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What is an Employee Contract?
An employee contract, or employment contract, is an employer and employee agreement. It is the legal foundation behind forming an official working relationship between the two parties.
An employment contract generally outlines fundamental clauses such as payment terms, duties and responsibilities, and contract duration. In addition, when hiring employees, an employer will have an employee sign an employment contract that outlines the benefits and considerations to be given to the employee.
An employee contract becomes legally binding once signed. It is valid immediately as long as its terms and conditions are within the bounds of the law.
Here is an article about employee contracts.
What Key Terms Are Included in an Employee Contract?
Before signing the employee contract, employees should pay close attention to the following terms:
- A clear job description. This includes the title and the detailed duties the employee is expected to carry out during the contract duration. Duties and responsibilities should match the job description in the initial job posting.
- Payment terms (compensation). The payment term should be stipulated in the contract to avoid confusion. The employer should define the rate (hourly, daily, weekly) and when and how employees should expect compensation.
- Contract term. This covers the duration of the contract. In addition, this section can find specific information, such as the grounds for termination and options for extending the contract. Some employers also include the trial period.
- Benefits. Holiday pay, leave benefits, sick leave, health insurance, employee stock options, and other benefits that the employer provides to the employee on top of the wage should be listed. Some employers include benefits in their job postings, so it is essential to be consistent and transparent.
- Restrictive covenants are included in this section. They should be read carefully as they might affect your future employment plans. Examples are a non-compete agreement, a non-solicitation agreement, and a severance agreement.
Here is an article about the key terms included in an employment contract.
What to Look for in an Employee Contract?
After reviewing the general clauses, other information you need to look for in an employment contract are the following:
- Personal details. The names and addresses of the employer and employee.
- Type of employment. Full-time, part-time, hourly, etc.
- Start date of employment. Refers to the official start date of the employment
- Job requirements. The employee could be required to submit clearances, licenses, and other documents relevant to the job applied for.
- Policies and procedures. This lays down specific employer policies and rules the employee must adhere to.
- Work arrangement and schedule. This stipulates where the employee is expected to perform their duties (remote, in-office, etc.) and the hours the employer expects the employee to report.
- Confidentiality agreement. The employer requires a confidentiality agreement when specific information needs to be kept confidential. The confidentiality agreement also outlines the consequences of a breach.
Here is an article on what to look for in an employee contract.
Types of Employee Contracts
Below are specific types of employment contracts:
- Full-Time Employment Contracts. Employees render an average of 38-40 hours of work per week.
- Part-Time Employment Contracts. Employees typically render less than 20 hours of work per week.
- Consulting Agreements. Under a consulting agreement contract, employees may not have regular work hours, usually on an ad hoc basis.
- Fixed-Term Employment Contracts. An employee is hired for a specific project or time period.
- Independent Contractor. Similar to a consulting agreement structure, a 1099 independent contractor is an individual who contracts out services to employers or companies.
Here is an article about types of employment contracts.
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Part-Time vs. Full-Time Employee Contracts
Part-time employees generally have flexible work hours for a specified length of time. For example, part-time employees might be needed seasonally or when a company or employer’s need arises.
Compensation can be made as a one-time payment for the services rendered or on an hourly pay arrangement. Many full-time employees want to reduce their work requirements to reduce their time to a part-time arrangement.
Some states require employers to provide benefits for their part-time employees depending on how many hours the employees work.
Full-time employees typically work within set hours and are guaranteed to work year-round. They receive payments on a regular schedule and have payroll taxes. Benefits are also guaranteed.
Here is an article about the difference between part-time and full-time employment contracts.
Employee vs. Independent Contractor
When a company hires an employee, the employee is expected to work exclusively for them. The employee is expected to sign an employment contract with the company. This contract contains a defined set of policies the employee must abide by. The employer establishes the wage and outlines benefits such as health insurance, holiday pay, etc.
An employee is required to complete W-2 tax forms. In addition, the company provides in-house training, and the employee is expected to participate in performance and employee reviews.
Independent contractors or individuals working under a freelance contract structure are self-employed. They are expected to provide and use their equipment and tools to perform their duties, are usually project-based, and work on a fixed term.
Independent contractors receive 1099 tax forms and invoice their clients for their payments. However, they do not receive employment benefits from their clients or the hiring company.
Here is an article about independent contractor contracts.
How Do You Write an Employee Contract?
When writing an employment contract, review the general clause and sections and pertinent information that should be included. Remember that the contract is legally binding. Therefore, it should be drafted with reasonable protections negotiated between the employer and the employee.
Here are some guidelines to follow when writing an employee contract:
- First, give your employment contract a title. A title goes on top of the contract. It is important because the document may be referred to in further legal documents. Typical titles may include “Employment Agreement” or “[Company Name] Employment Contract.”
- Identify the Parties. Specifically, identify the parties or entities entering the contract and ensure that the employer and employee's names and details are spelled out correctly. For example, a typical clause would be, “This employment contract is between ABC Company (the “Employer”) and John Doe (the “Employee”)”.
- Clearly present the terms and conditions. The terms required by the basic state and local employment laws state include working hours, separation packages, etc. Other terms and conditions that you may add have other benefits, expected attendance, compliance with conduct policies, etc.
- Layout the job responsibilities. Outline what is expected of the employee in the role they are hired to perform. The employee’s job responsibilities should be consistent with the job posting published by the employer or the company.
- Include compensation details. Set the employee’s expectation regarding compensation by distinctly outlining the compensation computation, benefits, and/or bonuses. Present a straightforward method of how the employee will be paid (direct deposit, check, etc.) and how frequently the employee will be delivered (weekly, bi-weekly, monthly).
- Utilize precise contract terms. Write your contract as clearly as possible. For example, some of the employment contract terms used are: “effective date,” “type of employment”, “termination,” “dispute process,” “non-compete clause”, and “severance.”
- Get your drafted employment contract reviewed by a lawyer. Once your contract is completed, hire a lawyer or legal counsel in the labor department to review your employment contract. Appropriate legal counsel can help prevent future lawsuits. In addition, Contractscounsel.com can connect you with the legal team to fit your business.
Here is an article on how to write an employment contract.
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