An effective employment contract is necessary for every employer, as it helps to achieve success in the business. This documented agreement presents all the terms and conditions of a particular employment. It helps to create a better relationship between the employee and the employer.
Also, it saves the company from any kind of legal disputes. That means it is useful for both the employee and the employer. Here we will discuss what an employment contract is, its requirements, and how it is helpful for all.
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What is an employment contract?
An employment contract is generally called as a legal agreement. It is between the employee and the employer, which shows all the company terms, employee rights, and company conditions.
All the terms are applicable to both the employee and the employer. Some companies give this agreement verbally and some give it in written format.
But a written agreement is preferable, as it gives clarity on all legal coverage and there will be no misunderstanding between the employee and the employer.
Sometimes, before the contract is signed, the employer can discuss its terms during the time of interview. So that the concerned person can join after knowing all the rules and regulations.
Why Is an Employment Contract Important?
An employment contract shows the relationship between an employee and the employer. Also this contract includes many other terms on which both parties have to agree. Such as:
- Job title and work responsibilities
- Compensation
- Work location and working hours
- Leave policy
- Payment mode
- Contract duration, etc.
It holds legal rights and obligations for both parties, which reduces potential disputes.
It provides job security by specifying the minimum working duration of employment, which every employee needs.
An employment contract helps to avoid misunderstandings about work roles and company policies, as everything is already mentioned in that contract.
The contract sets some conditions under which the employee can be terminated.
Before the employment begins both the employee and the employer must sign the employee contract.
Sample of an employment contract:
Below is one of the simplified sample or employment contract example templates. The specific details can be changed as per the needs of any organization with local labor laws.
[Employer’s name and address]
[Employee’s Name]
Position: [Job Title]
Joining Date: [Date]
Terms of Employment:
Job Roles: Here describe the main responsibilities and tasks that the employer should expect of the employee.
Compensation: Mention here the salary, payment frequency, and any bonuses or incentives, if the company provides them.
Benefits: Mention here any benefits such as health insurance, retirement plans, and vacation days.
Working hours: Mention here in detail the expected working hours and any flexible arrangements.
Termination: Mention here the conditions under which employment may be terminated, including notice periods also.
Confidentiality: Mention here the address confidentiality obligations regarding company information and trade secrets.
Governing Law: Mention here which state or country’s laws govern the contract.
Signatures:
Employer: ________________________ Date: ______________
Employee: _______________________ Date: ______________
To check employee background before signing the employment contract:
Every candidate comes with their resume. They mentioned each detail from qualification to work experience. But after selecting a candidate, background is required. Multiple reasons are there, which indicate that background verification is required. Such as:
To verify the information:
The background check helps to verify the candidate’s multiple information. Such as qualification, character, and professional experience, which are required for the employer-required position.
For safety purposes:
A background check helps to know the candidate’s past life. Such as if there is any criminal history. It will help to work safely with the candidate and other employees.
Secure company reputation:
If an employee engages in illegal activities, it can damage the company’s reputation in the market. A background verification can help the company from this kind of legal issue.
Increase company benefit:
Through the background check the employer can get to know the candidate’s actual experience, which should match the company’s requirements. By choosing the right candidate who is fit for the position, can help in the growth of the company.
All these major things should be done by HR before giving a joining to any candidate. A proper HR planning is required to give a good candidate to the company. So that both the employee and the employer will be beneficial.
Difference between implied contracts and fixed-term employment contracts:
These are two types of employment arrangements, which are beneficial for both employee and employer.
Implied contracts:
The implied contract may not exactly be written in the contract, but it shows as a result of the action or conduct of the employee.
In the employment contract, this implied contract may arise, when the employer gives a positive statement about an employee.
That means the employee’s job security and specific rights increase which is not mentioned in the previous written agreement.
Fixed-Term Employment Contracts:
In fixed-term employment contracts, there is a specific period of employment and the agreement is also between the employee and the employer.
Most of the companies use these fixed-term employment contracts, whenever they have a specific project with a specific duration. It is a little different from the implied contract, as in the contract the start date and the end date are mentioned.
But the end date can be changed as per the project requirements. In this situation, the existing contract can be renewed with a mutual discussion between the employee and the employer.
Difference Between an Employment Contract and an Agreement
An employment contract and an agreement seem similar, but their uses are different from each other.
Employment Contract:
A contract’s real meaning is a legally binding agreement. It may be in written format or verbal, between two or more parties. Contract means the employee or the employer has to pay penalties if there is any break of the contract.
Agreement:
An agreement is a type of mutual understanding between two or multiple parties. An agreement shows the respective responsibilities, which are in that agreement.
In some cases, agreements are less formal understanding than a full employment contract. Also, it is not always a legally binding agreement. In the view of an employment context, an agreement is known as a specific aspect of employment.
How to use employment contracts for independent contractors?
For independent contractors, this employment contract is called a contractor agreement. This contract is also necessary, as it presents all the terms to the individual who wants to hire a contractor and the contractor.
This agreement outlines the working facility, payment information, etc. Below are some important points that should be in the employment contracts for independent contractors.
Work facility: Mention the contractor’s service type, with its deadlines.
Payment terms: Mention here how the contractor wants to take his payment. What is his rate, is there any tax to pay or not?
Work type: The contractor must be an independent contractor, not an employee of another company. For legal purposes, you can consult with your legal advisor.
Confidentiality: You need to include provisions, to save your other confidential information.
Your term and termination process: This is an important one that you need to mention. Mention the duration of your agreement. Also mention the conditions, on which basis, each party can terminate the employment contract.
Insurance: Especially in the technical sector, the contractor must have insurance. Check that and who is responsible, if there are any issues arising from the work.
Solution of dispute: Mention here how to solve disputes.
Non-solicitation: You can include any restrictions if you want to add on the contractor’s ability to make a competition with the business.
Governing law: Mention the name of the jurisdiction, who will fix the issues, in case of any legal disputes.
Read more: What is performance management?
What are the types of employment contracts?
There are mainly 4 types of employment contracts, which are based on the duration that is given by the employment. Such as:
Permanent employment contract: It is a long-term conventional agreement. Here the employee gives full-time hours to the employer.
Limited-term employment contract: In this contract, the employee has to work for some specific time. It is best for a temporary role or a specific project with a short duration.
Trial period: The trial period contract means, this allows both the parties to know each other’s requirements. It can be terminated if there is dissatisfaction during the trial period.
Full-time or part-time: This contract mentions the employee’s work type. Such as full-time or part-time.
Why update employment contracts?
With time, both the business environment and the employment laws change. So it is necessary to update employment contracts that show these changes. Also, if there is a change in the job role, like a promotion, there must be changes in their job role, salary, and timing. All these things required updates. So making updates on the contract can help to reduce any misunderstandings.
Potential challenges with employment contracts:
Contract breach: We all know that this is a legally binding contract. If either party is not satisfied with their work, they can breach the contract. But it becomes a loss for both the parties, which can bring legal action.
Classification of employees: It is necessary to make different types of contracts for different job categories. Misclassifying also can lead to legal issues.
Non-compete agreements: This contract is used by many employers. These non-compete agreements don’t allow employees to work for competitors, even after leaving the company.
Strategies to follow to avoid a contract dispute?
Use clear language in the contract, which presents exactly what you want. So that there will be no misinterpretation.
Mention your work details, and its scope with the timeline, that should make it easier for the candidate to go through all these.
Make sure that both parties can clearly understand their requirements and responsibilities which are mentioned in the contract.
In every contract, there are some critical terms. These are breach, default, etc. Define these terms clearly, so that both parties can understand clearly.
Before signing the document, recheck the contract carefully and then sign.
Keep safely all the records, like agreements, and communications, that are related to your contract.
Take advice from a legal adviser, if you are not able to understand any terms, those are mentioned in the agreement.
Final Say:
Employment contracts may seem complex. Proper language with clear information can avoid many disputes. If you are not able to understand all the legal terms, when you are creating any employment contract form, then you can ask for legal adviser help.
First, you need to know your requirements and your company’s laws. With this, you can create a better employment contract form, which will be suitable for both employees and employers to create an employment relationship.