For companies in a range of industries, an employment contract, sometimes referred to as an employment agreement, is an essential document. They assist employers in lowering the risk of employment liability and assist employees in understanding the standards they must uphold while working for the company.
Before creating a contract for your company, there are a few things you should understand about employment contracts. Below, we cover what an employment contract is, why they’re important, and how to write an employment contract.
What is an employment contract?
An employment contract, sometimes referred to as an employment agreement or a contract of employment, is a document that specifies the terms of the working relationship between an employer and an employee. Although an implied employment contract may be upheld, written employment contracts offer greater legal security and clarity for both parties. Each unique employment relationship is catered to in an employment contract. The following components are commonly found in an employment contract:
- Duration of employment, if applicable
- Salary or wages
- General job responsibilities
- Work schedule
- Benefits
- Confidentiality
- Non-compete agreement
- Severance pay, if applicable
- Termination details
Usually, after the job offer has been accepted and before the employee’s first day of work, both parties sign employment contracts.
What would a standard employment contract entail?
Since each employer/employee relationship is one-of-a-kind, the contents of an employment agreement vary accordingly. They will correspond to any employment relationship that is established. As such, the following are usually defined in each employment agreement Different aspects that.
Duration of employment
The employment contract should specify for what period the employer is agreeing to hire and retain an employee. This includes the commencement date and termination date. This is one of the most fundamental pieces of information that must necessarily be covered in every employment contract.
Employee position and responsibilities
Although an employment contract does not have to be so specific as defining all the tasks that an employee will perform, it should help outline what their general position and responsibilities are. This is because employment contracts are legally binding, and they should therefore be clearly defined. If the employer wishes to move an employee into a new primary role while they are still covered by their early employment contract, then he or she will be forced firstly to renegotiate this initial contract with that worker.
Employee schedule
The contract may specify how an employee’s work schedule will appear. This can be anything from what days and hours they are working, when is a break taken among others like the length of breaks being on holidays off.
Employee compensation
Every agreement with every employee must contain information on how much money the employee will be paid. Employee wage amount, whether an employee is hourly or salaried, what their bonus structure looks like, and equity options can be a part of the details regarding compensation for employees.
Employee benefits
A written employment agreement should also outline employee benefits as another form of compensation for employees. You are legally obliged to offer employee benefits such as family and medical leave, health insurance if you have 50 or more full-time employees, unemployment insurance; and workers’ compensation for injuries at work.
You may also provide additional benefits such as dental and vision insurance, health savings accounts, retirement saving plans, and life insurance or you can just consider other types of employee advantages.
Intellectual property ownership
When an employment relationship is brought to a close, employees are generally armed with much silent company information that most employers would like left undisclosed. This can be fixed by incorporating a clause in an employment agreement that deals with the ownership of intellectual property rights (e.g. patents, copyrights, trademarks and trade secrets).
Termination guidelines
An employment agreement can describe what kind of employee actions or behaviors would justify the termination. An employment contract can be especially useful for employers who wish to terminate an unmanageable employee’s job relationship.
Severance payments
Employment contracts are an attractive option for employees because of the promise of severance pay. A severance package is a supplementary remuneration given to an employee after the termination of his or her employment relationship. It may include such benefits as a longer life and insurance coverage of health, accrual of the employee’s account funds for retirement, or stock options. You do not have to incur the cost of severance pay for employees, but it can attract workers into employee contracts.
Dispute resolution procedures
They can also include details on how to resolve employee disputes. For instance, most contracts mandate employee consent to mandatory arbitration as an avenue for settling disputes.
Post-employment obligations
When the employee agreement ends thus ending for you; your sensitive and private company pieces of information can not be stopped from being taken to your competitors by that individual. To preserve your enterprise, you may require the staff member to comply with specifics about post-employment duties. Siegel identified such terms as noncompetition, nonsolicitation, and nondisclosure of confidential clauses. You may also have employees enter into separate noncompete agreements.
Who needs an employment contract?
There are no statutes requiring any business or employee to furnish an agreement concerning employment; nevertheless, that does not stop this from being a positive thing for one good reason. Employment contracts are useful, for instance, if you are hiring someone to handle extremely sensitive or confidential information, or if you are hiring someone who will be working under strict deadlines or with performance requirements. They can also be employed to draw in highly qualified individuals in a field that is lacking in them.
On the other hand, if your company is expanding and changing quickly or if you believe that you might have to break the terms of the contract at any time, you might not want to mandate employment contracts. According to Pearson, small business owners typically hire people under implied contracts rather than formal employment contracts.
Employment contract template
Employers should be aware of the laws of the jurisdiction in which they conduct business, as employment contracts are subject to state law. You can use an employment contract template as a starting point, even though you should always consult with legal counsel to customize an employment agreement for your particular circumstances.
- By answering a few questions, Zegal allows you to create a free employment agreement in as little as five minutes. By using Zegal, you can lower legal risks and streamline your contract processing so you can concentrate on running your business. This platform is adaptable, scalable, and designed with your company’s requirements in mind.
- An employment contract agreement template from Betterteam is available for quick download into a Microsoft Word document.
- eForms is also an employment contract builder that can be customized according to the needs. You have the option to save your agreement as an ODT, Word, or PDF document.