A contract between employee and employer is more than just a good idea. It’s a necessity. Even if you’re on very good terms with an individual, it’s in both your best interests to get something down on paper. Ideally, you’ll have a lawyer draft the document, but you should at least consult one to ensure that everything is present and legally binding.
A employment contract need not be confusing, and it can actually be a rather simple procedure. Just make absolute certain that everything is explicitly stated in clear and unambiguous terms. You and your employee sign it, date it, and file it away for safe-keeping.
While the specific may differ slightly depending on the particular position and your location, an employment contract should include at least the following sections:
The first section introduces the document as an employment contract, usually lists the date, as well as the name and address of the employer (you) and/or company. It’s also a good idea to state the location and date of incorporation if you happen to be a legally registered corporation. You should also explain the label to be used in the document for each interested party (employer/employee, or First Party/Second Party, or something equivalent).
Early on, you need to state the position title, and list the duties and responsibilities that come with the job. Be specific, detailed, and explicit. You may also want to include a brief statement about “additional responsibilities” as assigned by the employer. Better safe than sorry.
Your employee is going to be very interested in this section. This section should clearly outline the amount of compensation as either an annual, monthly, or hourly salary, and/or commission and how it is calculated. Mention the expected working hours (if possible), the anticipated deductions, and any policies relating to reimbursement for travel/work expenses if they exist.
Is salary subject to review, and if so, how often? How are raises handled? Include these details in this section, too.
Next to salary, employees are going to want to see their benefits explained in black and white. Besides monetary compensation, what else can the employee expect? This might include annual paid vacation time (and the policies surrounding it), health insurance, dental insurance, sick days, professional development, car allowance, housing allowance, holiday bonus, and whatever else if included in the employee package.
Benefits sometimes do not kick in immediately. If that’s the case, explain that. Is there a probation period? If so, what are the terms and length of it? Once again, explicit and specific are the rules of the day.
The Performance Review
Will the employee be reviewed on a regular basis? If so, how often (annually, semi-annually, quarterly)? Clearly state whether it will be written, verbal, formal, informal, and so on. What the expectations for the employee? Will they need to prepare a self-appraisal, or simply attend a meeting at the appropriate time?
You need to include detailed information of the termination policy for the company. Include length of notice required by either party to terminate the contract, grounds for immediate termination, and any special consequences (such as having to repay training costs) or local laws that pertain to termination.
Non-Compete or Confidentiality Clause
Many contracts now include this clause. In it, you outline the terms and length of agreement (which could be indefinitely) that the employee can not work for or start a competing business, and/or reveal trade secrets about your business, including (but not limited to) clients, procedures, production methods, suppliers, or anything else specifically mentioned. You’re limited only by what the employee might not agree to sign.
Other Possible Sections
Depending on the industry or location, the contract may also include specific laws, severability, or position-specific requirements.
Signature and Date
The last section includes space for the employer’s name/signature and date, the employee’s name/signature and date, and possibly a company witness or legal counsel. Once everything is signed, file it away.
Other Useful Links
Sample Employment Contract
The contract doesn’t have to be lengthy, or complicated, or fancy. It does, however, need to be specific and explicit in all areas. Again, to truly protect both yourself and your employee, you should have a lawyer check it out for you. A contract is meant to legally protect both parties, so make sure it does just that.
Photo Credit: Adam Rifkin
Creative Commons License