What Is a Contract of Employment?
A contract of employment is a formal agreement between an employer and an employee that outlines the terms and conditions of employment. This legally binding document is not only the proof of employment, but also specifies a lot of job-related issues, such as employee’s key responsibilities, work hours, the way remuneration is paid and its amount, various benefits other than pay.
The employment contract also includes confidentiality clauses, ways disputed are settled between the employee and the employer, and explains what the employee is prohibited from doing when they leave the job — the so-called ‘non-compete’ provisions. The more fully an employment contract specifies such points, the less probable legal disputes are in the future. that sets the terms of employment
No matter how different employment contracts may be, they have have several common obligatory clauses and provisions:
- Duration of employment
- Details of remuneration
- Description of general job duties
- Work schedule and hours
- Benefits and perks
- Confidentiality clauses
- Non-disclosure or confidentiality clauses
- Severance pay, if any
- Terms for termination
A more detailed employment agreement minimizes the chances of disputes between the employer and the employee.
Types of Employment Contracts
- Permanent (full-time) Contracts
- Permanent (part-time) Contracts
- Fixed-term contracts
- Temporary contracts
- Freelance or independent contractor agreements
- Zero-hours contracts
- Casual contracts
- Hourly contracts
Permanent (full-time) contracts
- These contracts offer long-term employment with an open end date.
- Employees have access to benefits such as health insurance, retirement plans, and paid time off.
Permanent (part-time) contracts
- These contracts include shorter working hours, often less than 40 hours a week.
- Part-time employees may receive benefits on a pro-rata basis, depending on the employer.
Fixed-term contracts
- These are for a specific period, ending on a fixed date or after a project is completed.
- Employees have the same rights and benefits as permanent employees, but only for as long as the contract is in force.
Temporary contracts
- These are for short-term needs, like covering for staff on leave or during peak business periods.
- Temporary employees are often hired through staffing agencies and may not receive the same benefits as permanent staff.
Freelance or independent contractor agreements
- These apply to individuals employed on a project basis
- Taxes, benefits, and insurances coverages are on the contractors
Zero-hours contracts
- As the name suggests, these contracts do not guarantee any minimum number of working hours
- Hires under these arrangements are used as required, and compensation is paid only for actual hours spent working
Casual contracts
- These are similar to zero-hours contracts but still less formal.
- Such arrangements may suit those who want to work irregular hours or on an as-needed basis.
By-the-hour contracts
- Compensation is paid for the number of hours worked
- These are widely used in retail and hospitality, where work hours are not fixed.
How to Write an Employment Contract
Every detail matters when drafting an employment contract. To avoid mistakes, we recommend following these steps:
- Title the document: By titling the document “Employment Contract” you clearly state its purpose.
- Introduction: An introductory paragraph includes names of the parties involved and the contract’s effective date.
- Define the job title and role: Clearly state the job title and describe in detail employee’s duties and responsibilities.
- Specify the duration of employment: Indicate whether the employment is permanent, temporary, or a term contract. Specify the dates if needed.
- Detail compensation: Specify the salary or wage, payment schedule (weekly, bi-weekly, monthly), and potential bonuses or commissions.
- Work schedule: Specify the expected work hours, including start and end times, days of the week, and any expectations for overtime.
- Benefits: List all employee benefits such as health insurance, retirement plans, paid time off, and other perks. Mention when these benefits become applicable.
- Confidentiality agreement: Include a clause that lists confidentiality clauses to safeguard sensitive company information.
- Non-compete clause: If applicable, include a non-compete agreement that restricts the employee’s ability to work for competitors after leaving the company.
- Severance and termination details: Specify the conditions under which the employment can be terminated by either party along with a severance pay if applicable.
- Signatures: To finalize, add a section for the employer’s and the employee’s signatures. Date the document.
- Review and legal consultation: Make sure no important provisions and clauses have been left out. You may want to seek legal advice before calling it a day to ensure the agreement complies with applicable laws.
Employment Contract Template
Below is a sample employment contract that has been in use in the the US in 2024. Though this template can be used as a starting point, note that it does not account for any specific details and needs to be customized. Also, any employment contract must be reviewed by experts to ensure compliance with local laws and regulations.
[Company Name] Employment Contract
This Employment Contract (“Contract”) is made and entered into as of [Date] by and between [Company Name], a [State] corporation with its principal place of business at [Company Address], (“Employer”), and [Employee Name], residing at [Employee Address] (“Employee”).
1. Position and Duties
The Employee is hereby employed in the position of [Job Title]. The Employee’s duties and responsibilities will include but are not limited to [specific duties and responsibilities]. The Employee agrees to perform these duties to the best of their abilities and in compliance with the company’s policies and procedures.
2. Term of Employment
The term of this Contract shall commence on [Start Date] and shall continue [at-will / until [End Date] if fixed-term]. Both the Employer and the Employee retain the right to terminate the employment relationship at any time, with or without cause or notice, subject to applicable state and federal laws.
3. Compensation
The Employee shall receive a salary of [Amount] per [hour/week/month/year], payable in accordance with the company’s standard payroll practices. This salary is subject to all applicable taxes and withholdings.
4. Work Schedule
The Employee is expected to work [number] hours per week. The standard work schedule shall be [days of the week] from [start time] to [end time], with [break duration] breaks included. Flexible working hours or overtime may be required based on business needs.
5. Benefits
The Employee will be eligible to participate in the company’s benefits programs, including [health insurance, retirement plans, paid time off, etc.], subject to the terms and conditions of each program and plan.
6. Confidentiality
The Employee agrees to maintain the confidentiality of all proprietary information and trade secrets of the Employer. This obligation continues even after the termination of employment.
7. Non-Compete Agreement
During the term of employment and for [time period] following the termination of this Contract, the Employee shall not engage in any business or employment that directly competes with the Employer.
8. Termination
The employment relationship may be terminated by either party at any time, with or without cause, and with or without prior notice, subject to applicable laws. In the event of termination, the Employee shall return all company property and settle any outstanding obligations.
9. Severance
If applicable, the Employee shall receive severance pay in the amount of [amount or formula], subject to the terms and conditions specified in the company’s severance policy.
10. Entire Agreement
This Contract constitutes the entire agreement between the parties and supersedes all prior agreements or understandings, whether written or oral, relating to the subject matter herein.
11. Governing Law
This Contract shall be governed by and construed in accordance with the laws of the State of [State], without regard to its conflict of law principles.
12. Amendments
Any changes to this contract must be made in writing and signed by both the employer and the employee. IN WITNESS THEREOF, the parties to this agreement have executed this employment contract as of the date and year stated above.
