What is an Employment Contract: Everything You Need to Know

Are you in need of a new employment contract for your business?

In our blog post, we will explore the importance of employment contracts and how to write one.

We will also discuss the common types of written employment agreements and provide tips on creating your own using Portant, a user-friendly platform for legal document creation. 

Let's get started!

What is an Employment Contract?

An employment contract is a legally enforceable document between an employer and a worker that specifies the conditions and terms of their working arrangement. It usually includes specifics like the job responsibilities, pay, perks, work hours, and the duration of the job to be completed.

This document is essential for both parties as it sets clear expectations and protects the rights of both the employer and the employee.

Why is an Employment Contract Important?

An employment contract is important because it establishes the rights and responsibilities for the employee and employer. It outlines crucial details such as job duties, compensation, benefits, and termination terms.

Written employment contracts can prevent misunderstandings and disputes by providing a written record of the agreed-upon terms. It also ensures that both parties are aware of their legal obligations.

An employment contract can also help establish a professional and structured relationship between the employer and employee, fostering a positive work environment. 

How to Write an Employment Contract? 

1. Start with the Job Description and Duties

When drafting an employment contract, beginning with a clear and detailed job description and list of duties is essential. This ensures that both the employer and the employee are in synch with expectations and responsibilities. The job description should outline the specific tasks and responsibilities associated with the position and any necessary qualifications or experience.

By starting with the job description and duties, the written contract can effectively establish the scope of work and set the foundation for a healthy working relationship between the employer and the employee.

It also serves as a reference point for future disputes or misunderstandings related to job expectations. 

2. The Relationship Between the Contracting Parties 

When the boundaries and expectations of the working relationship are clearly outlined in the contract, it provides both parties with a sense of clarity and understanding. The employee knows what is expected of them regarding responsibilities, work hours, compensation, and any other relevant terms. 

Similarly, the employer knows what they are obligated to provide and what they can expect from the employee. With these defined parameters, there is less room for misunderstandings or disputes.

The employee is less likely to feel overworked or taken advantage of, and the employer is less likely to feel that the employee needs to meet their obligations. This clarity helps to foster a healthy employer-employee relationship, as both parties are aware of what is agreed upon and, therefore, do not ask for what is not outlined in the contract. 

3. Duration of Employment

When writing an employment contract, it is important to include details about the duration of the implied employment contract. This should specify the start date of the employment and whether it is for a fixed term or indefinite duration.

The contract should outline the specific end date if the contract of employment is fixed. It should also include provisions for the possibility of renewal or extension and any conditions that may lead to the termination of the contract before the agreed-upon end date.

Clear and comprehensive details about the duration of employment help to establish expectations and protect the rights of both the employer and the employee. 

4. Salary Breakdown 

When writing an employment contract, it's important to include a clear breakdown of the employee's salary. This should include the base salary, any additional compensation such as bonuses or commissions, and the payment frequency (e.g., monthly, bi-weekly).

It's also important to outline any deductions, such as taxes, insurance, or retirement contributions, so the employee understands their take-home pay.

Additionally, the contract should specify any potential salary increases, performance reviews, or changes in compensation structure.

A thorough breakdown of the salary and compensation package can help ensure that both the employer and employee are on the same page and prevent future misunderstandings. 

5. Other Employee Benefits 

In addition to salary, employers need to consider including other employee benefits in the employment contract. This can include health insurance, retirement plans, paid time off, and flexible work arrangements.

Health insurance is a particularly valuable benefit for employees, since it provides peace of mind and financial security for illness or injury occured. Retirement plans like 401(k) or pension, help employees save for the future and can significantly attract and retain top talent.

Paid time off allows employees to regain their productivity and motivation and maintain a healthy work-life balance, while flexible work arrangements can accommodate individual needs and improve overall job satisfaction. Offering these benefits can contribute to a positive and supportive work environment. 

6. Resignation Terms 

When writing an employment contract, it is important to include resignation terms to define the conditions under which an employee can resign from will employment contracts clearly. These terms typically outline the required notice period the employee must provide before resigning and any specific procedures they must follow when submitting their resignation.

The contract should address any potential repercussions for resigning before completing a certain project or within a specific timeframe. Including these resignation terms in the employment contract serves both the employer and the employee by minimizing potential conflicts during the resignation process. 

7. Confidentiality

When writing an employment contract, it is crucial to include a section on confidentiality to protect the company's sensitive information. This should outline confidential information, such as trade secrets, customer lists, and financial data, and the employee's obligation to keep it private.

It is important also to address how the employee should handle such information, including restrictions on sharing it with third parties or using it for personal gain.

The consequences of breaching confidentiality should be clearly stated in the contract, such as legal action or termination of employment. By including a comprehensive confidentiality clause, the company and the employee can have peace of mind knowing that sensitive information is safeguarded. 

Common Employment Contract Types 

There are several common types of employment contracts:

• Permanent contracts offer long-term employment with standard benefits and protections.
• Fixed-term contracts have a specified end date and are often used for seasonal or project-based work.
• Part-time contracts involve less working hours than a full-time employee.
• Temporary contracts are used for short-term employment needs, such as covering for an absent employee. 

If you want to explore more employment contract types and details on where they are used, what they contain, and their advantages and disadvantages, check our employment contract types guide for more information. 

Create Your Next Employment Contract the Easy Way Using Portant

Creating your next employment contract can be easy with Portant's contract automation workflow. Portant's employment contract template helps you streamline the process, saving time and effort.

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You can also connect your email and send your completed contract to your employee for review.

After both the employer and the employee have agreed on the terms, Portant enables you to E-sign the contract, allowing both parties to sign the employment agreement electronically.

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This simplified process saves you time and effort and ensures an efficient and legally binding employment contract.

FAQs

Q. What is at-will employment?

A. At-will employment refers to a type of employment where either the employer or the employee are able to terminate the employment relationship whenever they want to with or without cause, and with no advance notice.

Q. Can an employment contract be terminated?

A. Yes, an employment contract can be terminated if both parties agree to end the employment relationship, or if there are specific termination clauses outlined in the contract.

Q. What is a non-compete clause in an employment contract?

A. A non-compete clause is a contractual provision that restricts an employee from working for a competitor or starting a competing business for a certain period after leaving the current employer.

Q. What is the significance of a written employment contract?

A. A written employment contract provides clarity and legal protection for both the employer and the employee by clearly outlining the terms and conditions of the employment relationship.

Q. Can an independent contractor sign an employment contract?

A. No, an independent contractor typically does not sign an employment contract, as they are not considered employees and have a separate contractual agreement with the hiring party.

Q. What types of disputes can arise in relation to employment contracts?

A. Disputes related to employment contracts can include issues regarding termination, non-compliance with contract terms, intellectual property rights, confidentiality breaches, and non-compete clause violations.