our policies, procedures, and expectations. It is not a contract of employment and does not guarantee employment for any specific period. Please read it carefully and ask your manager or [Owner/HR Contact Name] if you have questions.

IMPORTANT: Employment with [Company Name] is "at-will." This means you are free to resign at any time, with or without cause or notice. Similarly, [Company Name] may terminate your employment at any time, for any lawful reason, with or without cause or notice. Nothing in this handbook creates a contract of employment or guarantees any specific benefits or procedures.

================================================================================
SECTION 1: EMPLOYMENT POLICIES
================================================================================

EQUAL EMPLOYMENT OPPORTUNITY

[Company Name] provides equal employment opportunities to all employees and applicants. We do not discriminate based on race, color, religion, sex, sexual orientation, gender identity, national origin, age, disability, genetic information, veteran status, or any other protected characteristic.

This policy applies to all terms and conditions of employment, including hiring, placement, promotion, termination, layoff, recall, transfer, leaves of absence, compensation, and training.

ANTI-HARASSMENT AND ANTI-DISCRIMINATION

[Company Name] is committed to a workplace free from harassment and discrimination. Harassment based on any protected characteristic is prohibited. This includes:

- Unwelcome verbal conduct (slurs, jokes, comments)
- Unwelcome physical conduct (touching, blocking movement)
- Unwelcome visual conduct (posters, drawings, gestures)
- Requests for sexual favors
- Creating an intimidating, hostile, or offensive work environment

HOW TO REPORT:
If you experience or witness harassment or discrimination, report it immediately to:
1. Your direct supervisor, OR
2. [Owner/HR Contact Name] at [phone/email], OR
3. Any member of management if options 1 and 2 are unavailable or uncomfortable

All complaints will be investigated promptly and confidentially to the extent possible.

RETALIATION IS PROHIBITED: [Company Name] will not tolerate retaliation against anyone who reports harassment or discrimination in good faith or participates in an investigation. Retaliation is itself a violation of this policy and grounds for discipline.

DISABILITY ACCOMMODATIONS

[Company Name] complies with the Americans with Disabilities Act (ADA). We provide reasonable accommodations to qualified individuals with disabilities unless doing so would cause undue hardship. If you need an accommodation, contact [Owner/HR Contact Name] to begin the interactive process.

================================================================================
SECTION 2: COMPENSATION AND BENEFITS
================================================================================

PAY PERIODS AND METHODS

- Pay periods: [Weekly/Bi-weekly/Semi-monthly/Monthly]
- Pay day: [Day of week]
- Payment method: [Direct deposit/Check]
- Pay stubs: Available [location/method]

TIMEKEEPING

All [non-exempt/hourly] employees must accurately record their time worked. Record your start time, end time, and any meal breaks. Do not clock in for another employee or ask anyone to clock in for you. Falsifying time records is grounds for immediate termination.

OVERTIME

[Non-exempt/Hourly] employees may be required to work overtime. Overtime is paid at 1.5 times your regular rate for hours worked over 40 in a workweek. [Add state-specific overtime rules if applicable]

All overtime must be approved in advance by your supervisor. Working unauthorized overtime is a policy violation, but you will still be paid for all hours worked.

BENEFITS

[Company Name] offers the following benefits to eligible employees:
- [Health insurance - eligibility requirements]
- [Retirement plan - eligibility requirements]
- [Other benefits]

Details about each benefit, including eligibility and enrollment, are available from [Owner/HR Contact Name].

================================================================================
SECTION 3: TIME OFF
================================================================================

PAID TIME OFF (PTO)

Full-time employees accrue PTO as follows:
- [0-1 years of service]: [X] days per year
- [1-3 years of service]: [X] days per year
- [3+ years of service]: [X] days per year

PTO requests must be submitted to your supervisor at least [X days/weeks] in advance when possible. Approval depends on business needs and staffing requirements.

[Unused PTO policy: carryover limits, payout at termination, etc.]

SICK LEAVE

[Include state-specific sick leave policy. Example for states without specific requirements:]

Employees may use PTO for illness. If you are sick, notify your supervisor as soon as possible, preferably before your scheduled start time.

[For states with mandatory sick leave, include specific accrual rates and usage rules.]

HOLIDAYS

[Company Name] observes the following paid holidays:
- New Year's Day
- [Memorial Day]
- [Independence Day]
- [Labor Day]
- [Thanksgiving Day]
- [Day after Thanksgiving]
- [Christmas Day]
- [Other holidays]

If a holiday falls on a weekend, it will be observed on [the preceding Friday/following Monday].

FAMILY AND MEDICAL LEAVE

[If 50+ employees, include FMLA policy. If fewer than 50, state:]

[Company Name] currently has fewer than 50 employees and is not covered by the federal Family and Medical Leave Act. However, we will work with employees who need extended leave for medical or family reasons on a case-by-case basis. Contact [Owner/HR Contact Name] to discuss your situation.

[Include state-specific family leave requirements if applicable.]

BEREAVEMENT LEAVE

Employees may take up to [X] days of paid bereavement leave for the death of an immediate family member (spouse, child, parent, sibling, grandparent, grandchild, or in-law). Additional unpaid leave may be granted upon request.

JURY DUTY

Employees summoned for jury duty will receive their regular pay for up to [X] days. Provide your jury summons to your supervisor as soon as you receive it.

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SECTION 4: WORKPLACE CONDUCT
================================================================================

CODE OF CONDUCT

All employees are expected to:
- Treat coworkers, customers, and vendors with respect
- Perform job duties to the best of their ability
- Follow all company policies and procedures
- Comply with all applicable laws and regulations
- Protect company property and confidential information
- Report any violations of law or company policy

ATTENDANCE AND PUNCTUALITY

Regular attendance is essential. If you will be absent or late, notify your supervisor as soon as possible, preferably before your scheduled start time. Excessive absenteeism or tardiness may result in disciplinary action.

DRESS CODE

[Option 1 - Business casual:]
Employees should dress in clean, professional business casual attire appropriate for our work environment and any client interactions.

[Option 2 - No formal code:]
Use good judgment in selecting attire appropriate for your role and any scheduled activities.

[Option 3 - Specific requirements:]
[Include specific dress requirements for your industry/workplace.]

DRUG AND ALCOHOL POLICY

[Company Name] is a drug-free workplace. Employees may not:
- Use, possess, distribute, or be under the influence of illegal drugs on company premises or while conducting company business
- Be under the influence of alcohol during work hours or while conducting company business
- Misuse prescription or over-the-counter medications in a way that impairs job performance

Violation of this policy is grounds for immediate termination.

WORKPLACE SAFETY

[Company Name] is committed to providing a safe work environment. All employees are expected to:
- Follow all safety rules and procedures
- Use required safety equipment
- Report any unsafe conditions or accidents immediately to your supervisor
- Report any work-related injuries immediately

WORKPLACE VIOLENCE

[Company Name] has zero tolerance for workplace violence. This includes threats, intimidation, physical violence, or any behavior that creates a hostile or unsafe environment. Report any concerns immediately to [Owner/HR Contact Name] or call 911 if there is an immediate threat.

================================================================================
SECTION 5: TECHNOLOGY AND COMMUNICATION
================================================================================

COMPANY EQUIPMENT

Company equipment (computers, phones, vehicles, tools) is provided for business use. Limited personal use may be permitted if it does not interfere with work duties, violate any policy, or incur additional costs to the company.

Employees have no expectation of privacy when using company equipment. [Company Name] may monitor usage at any time.

EMAIL AND INTERNET USE

Company email and internet access are provided for business purposes. Limited personal use is acceptable if it does not interfere with work. The following are prohibited:
- Accessing inappropriate or offensive content
- Downloading unauthorized software
- Sharing confidential company information
- Any illegal activity

SOCIAL MEDIA

Employees may use personal social media accounts on their own time. When posting content that could be associated with [Company Name]:
- Do not disclose confidential company information
- Do not speak on behalf of the company unless authorized
- Be respectful and professional
- Make clear that opinions are your own, not the company's

CONFIDENTIALITY

Employees may have access to confidential information including customer data, financial information, business strategies, and proprietary processes. This information must not be disclosed to anyone outside the company without authorization. This obligation continues after employment ends.

================================================================================
SECTION 6: PERFORMANCE AND DISCIPLINE
================================================================================

PERFORMANCE EXPECTATIONS

Your supervisor will communicate specific performance expectations for your role. We encourage ongoing feedback and conversation about your performance. [Formal performance reviews are conducted annually/semi-annually/quarterly.]

PROGRESSIVE DISCIPLINE

[Company Name] may use progressive discipline to address performance or conduct issues. Steps may include:
1. Verbal warning
2. Written warning
3. Final written warning
4. Termination

However, [Company Name] reserves the right to skip steps or proceed directly to termination depending on the severity of the issue. This policy does not change the at-will nature of employment.

TERMINATION

Employment may be terminated by either party at any time, for any lawful reason, with or without cause or notice. Upon termination:
- Return all company property immediately
- Final paycheck will be provided in accordance with state law
- [COBRA information will be provided if applicable]
- [Information about benefits continuation]

================================================================================
SECTION 7: REMOTE WORK (if applicable)
================================================================================

[Include this section if you have remote or hybrid employees.]

ELIGIBILITY

Remote work arrangements are available to [certain positions/at manager discretion/all employees] based on job requirements and performance.

EXPECTATIONS

Remote employees must:
- Be available during core business hours [X:00 AM - X:00 PM]
- Respond to communications within [X hours] during work hours
- Maintain a professional, distraction-free workspace
- Attend required meetings (virtual or in-person)
- Meet all performance expectations

EQUIPMENT AND EXPENSES

[Company Name] will provide [list equipment: laptop, monitor, etc.].

[Expense reimbursement policy: internet, phone, supplies, etc.]

SECURITY

Remote employees must:
- Use company-provided VPN when accessing company systems
- Keep devices physically secure
- Not use public WiFi for work without VPN
- Follow all company security policies

================================================================================
ACKNOWLEDGMENT OF RECEIPT
================================================================================

I acknowledge that I have received a copy of the [Company Name] Employee Handbook dated [Date].

I understand that:

1. This handbook describes company policies and procedures. It is not a contract of employment.

2. My employment with [Company Name] is at-will. Either I or the company may end the employment relationship at any time, for any lawful reason, with or without cause or notice.

3. The company may change, modify, or eliminate any policy in this handbook at any time. I will be notified of significant changes.

4. I am responsible for reading this handbook and complying with its policies.

5. If I have questions about any policy, I should ask my supervisor or [Owner/HR Contact Name].


Employee Signature: _________________________________

Printed Name: _________________________________

Date: _________________________________


[COMPANY USE ONLY]
Received by: _________________________________
Date: _________________________________

This is not a complete handbook. Every section needs to be customized for your specific situation, and you should have an employment attorney review the final document before distributing it to employees.

Frequently Asked Questions

Is an employee handbook required by law?

No federal law requires employers to have an employee handbook. However, certain policies are required once you reach specific employee thresholds (anti-discrimination at 15 employees, FMLA at 50 employees), and a handbook is the standard way to communicate these policies. Some states and localities have additional requirements. While not legally required, operating without a handbook exposes you to significant legal risk.

How long should an employee handbook be?

Most effective handbooks for small businesses are 20-40 pages. Shorter handbooks may miss important policies. Longer handbooks often include unnecessary detail that employees will not read. Focus on clarity over comprehensiveness. If a policy can be stated in one paragraph, do not stretch it to two pages.

Do I need a lawyer to create an employee handbook?

You do not need a lawyer to write the handbook, but you should have one review it before distribution. A legal review typically costs $500-$1,000 and catches issues that could lead to expensive lawsuits. For companies in complex situations (multiple states, regulated industries, previous legal issues), having an attorney more involved in creation may be worth the additional cost.

How often should an employee handbook be updated?

At minimum, review your handbook annually. Update immediately when employment laws change, when you cross employee thresholds (15, 20, 50), when you expand to new states, or when company policies change. After any update, redistribute to all employees and collect new acknowledgments.

What is the difference between an employee handbook and a policy manual?

An employee handbook is written for employees and covers the policies that affect their employment: conduct expectations, benefits, leave policies, and workplace rules. A policy manual (or procedures manual) is typically more detailed, written for managers, and covers how to implement and enforce policies. Small businesses usually need only a handbook. Larger organizations may have both.

Can I use a free employee handbook template?

Free templates are a reasonable starting point for very small businesses in straightforward situations. However, templates require significant customization: they may include policies for laws that do not apply to you, miss state-specific requirements, or use language that creates unintended obligations. Never use a template without reviewing and customizing every section, and consider paying for legal review even if the template was free.

What should be included in an employee handbook?

Required elements include: at-will employment disclaimer, equal employment opportunity policy, anti-harassment policy with multiple reporting channels, wage and hour information, and workers compensation information. Recommended additions include: code of conduct, attendance policy, PTO policy, disciplinary procedures, technology policy, and benefits information. The specific requirements depend on your employee count and state locations.

How do I get employees to actually read the handbook?

Require signed acknowledgments before employment begins. Walk through key policies during onboarding rather than just handing over a document. Use clear, plain language instead of legal jargon. Keep it as concise as possible while covering necessary policies. Consider digital formats that track whether employees have opened and scrolled through the document. At FirstHR, we integrate handbook acknowledgment into the onboarding workflow so it is completed before day one.