When you settle on a suitable employee, your team has listed jobs, reviewed applications, conducted interviews, and completed background checks. There is just one more step before the new employer-employee relationship becomes official. You both must sign an employment contract.
The employment contract agreement outlines the terms of employment and protects your and the new team member’s rights. Adequate preparation is necessary to capture every crucial element of the agreement, such as the employment period, salary, benefits, employee roles, etc.
Laws differ by location and industry, so although the components of a general employment contract are similar, you may need to customize yours to make it legally binding in your area. You might also need to negotiate with the employee to establish terms of employment that suit both your needs.
Let’s discuss how to create a legally binding employment contract.
Components to Include in Your Employment Contract Agreement
The contract documents your decision to hire an employee for their services in exchange for money. It provides the guidelines, telling them what’s required and the expected compensation.
Here is a list, with brief explanations, of what to include in your contract.
- Title and Effective date
Include a clear title. Underneath the title, state the date when the contract becomes effective. - Basic information
Write the employee and employer’s full names, mailing addresses, and physical addresses. - Job title
Be clear about the position your new employee is filling. For example, you can mention that the employee will be the Chief Financial Officer. - Job Description
Carefully outline the new employee’s duties. Make it clear that none of those duties may be assigned to another party except when there’s communication and permission from an appointed authority. - Compensation and Benefits
Salary is one of the most crucial aspects of an employment agreement. Define the payment period, whether weekly, biweekly, or monthly. State how much the employee will earn per hour or month, depending on your organization’s remuneration structure. Also, include any expected benefits, such as paid time off (PTO), insurance, 401k matching, and other relevant information. - Work location
Don’t overlook the work location. If you want your employees to work from home, say so in the contract and include provisions in the employment package that enable them to perform their duties. - Work schedule
Clearly define how long and how often the employee should work. This may be weekdays between 9:00 a.m. and 5:00 p.m. with a one-hour lunch break or 10-hour shifts for four days followed by a two-day break. Be specific about what’s required of employees on public holidays. - Confidentiality clause
Many employers require workers not to share work-related information with other unauthorized parties, whether it is sensitive data or not. - Dispute resolution
Prepare in advance for when disputes arise. Having an internal dispute resolution process is convenient to resolve employee grievances quickly. - Duration
Employment contracts should have start and end dates if the relationship lasts for a specific term. If employment is long-term, the termination section provides avenues for ending the contract. - Severability
Include a clause that allows the rest of the contract to remain in place even if a section of it is declared unenforceable. - Termination
This section of the contract presets conditions that can lead to the termination of the contract by either the employer or the employee. For example, an employee may resign without consequences if the employer refuses to pay their salary. Provide avenues for exit even when there are no breaches.
You may want to include additional clauses, such as non-disclosures and limitations on employees holding similar concurrent positions while working for you. Alternatively, you can have those in a different document to keep the contract succinct.
Key Facts to Remember When Drafting an Employment Contract
The contents are important, but how you present them also matters. Consider the following reminders before you start the document.
No Vague Language
If the provided template appears too direct to the point, it’s because you cannot leave matters open to varied interpretations. You must say exactly what you mean so you do not open your business to claims and lawsuits.
Understand employee rights
Research applicable federal, state, and local laws before you begin drafting your document. The final contract should reflect your thorough understanding of employee rights. For example, you cannot have a contract with a non-compete clause if the law prevents it.
Allow Time for Negotiations
The strict nature of employment contracts can make introducing adjustments at a later stage cumbersome. It’s better to negotiate with the new employee before drafting the agreement. Discuss salaries and work hours beforehand so that, if possible, you can accommodate their preferences and limit future amendments and addendums. Also, give employees enough time to read the contract so they feel comfortable.
Keep the Length Reasonable
Employment contracts can be as lengthy as you want them. It’s up to you to decide how many clauses to include within the contract or if it makes more sense to create separate agreements. While you should cover every crucial detail, drafting an overly lengthy document can jeopardize comprehension. Excessively long or complex employment contract agreements can also backfire by leaving loopholes that benefit the employee in the event of a dispute.
Employment contract agreements are legally binding, so while you want to keep them lenient to attract the most qualified workforce, you must not forget to limit your liabilities and protect your organization’s future.
Article by
Dena StandleySenior Writer | Experienced Paralegal | 79 Articles
Dena Standley is an experienced paralegal based in Houston, Texas and has over a decade of experience working as a paralegal with trial lawyers and law firms. She is passionate about making legal processes more accessible and helping people understand and navigate complex legal matters with confidence.
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