An employment contract (or employment agreement) defines the terms of a legally binding agreement between an employee and employer such as compensation, duration, benefits, and other conditions of the employment relationship.
What is a Contract of Employment?
An employment contract recognizes a legal business relationship between an employer and employee. The contract of employment outlines the rights and responsibilities of both parties for the duration of employment. For example, the set of functions an employee will perform, and the salary the employer agrees to pay in return.
As a reference, people also refer to an employment contract as:
- Employment Agreement
- Work Contract
- Job Contract
- Contract of Employment
- Contract of Service
Before issuing an Employment Agreement, you should request that the candidate provide an Employment Verification Letter to verify their income and employment history.
Types of Employment Contracts
There are various different types of employment contracts to accommodate for the different employment statuses of individuals. Some of the most popular types of employment contracts include:
- Permanent employment contracts – for employees who will work regular hours (part-time or full-time), are paid a salary or hourly rate and are ongoing until terminated by either the employer or the employee.
- Temporary or fixed-term employment contracts – for employees that work part-time or full-time and are employed for a fixed period of time or are employed temporarily with no fixed end date but termination is expected on notice.
- Executive employment contract – outlines contractual obligations and expectations between a usually highly compensated executive and an employer. It is typically negotiated between the two parties and can involve legal assistance.
Other employment contracts you may want to consider include:
What is Included in an Employment Agreement?
A simple employment contract will identify the following basic elements:
- Employee: Name of person being hired to work.
- Employer: Name of the company hiring the employee.
- Position: Title and description of employee’s role/s and responsibilities.
- Compensation: Amount of money paid per hour, week, or month, including any overtime, bonus(es), or commission, and the compensation schedule.
- Start Date: When the employee will start working for the employer.
- Term: Indefinite or fixed amount of time the employee is expected to work. For example, you may have all new employees sign a 1-year employment contract with an option for extension upon review.
- Benefits: Details about disability protection, health insurance, vacation, sick days, paid time off (PTO), maternity leave, and any other benefits.
However, many standard employment agreements also include provisional clauses that offer further legal protection for the company:
- Confidentiality: Also known as a non-disclosure agreement or confidentiality agreement, specifies that trade secrets, client lists, and sensitive information cannot be shared while working for this employer or future employers.
- Non-compete: A non-compete agreement prohibits the employee from working for competing companies or competing with the employer if they leave, including misusing confidential information.
- Non-solicitation: Employees may not recruit other co-workers to join them when they leave the company. Furthermore, the employee is not allowed to ask the company’s clients or customers to follow them to their new company. If you live in California, Montana, North Dakota, and Oklahoma, however, restrictive covenants are not allowed and employees are allowed to work for competitors.
- Probationary Period: A period of time where the employee is essentially “on trial” and may be terminated if deemed unsuitable.
- Termination: The reasons why the employment relationship may be ended.
- Work for Hire Clause: Anything created by the employee at work belongs to the company.
- Agency Provision: Clarifies that the employee does not have the authority to enter into a contract on behalf of the employer unless there is written consent.
A contract of employment form may also include a reimbursement provision stating that the company will pay the employee back for expenses job-related expenses like a cell phone, business travel, or relocation.
Additionally, an employment contract can require employees to give a certain amount of notice before quitting, so they can help hire or train their replacement. Furthermore, by documenting clear expectations and job responsibilities, an employment agreement letter allows employers to discipline and fire employees who do not meet work performance standards.
Without a written employment agreement form, an at-will employment contract is usually implied. In other words, the employee is free to quit at any time, and the employer is free to fire the employee at any time – as long as the basis of dismissal is not deemed as wrongful termination.
An employment contract offers legal protection to both an employee and employer. In the event a dispute arises, both parties can refer to the original terms agreed to at the beginning of the working relationship.
Avoid mistreatment and legal repercussions for both parties by drafting an employment contract today.
How To Write an Employment Contract?
Here’s a step-by-step to writing an employment contract:
Step1 – Identify the Parties
You will want to start the employment contract by stating which parties are entering into the contract. Clearly put the business name and name of the employee involved.
Step 2 – Term and Probationary Period
Next, you will want to outline what the term of the employment contract is, such as if it’s permanent, temporary, or at-will. You will also want to include if there will be a probation period for the employee, and if so, how long it will be.
What is a Typical Probationary Period for a New Employee?
Typically, a probationary period is between three and six months. This is usually a good amount of time to see if a new employee is a good fit for your company.
Step 3 – Compensation and Employee Benefits
In this section, you should include the base salary of the employee and how often they will be paid, such as once a week or once a month. You should also cover how much compensation the employee will receive for any overtime and then any additional compensation they will be entitled to, such as commission.
Employee benefits, such as paid time off, sick leave and how the employer will reimburse the employee when it comes to expenses, should also be addressed.
Step 4 – Non-Compete and Confidentiality
If you’re including a non-compete clause you should include how many months following the employee’s termination that they cannot engage in certain activities that may compromise the agreement.
Whether you include a non-compete or not, you should state if the employee will be exposed to confidential information or not, below this section.
Step 5 – Termination and Severance
It’s crucial that you include details about the termination of the employment agreement, stating how much notice the employee must give to the employer and vice versa. Any severance entitlement should also be included in this section.
Employment Contract Template & Sample (PDF & Word)
The standard employment contract template below defines all necessary terms of an employment relationship — terms that become legally binding when signed by the employer and employee.
Employment Contract
Employment Contract Example
The employment agreement example below details an agreement between the employer, Susan C Clarke, and the employee, Rudolph M Hettinger. Susan C Clarke agrees to employ Rudolph M Hettinger as a Personal Assistant. This sample letter of agreement between employer and employee, Susan C Clarke and Rodolph M Hettinger, will become legally binding once signed by both parties.
Note: You should use an Independent Contractor Agreement if you are hiring a business or self-employed person to accomplish a short term project or task.