Employment Contract: All You Need to Know

The employment process involves multiple documents, from a letter of intent to an offer letter. An employment contract is one of the most detailed and critical documents to sign.

For this purpose, writing and navigating through the legally binding papers can be challenging. Several employees strain to browse the technicalities of sections like policies, benefits, and compensation schemes.

Fortunately, you can ease the process by scanning the document’s crucial details, such as the job title, description, termination, and policies.

Likewise, for employers, by understanding the prime components of an employment contract, you can create a transparent document guaranteeing minimal disputes from your employees.

What is an Employee Contract?

An employee contract is an employer and employee agreement, usually on paper. It stipulates the conditions for the latter’s employment and dictates the rights of both parties.

In effect, it’s legally binding and offers employees better job security. The document details the worker’s roles and employee expectations as well.

Employment Contract vs. Offer Letter

Employment contracts and offer letters are contrasting documents. HR specialists send these forms at different intervals during an employee’s employment period and for unrelated purposes.

Similarities

Offer letters and employment contracts are both signed agreements provided by employers. They can include similar information, such as working hours, salary amount, and job title.

Differences

Employment contracts provide extensive details of an employee and employer’s rights and responsibilities. Offer letters are less detailed and vary in purpose since they extend an offer for employment.

Upon acceptance, employees are then officially hired and onboarded into the company. You’re not guaranteed a spot after signing the job offer letter. For instance, you can lose the offer by negotiating the salary.

Employment contracts are more legally binding. They come after an employee accepts the offer letter. The document provides terms and conditions of employment for both signing parties.

Who Needs an Employment Contract?

In several cases, employment contracts aren’t a necessity. Employers follow an implied contract where the law determines the terms of employment. Some industries provide employment contracts for workers handling sensitive information and specialized knowledge.

Employees With Specialized Knowledge

An employee contract is necessary if an irreplaceable employee with valuable knowledge is on the table. Those employees are challenging to come by. You’ll have to invest a lot of time recruiting and training an employee for the same specialized knowledge.

For this reason, an employment contract can enhance your employee security. Plus, they’d need to give you a notice period if they decide to leave.

Employees Handling Sensitive Information

An employment contract is necessary whether an employee’s handling a secret recipe or trade knowledge.

The agreement would legally prevent the employee from discussing confidential information during and after employment.

Employers may also add a non-solicitation agreement prohibiting employees from using the company’s resources for personal benefits after employment.

What is the Importance of an Employee Contract?

Employee contracts are essential to read and understand since they divulge the details of an employee’s roles and responsibilities. On the employer’s side, the agreement protects the business’s best interests and minimizes disputes, such as in salary discussions.

Prevent Legal Issues

Employee contracts play a vital role in avoiding legal issues. For example, the document can prevent employees from filing a class-action lawsuit against the company.

After signing the agreement, both parties are legally responsible for upholding the terms and conditions. Any breach of contract can result in legal repercussions.

Overall, the binding contract provides stability and prevents future escalating disputes. Despite its criticality, less than 20% of employees read through the employment contract.

Protects Both Parties

The contract discloses salary amounts, vacation days, and other critical details that protect both parties’ rights.

When dealing with confidential information, employers specify a non-disclosure contract. That way, any trade secrets are legally protected from competitors.

The contract also enforces a notice period, which protects employers from sudden leaves, especially with skilled employees.

What are the Different Kinds of Employment Contracts?

HR managers categorize employment contracts based on an employee’s status, role, and job requirements.

Full-Time Employment Contracts

As the name suggests, employers aim for full-time contracts for permanent employees working at least 35 hours weekly. These types of agreements are usually the longest.

They discuss the employee’s compensation, salary, working hours, and responsibilities. The legally binding document discloses work opportunities, career growth ladder, and benefits.

Part-Time Employment Contracts

Part-time employment contracts are more flexible in terms of working hours. The range falls below 30 to 35 hours per workweek.

In some scenarios, the contract could ask employees to work extra hours during seasonal demand.

In contrast with full-time contracts, part-time documents usually don’t offer insurance, benefits, or paid time off.

Fixed-Term Employment Contracts

Unlike full-time employment contracts, fixed-term options allow employees to work for a specified duration rather than permanently. Employers hire these employees to complete a task or project.

Fixed-term employees also assist in covering employers during a time of need, such as high demands. They’re also helpful if existing full-time employees are taking an extended leave.

The contracts’ components don’t differ much in offerings compared to full-time and part-time agreements.

They can provide benefits, salary information, job description, and working hours. Employers can extend the fixed-term employment as long as both parties agree.

Casual Contracts

Casual contracts are the most flexible documents in this list. Employers typically hire casual workers as freelancers or independent contractors.

Unstable businesses benefit the most from these workers since they can call and ask them for the required tasks without contract-based working hours.

In turn, the salary amount in the contract may stipulate an hourly rate or task amounts. Employers can renew the contract whenever needed.

What to Look for in an Employment Contract

Employees tend to prioritize some sections more than others. For instance, 66% of employees browse the base salary amount and compensation fields.

Meanwhile, 29% of the same employees look through the sick leave and paid time off sections. That said, you should make it a habit to look through these essential components.

Job Title

The job title is the first component you’ll want to examine in your employment contract. It’ll reflect your future career outlook since you’ll place it in your CV and mention it when networking or building professional relationships.

Job Responsibilities

Despite its vitality, employers don’t necessarily add a job responsibilities section. The duties describe the hiring manager’s expectations and enhance transparency.

After reading the responsibilities, ensure their alignment with the advertised job description. Otherwise, you can discuss any inconsistencies with the employer. If the contract doesn’t include job responsibilities, we suggest verbally discussing them with your hiring manager.

Salary

One of the first sections you’ll want to check is the salary once. Ensure that the amount written is the one you verbally agreed on during your interview.

The section will also include information on how and when you’ll receive your salary. If you notice any discrepancies, contact your employer before signing the document.

Benefits

The benefits part can detail your bonus scheme and workplace perks. They can include a gym membership, discounts with specified vendors, paid time off, insurance, or retirement plans. Pay close attention to the benefits to understand their qualifications.

Start Date

The employment agreement should include the start date unless you’re signing a fixed contract, which will have a start and end date.

Confirm that the start date doesn’t clash with your end date with your previous employer. A time gap between the two jobs should give you enough time to retract your documents.

Working Hours

This section primarily concerns full-time and part-time workers. Otherwise, independent contractors can abide by fluctuating hours depending on demand.

Ensure that the working hours are up to your standard and will provide you with a much-needed work-life balance.

Vacation and Sick Pay

Employment contracts could specify vacation days during allocated times of the year. Make sure the number of vacation days can meet your lifestyle requirements.

According to the U.S. Department of Labor, companies aren’t under federal obligation to provide paid sick leave. Some policies offer unpaid sick leaves for you or an immediate family member.

Others, such as in California, give employees three paid sick days. Double-check this section to understand your employer’s sick leave policy. These policies usually apply to full-time and part-time contractors.

Restrictive Clauses

Employers include restrictive clauses, or covenants, to protect their business. In most cases, they apply after you leave the organization.

They can comprise:

●     Non-dealing agreements: Prohibits you from professionally engaging with the company’s clients and employees.

●     Non-compete agreements: Prevents employees from sharing confidential information with competitors after and during employment. It also impedes you from working with a competitor after a specified period.

●     Non-poaching agreements: Bans you from taking or poaching the company’s clients or employees after termination.

These clauses are crucial to review because they could affect your career prospects after departing the company.

Termination

The termination section discusses the conditions where the employer has the right to terminate a worker’s employment.

The section can go into the employee’s rights during termination, such as pay, severance, or notice period. Employers, for the most part, try to limit the qualification for a severance.

That said, the termination clause differs based on employee status as well. An executive-level worker can get a two years notice period.

Policies

Policies dictate your workplace behavior, attire, conduct, and rights. These are ideal for avoiding future disputes.

Like the job description, the section provides potential employees with a run-through of the company’s expectations and standards.

Equipment

Your work may require a desktop, laptop, or other equipment. Your employer will mention these tools and your rights to them in this section.

The terms in the contract will likely state that you’re only allowed to use the equipment during work hours or for professional purposes.

How to Write an Employment Contract

Crafting an employment contract is about including all the necessary components. Each section should coincide with the company’s expectations and the interview takeaways during the employment process.

1. Start With a Template

Rather than start from scratch, you can find multiple employment contract templates from online resources.

Each template contains the necessary components of the document, such as the job description and salary. They can be industry-specific as well. You can locate a restaurant or IT worker template.

2. Insert All the Necessary Information

After finding your template, you can add all the information like the company policies, agreed-upon interview, and benefit structure. Be aware of your organization’s proprietary information in case you need to include a restrictive clause agreement.

3. Have it Looked Over by a Lawyer

A company lawyer review will ensure your document is legally compliant, fair, and detailed enough. Some companies enlist their lawyers to create the document.

How to Update an Employment Contract

You may already have an employment contract but want to upgrade it based on company developments. The old contract may have issues that caused unwanted employee disputes.

Either way, an update can save you future HR trouble.

1. Determine the Changes to Be Made

List down the amends you need to make in the contract. It can be a change in working duration for your casual contract or in the compensation scheme.

2. Agree on Any Revisions

Approach the employee regarding these revisions. When negotiating the amends, you can try to be more adaptable to garner their permission.

For example, you can proffer a slight pay increase or benefits if you’re lessening their work hours.

3. Make the Changes

After the employee agrees to the changes, recreate the employment contract with the new amends.

4. Sign

Allow the employee to sign the agreement. The amended document will prevent conflicts and keep both parties on the same page.

Wrapping Up

Employment contracts set the scene for an employer’s expectations. It offers employees a guide to their salary, benefits, compensations, and responsibilities.

The signed agreement can prevent multiple legal issues and protect both parties. That said, let us know what you think about the topic, and don’t hesitate to comment if you have any questions about our article.

Overall, an employment contract creates a legally binding agreement between employees and employers.

The document involves multiple components, from the job description to the restrictive clause. Each section should be carefully crafted by the employer and attentively read by the employee.