An employment contract is an agreement between a company and an employer that defines their work relationship. Employment contracts are crucial documents in many industries and help employees and employers work in mutual benefit.
Here, I am going to go through exactly what is in an employment contract and how to write an employment contract. Even if you use an employment contract template, you should know how to write an employment contract and what’s in one so that you can easily modify your template for any position.
No matter the head count at your company, SignTime has you covered with this recent article detailing everything you need to know to draft employment contracts as well as links to helpful templates for use in every industry.
How to write an employment contract in five simple steps
While we will go through exactly what you need to put into an employment contract, first let me give you a simple five-step process that’ll make writing an employment contract easier.
1. Find an employment contract template
Different states, different companies, and different industries have standard practices and laws that need to be upheld. This makes drafting an employment contract from scratch hard. Fortunately, it is also generally unnecessary because employment contract templates can be found everywhere, including in this companion article.
Getting a basic template to work from is the obvious first step in how to write an employment contract. You’ll still need to understand what is in the template to customize it to your needs, but this will drastically reduce both the time it takes and the difficulty level. I’m all about shortcuts!
2. Pull up your job description
A good employment contract outlines the expected duties of the employee, along with their compensation package. Sound familiar? That’s the exact information you listed in the original job description you posted on LinkedIn or Indeed to find them.
This is another great shortcut. Having the job description handy while writing an employment contract will make it much easier to fill in all of the specifics.
3. Determine whether you need a non-disclosure agreement (NDA)
Generally, the answer here is yes. If your employee is going to have access to any private information, from trade secrets and patents to your financials or codebase, then you’ll want them to sign an NDA. This can be a separate document with lots of details or a simple non-disclosure clause in the actual employment contract.
4. Determine whether you need a non-compete agreement (NCA)
While the NDA will protect you legally from a current or former employee exposing confidential information, it won’t protect you from them leaving for the competition.
An NCA protects you from highly skilled or key actors in your company taking their talents to a competitor. Keep in mind that NCAs need to be limited in time and scope for them to be upheld in courts. They can also be a dealbreaker for the top prospects who would rather work somewhere without such constraints on their future career.
5. Consult a lawyer
It’s important to not just follow online advice or use templates. Legal advice will always be a benefit to the process of writing an employment contract.
You might wonder “why don’t I just skip the first four steps if I need a lawyer anyways?” Well, lawyers are expensive and they charge by the hour. If you can write an employment contract from a template, then a lawyer should be able to make any necessary changes and rubber stamp it quickly. That’s going to be a lot cheaper than having them spend hours writing one from scratch.
What specific items do you need to include when writing an employment contract?
Here are some of the specific items that you should include when writing an employment contract.
The basics (names, addresses, title, etc.)
You should start an employment contract with the name of the document, for example, “Employment Contract.” You should also include the legal name of the new hire and the company, along with the company address.
To make as much of the document reusable as possible, add “hereafter Employee” and “hereafter Company” after the employee and company names, respectively. Then, refer to the parties as “Employee” and “Company” thereafter.
Start with the title of the job. The title should be accurate to the position. Then, add a basic description of the position, including the type of work (full-time vs. part-time, contract vs. at-will, etc.) and how work is to be evaluated.
In addition to stating whether the employee will be salaried or paid a wage, stipulate how much the salary/wage will be.
A salary is rarely the only benefit. Vacation days, sick days, holidays, bereavement days, and parental leave are commonly offered. There are often bonuses, stock options, profit-sharing plans, and investment matching. Some companies still offer pensions. All of this information should be included accordingly.
If there is room for advancement or pre-planned salary raises, these should also be mentioned.
Duration of employment
A start date should be added to all employment contracts. If there is a defined end date, then it should also be added.
Grounds for early termination
In most situations, the employee will be in an at-will employment contract. That means the employer or employee can terminate the contract at any point. In this section, the employer can state what will happen if either party ends the contract under different situations. The following are some of the main reasons for terminating employment that should be described:
· “Good reason” resignation
· Termination “for cause”
· Termination “without cause”
· Death and disability
This is the non-disclosure clause mentioned above. If the employer has secrets (and they always do), then they need a non-disclosure clause.
This describes how any disputes will be resolved, including whether the employer will pay for the employee’s lawyer or if the employee must seek arbitration.
Writing an employment contract is easier than you think
When looking at how to write an employment contract, you should take advantage of every available shortcut. This means starting with a relevant template and then reusing your original job description. That way you aren’t spending time rewriting any information.
Whether you employ one person or a thousand, SignTime is here to help. With convenient e-signature capabilities, new recruits will be able to return employment contracts wherever they are in the world.
With an easy-to-access and organized online contract repository, never search for important paperwork again.