An employment contract is typically a highly structured document, which allows companies to officially hire people for a particular period of time. If you are involved in the process of hiring new employees, starting to build an HR department, or looking into recruiting, you may want to create a new employment contract.
New companies and startups will also want to create their first employment contract, in order to legally offer a job to the people they want to hire. When you first build a company, the employment contract is one of the most important parts, and it should be taken very seriously.
You’ll need to do all of the proper research and homework first, but this template will give you a head-start and a good framework. You should always consult a lawyer though before finalizing any contracts.
The employment contract is one of the defining pieces of paper that applies to any company. These contracts are agreements between the company, also called employer, and the new hires, or employees. The HR department, managers, or recruitment officers might be responsible for manipulating and negotiating the final terms of the employment contract and offering it to the new prospective hire.
When the new hire is offered an employment contract, this is often referred to as a recruitment offer. Although it may seem that the recruitment offer is a different document, they are actually one and the same. The “offer” is a contract that has been signed by the company, but not necessarily the individual yet. The offer includes a section at the end, called “acceptance”, which the prospect can sign to finish the contract and make it duly bound. Once signed and delivered to both parties, an offer is now a full contract.
An employment contract can have variation and negotiable terms that help match the contract’s attractiveness to the qualifications of the prospective employee. If the employee has a lot of experience and qualifications, the contract may need modification to help make the deal better, and attract that person. In addition, if the market is very competitive, and a lot of companies are hiring, contracts may need to be more competitive as well. The easier you can make it for your prospective hires to accept your contract, the easier it will be for you to sign them. Any contract you write should be as flexible as possible, to fit into those rounds of negotiation.
Of course, some positions are more similar to commodity jobs, and so, therefore, don’t require negotiation. Jobs and new hires that have very strictly defined positions and eligibility requirements don’t require contracts with a lot of flexibility. This reduced flexibility might be seen as well in non-competitive job markets, where the employees are having a hard time finding new jobs, and the advantage in such contracts falls naturally to companies and employers.
Employment contracts often require certain stipulations and provisions by law. These sections depend on locale and vary greatly from state to state, country to country, and even in particular cities. It’s important to know very well the rules regarding leave, occupational safety, anti-discrimination, salaries, overtime, probation, termination, severance, insurance, and pensions. In some areas, such as the US, there are no guarantees given by the government regarding leave, but there are strict requirements for overtime pay. And in other locales, the amount of leave required by law is very generous, but the law may not have other rules. You always need to check and make sure your contract matches the laws of the area.
In our template, a lot of basic provisions are inserted. These may or may not be relevant to your company, but in most cases, they are useful. The majority of our contract provisions are included in order to increase the protection of the parties. By strictly defining what the agreement includes, both the prospective employee and the employer are offered legal protections by signing this document.
Every contract, including this one, requires particular sections to be written, in order to be legally binding and enforceable. They need to have the term, parties, consideration, and covenants. The Term sets forth the period of time that the contract is valid for. The contract may be signed on a particular day, but it becomes effective at another time stipulated in the contract, known as an effective date. Until this exact time, the contract has no legal effect. The end of the term is called the termination date, or end date. This can also be defined as a specific date and time (like 11:59 pm EST), and is the end of the contract. Unless a new contract is signed, the employment would be over.
The parties in an employment contract are always the employee and employer. It can only be between two legal entities, and the employee almost always must be a physical person, not a company. The employer generally needs to be an LLP, LLC, or Corporation. An Individual Proprietorship is generally not valid as an employer. Companies need to obtain an EIN, or employer identification number, in order to officially hire employees. This number is issued in the US and must be filed each year or quarter for tax purposes.
As for consideration, this is the amount that the employee should be paid. They can be paid by a salary, hourly wage, or some other method as allowed by law. Keep in mind that an employee and a contractor are generally two different things. Although both must sign a contract of some kind, the contractor doesn’t sign an employment contract. They don’t receive a wage, and get paid some other way. Legally, certain positions must be paid a wage, so companies that try to issue a general contractor agreement might be surprised when the government steps in and forces them to pay salaries. Always consult with a lawyer to ensure that you are following all of the laws in your area of operation.
Lastly, we have covenants. The covenants are the requirements of the employee. The employee makes promises to the employer, in return for the amount paid in wage or other forms of compensation. Unlike other contracts, the employment contract can be vague in terms of the covenants. It needs to be fair, reasonable, and normally not specific when part of an employment contract. Usually, employees should be contracted to “perform duties” suitable for the position. Employees can’t be contracted to do whatever the employer asks, and there is a limit to how much employers can ask for.