Employment Contracts

What is an employment contract?

The document handed to you by an employer during the final stage of the recruitment process is known to be the employment contract. It is a kind of contract used in labor law to establish the rights and responsibilities of the two parties involved in an agreement. It is typically voluntary, which means that either party may choose to accept or reject the contract if it fails to meet their respective terms. However, employment contracts are only enforceable in the court of law if they meet the required standards.

The Pros and Cons of Employment Contracts

Like most business documents, employment contracts have their own share of advantages and disadvantages. One of the primary benefits of the contract, for instance, is how it helps retain top performers and reduce the rate of costly turnovers. A considerable amount of time and money is invested to hire and train a new employee for the position, so the last thing you would want is for your investment to walk out the door by the end of a mere six-month tenure. Recruiting costs, relocation costs, and sign-on bonuses are just a few other expenses that companies may incur due to sudden resignations.

Contracts are also useful for protecting the interests of the business. When employees are given the authority to work with sensitive company information, contracts help prevent employees from disclosing this information to the public or using it for personal gain. Including a confidentiality clause in these contracts is crucial in ensuring that employees are aware of the consequences of their actions.

But on the other hand, establishing your provisions early on can also limit your ability to adapt to changing conditions. Unforeseen circumstances can sometimes cause major changes in the course of your business operations. You will have to renegotiate these terms, settle with the employee’s proposition, or possibly deal with financial penalties caused by the breach. Thus, the risks brought by employment contracts should always be considered before they are written. It’s also best to have the document reviewed by a legal counsel to determine its validity.

Employment Contract Samples

Let’s look into some of the most common examples of employment contracts.

Key Elements of an Employment Contract

As your company continues to grow, hiring new talents to build and expand your team becomes a priority. The recruitment process might be a long, complicated one, but it all boils down to knowing what you can do to maintain a solid and reliable workforce. As an employer, you want to make sure your company and your employee reap equal benefits from the relationship. This can be spelled out in detail by including the following elements in your employment contract.

1Job Information: Prospective employees must have a clear understanding of the requirements and expectations that come with the job. This includes the job title, the department with which it is a part of, and the responsibilities that it entails. This also explains the duties and tasks an employee is expected to fulfill during his or her employment in the company.2Salary or Wages: Some employees can be very particular about how they are compensated, especially those of a higher-level position with exemplary credentials. If they are not satisfied with what you can give them, you do have the option to renegotiate your offer and meet them halfway. Most companies are willing to raise their offer if they find the chosen candidate more than qualified for the position. The salary, wage, or commission that has been agreed upon should then be itemized in the contract for employees to refer to.3Schedule: The contract will sometimes include the number of working days and hours that the employee is expected to render. This is essential for part-time or student employees who require a flexible schedule that they can work with. In some cases, an employee may request shorter hours for a lower salary rate, as long as it fulfills the requirements of the company.4Employment Duration: In some industries, employees are only contractual, which means that the chances of them becoming a regular company employee is close to none. The contract should dictate an original term of duration and specify conditions that may cause you to extend, reduce, or terminate the contract. The length of the agreement must be favorable and applicable to the situation as well. Engineers, creative professionals, and freelance workers are some examples of temporary employees.5Benefits and Premiums: In addition to one’s annual salary, information about bonuses, incentives, or raises and how these may be obtained should be indicated in the contract. You can discover many companies that offer the same workload for a similar salary, but you won’t find a lot of employers who can provide better benefits than the other. The promised benefits may include health insurance, stock options, vacation time, medical leaves, and other perks that are part of the employment.

How to Write an Employment Contract

At its core, an employment contract defines the relationship between an employer and an employee. Putting your interests, expectations, and requirements down on paper is an absolute necessity for businesses of any nature. But contrary to what many believe, crafting an employment contract is a simple procedure that can be achieved with careful consideration and legal support.

To help you understand how these contracts are drafted, let us discuss each section below.

The Preamble

Always start by letting people know what they are getting themselves into. Begin with an introduction of what the document is for, who it concerns, and when the contract was finished or signed. Make sure to explain the purpose of the contract based on the understanding of both parties. Although this does not describe any details about the employment, it does provide a general overview of its scope.

Job Description and Duties

There are a ton of jobs in the market that people know little to nothing about. Some job positions may seem boring and vague, while others can sound extremely odd and specific. Regardless, every employment contract should have a section that explicitly defines the employee’s title, duties, and expected working hours. The rights and obligations of the employee must be clearly articulated to avoid any misunderstanding. Experts suggest leaving room for flexibility so you can make the necessary modifications without being accused of breaching the contract. Careful wording and unambiguous statements will definitely save you from unwanted headaches in the near future.

Compensation and Benefits

For the sake of simplicity, you might want to merge these two items into one clause. Your employees will be very interested in this section, as this alone can cause a person to doubt their decision on whether they want to work for the company or not. Will employees be compensated for working overtime? How are commissions calculated? Are there any policies relating to travel or work reimbursements? Consider the questions that readers might have and address them clearly in the contents of your document.

Term and Termination

The start and end period of the contract is an essential part of its implementation. It clarifies the conditions in which the contract can be terminated and the entity responsible for doing so. Unlike temporary employment contracts, unlimited term contracts usually begin with a trial period in which employees are put on probation to further evaluate their skills and work ethics. This will typically last for an average of six months or so, as delays are bound to occur depending on one’s performance. Once the term ends, employers can choose to terminate the employment or to extend the contract indefinitely.

Confidentiality, Non-Compete, and Conflicts of Interest

Over the years, cases of a company’s proprietary information falling into the hands of competitors have become a common concern in the world of business. While investigations have sometimes led to a dead end, court reports point the source of these leaks to former company employees. This can be damaging to the organization’s plans and strategies against market competitors. Thus, including a confidentiality statement in your employment contract is very important. Employees should know the consequences they could face should they fail to comply with the provisions that were stated.

Other Possible Clauses

Employment contracts usually vary depending on the industry or location of the business. Position-specific requirements are also considered when setting these terms and conditions for better management. Keep in mind that laws in some states prohibit certain clauses from being included in a legal agreement, so be sure to do your research beforehand. You can also include a severability clause to confirm that any provision of the contract deemed unenforceable will not invalidate the rest of the agreement. That way, you can avoid costly disputes and wasted efforts.

An employment contract does not have to be lengthy and complicated to meet legal standards. It does, however, need to be specific, explicit, and logical in all areas for it to truly protect both yourself and your employees from undesired conflict.