What Is a Work Contract?

According to an article from HG.org, business contracts are important in any business transaction. This does not only entail that the agreement between two parties is legally binding, but it can also serve as references that can protect the company if you wish to do business with someone. Whether for building a project, or merely hiring an employee, a written contract that outlines essential work information is necessary. To define it in a simpler way, a work contract is a written agreement between an employer and employee that presents terms and conditions that both parties have mutually agreed upon.

This type of contract also lays out details about services and compensation processes. With this, the agreement between two parties will be legal and clear. According to the report from Statista, there are 157.54 employed people in the United States as of 2019. However, Statista also shows that the state of California has the highest employed people with 18, 627 thousands of the same year. On the other hand, the employment rate of the United States in 2019 is 60.8 percent, based on Statista figures.


The Basic Elements in a Work Contract

A work contract is an essential written document that presents the work agreement between two parties. This type of business agreement must include essential information that will justify its purpose. Here are the basic elements that need to be included in a work contract.

Scope of Work. One of the most important elements of the work contract is the scope of work. The contract must present what the job is all about. This is to ensure that the employee knows what he or she will do for the duration of his or her employment with the company. It is also necessary that the contract will explain how the company will evaluate his or her work performance.Compensation Details. Another important component of the work contract is compensation. The contract must outline how much the employee will get monthly and how the compensation is calculated. Also, layout how often the employee will receive his or her compensation, as well as the payroll schedule.Employee Benefits. Next is the employee benefits. The work contract should specify the benefits package the employee will receive during the contract. Benefits include medical, dental, and more. The contract should also present policies for time off, vacations, etc.Terms and Conditions. The work contract should also outline the terms and conditions both parties have agreed upon. It should be clear the dos and don’ts for both parties. For example, an employer can draft a non-compete clause that prevents an employee from working with other companies with the same business.Termination Clause. Just like any other business contract, a work contract should provide a termination clause. Explain the grounds for termination and the amount of notice required. The work contract should also present the termination process and how it is done.A Signature. Although signatures are simple, it plays a significant role in the work contract. The purpose of the signature is to identify the parties involved and to ensure that they have read the contract and understand the written content. Once the signature is placed, one can be held accountable once the terms and conditions of the contract are not met.

The Benefits of a Work Contract

Based on an article from Forbes, written contracts are important, especially when an employer is engaging with an independent worker. Business work contracts are necessary documents that establish strong employer-employee work relationships. Besides that, work contracts are also beneficial for both parties. Here are some examples of the benefits of having a work contract.

It presents proof of details. The first advantage of using a work contract is that it legally serves proof of terms that the employer and employee have agreed upon. This is the common benefit of having a work contract. It presents the mutual understanding of both parties regarding work scope, compensation and benefits, and other obligations.It prevents misunderstandings. A work contract entails the agreement between an employer and employee, but it also allows both parties to have a clear understanding of the terms, conditions, and expectations. This written work contract will serve as a reminder for both parties that what has been agreed upon should be taken seriously to avoid problems and misunderstandings.It provides peace of mind. Another benefit of having a work contract is that it provides peace of mind for both parties involved in the transaction. With a contract, both parties will be at ease that each of them will play their part. For example, the employee will have peace of mind knowing that the employer will provide accurate payment terms and other employee benefits until the contract is made. On the other hand, the employer will be at ease, knowing that the employee will follow and do the terms of service obligations to the company.It provides security. The ultimate advantage of having a work contract is that it establishes a confidentiality agreement between the two parties. With a work contract, both parties are legally bound to keep every information within the transaction. It is also beneficial for the employer because they will be able to protect company data and information. Thus, if one party fails to follow the contract, he or she will be held liable.It provides clear information. Another advantage of having a work contract is that it provides clear information about what needs to be done and whatnot. Instead of settling on an oral agreement, business transactions should be done through work contracts. This will ensure that both parties are mindful and well-informed about what exactly they are contracted to.

How to Write a Formal Work Contract

Once your business grows, many opportunities will come your way. And, opportunities mean more work, so hiring new roles will be essential. But, before an employee can start working with you, you need to set forth and discuss essential details about the job first through a formal document. So, if you are about to work with another party, you need to have an informative and professionally written work contract. However, if you do not have any idea how to make one, you can grab our sample templates above as a reference and follow the tips below. 

Step 1: Input Basic Information and Introduction

Begin drafting the work contract explaining what the contract is about and who are the parties involved. In this, you need to provide basic information about your company and the employee. The introduction usually goes like this, “This contract is made between John Doe (employer name or company name) and Jane Doe (the person or soon-to-be official employee). It should also contain the complete date when the contract is made. The work contract should also explain the term of the contract.

Step 2: Describe the Work

After writing an introduction, the next thing you need to place is the work scope. In this section, you have to describe what type of work the employee is required to do. It is essential to provide enough information about work-related duties, including other responsibilities. For example, if you are hiring a general contractor for a construction project, you have to outline the contractor’s job inside and outside of the project. Nevertheless, make sure that the scope of work and services are well-defined and clearly stated.

Step 3: Write the Payment Process

Once you have already placed the work scope, it is time to write the payment structure. In this part of the work contract, payment processes like how often the employee will get paid, how the payment is calculated, etc. It is also necessary to outline the benefits the employee will receive, such as medical, eye care, dental, and more. It should also be clear what percent the employer will pay for the benefit plan. 

Step 4: Include a Confidentiality Clause

Now that you have already explained the payment process, you will add a confidentiality clause in the work contract. This section should include terms regarding company asset and company-based documents. The confidentiality agreement is necessary because it will protect your company’s resources and client data. It should also be essential to explain the conditions that are grounds for contract termination.

Step 5: Add a Technology Privacy Policy

In this area of the work contract, rules, and regulations about using personal emails or social media accounts on company properties should be explained. It should clearly state what is prohibited and what is not. For instance, if you are working with a graphic designer to create your company website, the contract should explain limitations regarding company assets. Just like the other essential information, the technology privacy policy should be well-explained and discussed to the employee.

Step 6: Get the Contract Signed

Once every necessary information is written in the work contract, finalize it by getting it signed. Before that, make sure to evaluate the work contract and see if there are errors that need to be corrected. Ensure that both parties, the employer and the employee, will read the contract before signing it. This is to make sure that both parties have understood what the contract implies. Signing the contract legalizes everything written in the contract, which ensures there will be no misunderstandings in the future.


Are work contracts legally binding?

Yes. An employment work contract is a legally binding contract because it is valid under federal contract laws.

What makes a good work contract?

A work contract should be detailed and consist of essential information that explains the employment agreement between two or more parties. A good work contract should be understandable, informative, and formal.

Is a work contract necessary?

If you are in a business transaction with someone and you want to legalize your agreement, then yes, having a work contract is necessary. With a work contract, you will be able to secure both of your rights and avoid problems in the future.

What is the minimum contract term?

The term of the contract depends on what the contract is about. For example, if the contract is for a project, the contract will last until the project is done. Nevertheless, the extension of agreements is possible.

What are the three types of employment contracts?

The three main types of employment contracts are the permanent employment contract, fixed-term contract, and the casual employment contract.

Work contracts are essential in every business transaction, just like any other kind of business contract. This legal document makes the work agreement between two parties, the employer and the employee, and ensures that both parties will follow each term. The work contract also imposes security for the people involved, as well as protects their rights. So whether you are working with a contractor or a newly hired employee, it is always essential to legalize every agreement through a work service contract.