Human Resource

Key Components of HR Policy

Key Components of HR Policy

The HR Department of a company acts as a bridge between the employees and the higher management, and the department communicates the rules and regulations of the company through HR policies. Therefore it is important for the HR Department to formulate the HR policy carefully. However, most companies fail to draft a proper HR Policy due to their lack of awareness regarding the various components that must be incorporated into the HR Policy.

The article discusses the Key Components of an HR policy to help the company gain clarity regarding the components and draft a proper and well-defined HR Policy for the employees.

What is an HR Policy?

An HR policy is a written document which enumerates the rules and regulations of a company that must be complied with by the employees of the company. Such policies are formulated to avoid any complexities arising due to the lack of awareness about the overall functioning of the organisation.

What is the Importance of HR Policy?  

Formulating an HR Policy is important due to the following reasons

  • Communicating the values and expectations regarding the functioning of the Organisation.
  • Compliance with Labour Laws and other developments in the country.
  • Documentation and implementation of the best practices as per the organisational structure of the company.
  • Ensuring equal treatment, transparency and fairness among the employees and other staff members.
  • Facilitating the management in making consistent, uniform and well-informed decisions for the growth of the company.
  • Developing a formal and consistent working culture for small scale businesses.

What are the Types of HR Policies? 

The types of HR Policies are discussed below – 

General Policies – 

The General policy elaborates the priorities and philosophies of the top management for the formulation of the broad plan with the motive of mapping out the organization’s growth chart.

Specific Policies –

As the name suggests, these policies cover specific issues such as recruitment rewards and bargaining. Such policies, however, should be in line with the basic framework which is offered by the general policies.

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What are the Key Elements of HR Policy?

The key elements of an HR Policy are –

Recruitment Policy         

The recruitment policy prescribes the procedure for the selection of employees and the parameters that must be met by them for getting hired by the company.

Employment Contract

This is one of the most crucial components of every HR Policy as it deals with the aspects related to the employment of the candidate being hired in the company

According to the employment laws of India, it is important to have proper documentation of the employee record, which is necessary to ensure accurate navigation through the diverse and complex framework of employment and help in avoiding any legal complexities.

Wages of the Employees

Payroll management plays a crucial role in the management of the employees of a company, and there are various labour legislations formulated in this regard, the most important being the Minimum Wages Act 1948, which provides for the minimum wages for skilled as well as unskilled employees. Another crucial Act is the Payment of Wages Act which mandates the payment of the salary of the employee devoid of any unnecessary deductions. Therefore incorporating this clause in the HR Policy is extremely important for businesses.

Code of Conduct

This component of the HR Policy deals with the mission, vision, and ethics of a company. It contains the rules and regulations to be followed by the employees of the company, such as the use of electronic devices, conflict of interest, timings of the official working hours and breaks, along with the penalties consequential to the violation of the code of conduct.

Leave Policy

The HR Policy of every company must clearly define the leaves that an employee is entitled to annually, which must be properly bifurcated as casual leaves, sick leaves, paid leaves, and public holidays. It is necessary to mention the provisions regarding the deductions in salary in the event of half days or short leaves or overtime.

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Provident Fund

Any company having more than 10 employees is obligated to establish a provident fund for their employees to provide them with income security even after retirement. The HR policy must include the details of the employee benefits scheme and the benefits provided under the same. Some of the benefits include medical insurance and a retirement pension.

Gratuity Policy  

Gratuity can be considered a token of appreciation provided to the employees by the companies. It becomes applicable to the employees after the completion of 5 yrs into the service of the employees as per the provisions of the Gratuity Act 1972  

It is a one-time payment made to the employees at the time of their layoff or resignation.

Paternity and Maternity Benefits

If the company has more than 10 employees, it is under the obligation to provide maternity and paternity benefits to its employees. The provisions regarding maternity benefits are governed under the Maternity Benefit Act, and the HR Policy must state the relevant provisions, such as the duration of the maternity leave and the compensation in respect of the same, among others.

However, it must be noted that there is an absence of any laws regarding paternity benefits, but central government employees have the right to avail the paternity leave of 15 days for taking care of their wife and surviving child. There is a proposed paternity benefits bill, 2017, which is still pending government authorisation.

Sexual Harassment at Workplace

It is important for every company to provide a safe and healthy working environment to its employees, irrespective of their gender. Therefore the HR Policy of every company having more than 10 employees must contain a clause regarding their stand on sexual harassment in the workplace. The provisions governing the same are enumerated under the Prevention of Sexual Harassment (POSH) Act1. The policy must clearly mention the details of the ICC, grievance redressal mechanism, etc.

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Adaptive Work Culture

The outbreak of Covid has led to a drastic shift in the work culture of every company, which has promoted the concept of Work from Home, facilitating the need for an adaptive work culture policy in every company, which can provide better flexibility to the employees regarding their choice of workplace location.

Travel Policy

The travel policy deals with the rules and regulations for the employees who are required to travel for business purposes. This policy includes provisions such as travel allowances and other compensation and benefits provided to the employees for the growth of the company’s business.

Employment Termination policy

This policy is equally important as the employment contract as it provides the rules and regulations regarding the termination of employees. It ensures that the employees leave the company after reviving their well-deserved entitlements and respect. The employee termination policy must include the notice period, severance pay rules, and full and final settlement (FNF) provisions. It also enumerates the unaccepted norms, penalties and warnings that can be levied or provided to the employee of the company and the factors that can lead to immediate termination of the employee.


A well-drafted HR policy can help in the efficient management of the company’s employees by providing the relevant information about the operations of the business and the expectations of the company from its employees, which can help avoid any confusion and facilitate better productivity of the employees which can, in turn, lead to employee loyalty better employee retention and the overall growth of the company.

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