An employment contract is a legally binding document signed by both employee and employer. This type of contract functions as an agreement between the two parties to establish and formalize the position of the employee at the company. The Employment Contract determines the rights and obligations of both parties during the working relationship. 

Employee Contracts

What Is An Employment Contract?

An employment contract is a legally binding document that protects businesses and employees. It defines the work environment for employees, their specific role in the company, and their responsibilities. At the same time, it creates the basis to provide health insurance policies, annual leave days, sick days, terms of termination of the employment, etc.

The Employment Contract clearly details the relationship between employer and employee. This foundation will establish a better understanding of the specific expectations of each of the parties.

This document is essential for both employer and staff because it legally establishes the working relationship, policies, and important frameworks. The contract will shed light on what is expected from each party, while it outlines the rights, obligations, and responsibilities of each. A contract will protect job security and employee’s right while also protecting the employer and their sensitive information.

Employers can classify their Employment Contracts according to the length of the contract and working hours in different categories:

  • Permanent Full-Time Contract: The employee will be working full-time hours and there is no predetermined end date for their contract.
  • Permanent Part-Time Contract: With this type of contract, there is no predetermined end date and the employee will not be expected to work full-time hours.
  • Fixed Term or Period: This type of contract has a prearranged end date. The expiration of the contract is automatic and won’t require previous notice from either party.

Importance of Employment Contracts

Verbal agreements or poorly drafted contracts may lead to future difficulties for both parties. An Employment Contract ensures that both parties will fulfil their respective duties and responsibilities. These contracts guarantee to employer and employee that both will be accomplishing their tasks in a fluent way and in a timely fashion.

It’s important for employees to have a document that contains accurate information about the job description, rules, duties, salary and benefits. For employers, the contract defines the standards for the onboarding process which helps to get the best out of all the staff members. When both parties have previously agreed on the work terms, they avoid any future misunderstanding by providing a foundation each can refer back to if need be.

A properly drafted Employment Contract will consider both parties’ rights and obligations. In the contract, the employer will acknowledge their position and tasks. As the employer has the duty to pay wages, benefits, and bonuses, a certain level of performance is expected from the employee. Outlining and detailing the daily tasks of the job position clarifies the criteria to qualify an employee’s performance and take any needed action.

Any possible dispute between the parties can be minimized and resolved by referring to the Employment Contract. This helps both employer and employee to avoid disputes by bonding them in certain conditions.

The Employment Contract will leave no room for misunderstandings related to wages and bonus payments. Within the contract, the employer will establish the employee income, minimizing the risk of disagreements. Also, these contracts tend to include additional clauses that are meant to protect the employee’s information and interests, such as non-disclosure and non-compete clauses.

 The Elements Of An Employment Contract

Any Employment Contract should be drafted in two identical copies, one for each party. The contract will lay out the rights and obligations of both employee and employer. The following elements are the basis of an Employment Contract:

  • Terms of Employment: The Employment Contract usually includes the period of time where the employee will be employed. In the case of freelance or contract positions, this might be a specific amount of time, or the contract will end when a certain project is completed. In permanent contracts, the term of employment is indefinite or until one party terminates the relationship. At other times, there is a minimum duration subject to the possibility of extending this time period.
  • Employee Responsibilities: This section will include the job description as well as the employer’s expectations, including the employee’s general responsibilities, tasks and duties.
  • Employee Benefits: The contract should include benefits such as health insurance, vacation times, retirement plans, disability pay, etc. Also, in certain cases, benefits may include the possibility of purchasing stock in the business.
  • Employee Absence: This article will include valuable information about valid staff leave entitlements such as sick days, maternity licenses, and annual holidays. And it also determines the payment that the employee will receive when they take days off.
  • Salary or Wages: The contract will itemize the list of wages, bonuses and commissions that have been agreed on. It will express the payment method, currency and frequency of payment. This section will also mention any deductions such as taxes and insurance to be taken out of the employee’s wages.
  • Schedules: Usually, the contract lays out the days and hours that the employee will be expected to work.
  • Termination: The termination of the contract and the conditions that will determine it shall be specified in this section. This article will also mention the action and behaviours that will terminate the contract, as well as the period of notice that will apply whether the employee or employer means to end the contract and the actions that will be taken if any of the parties fail to comply with.

Elements of Employment Contract Infographic

Important Clauses

Regarding the employer interests and sensitive information, the Employment Contract may include certain clauses that serve to protect them. These clauses are frequently included within Employment Contracts and the following agreements are the most common:

  • Non-Disclosure Agreements: Prevents the employee to share a company’s sensitive information, such as client lists or trade information.
  • Ownership Agreements: Affirms that anything produced by the employee while working will become the property of the company.
  • Non-Compete Clause: Many contracts will include this clause to prevent the employee from working in a similar job position for a potential competitor once the working relationship is terminated.

Employment Contract Must-Haves Infographic

 The Bottom Line

Employment Contracts are essential in the workplace. Their role is to protect both employee and employer by determining what is expected from both during the working relationship. At the same time, these contracts work as a tool that one can refer to with the objective of resolving and responding to any questions or disputes related to the job position. Employers and employees ensure a safe and productive relationship with well-defined and clear contracts.