Employment Contract—Definition & What to Include

An employment contract is a document signed by an employee concluding the terms of his or her service. It can be between an individual and either their employer or a third party, such as in some freelancing situations. The following are just some examples of what to include when writing one:
– Duration of work – Salary details – Job description
– Work hours – Vacation & sick leave pay

An “employment contract” is a legally enforceable agreement between two parties which defines the terms of employment. The “contract for employment vs contract of employment” is a difference in how contracts are worded. An employer must have an employment contract with their employees to be able to make them work under certain conditions, such as those that define what constitutes a valid termination.

An employment contract is a written agreement that outlines your company’s shared rights and duties with a W-2 employee or 1099 contract worker. When bringing in upper-level management, short-term contract personnel, or freelancers, it’s typical to adopt this method. You may use our employment contract template to generate a legally binding agreement.

Consider utilizing Rocket Lawyer if you want to make it simpler to establish and amend employment contracts. Depending on your employment conditions, you may pick from a variety of agreements (including Work for Hire Agreement, Employment Agreement, and Consulting Agreement). Simply respond to a few questions, and Rocket Lawyer will take care of the rest. Sign up for a seven-day free trial by filling out the form below.

Go to Rocket Lawyer for more information.

Please note that this information is only for educational purposes. Before concluding and implementing any legal arrangement, get legal advice.

There are two free employment contract templates available.

W-2 Employment Contract

1099 Employment Contract

How Do Templates For Employment Contracts Work?

An employment contract template is a blank document that may be filled up as needed. You include your company’s name and logo, as well as the worker’s name, dates, and payment details. The advantage of beginning with a template for an employment contract is that most of the language is pre-written. Only the data pertaining to your firm and any agreements signed with the worker need to be changed.

Here are two free employment contract templates that you may customize for your own small company:

W-2 Employee Employment Contract Template

Employees to whom you send a W-2 should utilize the first employment contract mentioned below. You may save it in a document or PDF format after downloading it. Employees in circumstances where confidentiality and intellectual property rights must be clearly out should use an employment contract. It’s also useful if you have worries about the employee or need to keep track of an executive’s severance package.

1099 Contract Worker Employment Contract Template

The second employment contract form is suitable for employees like freelancers to whom you pay a gross amount without deducting taxes and instead issue a 1099-MISC at year’s end. Its primary purpose is to explain work requirements and pay with a non-employee worker. It becomes legally enforceable after both parties have signed it.

What Should All Employment Contract Templates Contain?

The employment contract should provide remuneration and employment conditions in addition to identifying your organization and the work that the contract employee will be recruited for. For example, you’ll need to specify whether the person will be paid on a W-2 (like a normal employee, where you deduct and pay taxes) or on a 1099 (where you don’t deduct and pay taxes) (like a freelancer, where they have to pay their own taxes).

In addition, a paragraph ensuring confidentiality and clarifying how disagreements would be settled is beneficial. You may select from a variety of suggested and optional components in our templates.

In employment contracts, there are six essential areas to include:

1. Working Conditions

The employer, the employee, the contract start date, and other details are included in the conditions of employment. Fill-in-the-blank placeholders with subsections are provided in our template enabling you to give these fundamentals. Any employment contract should include an at-will employment provision so that there is no doubt about whether a worker may be fired. This provides both parties with protection under US labor law.

If you and the contract employee agree on conditions in advance, such as 30 days’ notice or severance compensation, make sure the wording is included in the contract. As part of the employment conditions, our template contains standard wording that you are free to change.

Employee Responsibilities, No. 2

In an employment contract, clearly stating work duties establishes expectations for an employee’s function at your organization. This is necessary to avoid misinterpretation. If you have an existing job description, connect it; if you don’t, outline the position’s essential tasks in that area of the template.

In reality, many employment contracts and job descriptions include a line that says “extra responsibilities as allocated” or something similar at the bottom. This gives you the flexibility to change the employee’s or freelancer’s tasks as needed in the future. You may need to provide the employee or freelancer a new contract if the work changes considerably.

Note: If the employee is a 1099 contractor or freelancer, you should define the work requirements in terms of the contract employee’s responsibilities. You cannot, however, control how the employee performs their duties or you will be in violation of IRS worker classification requirements.

3. Remuneration and Benefits

Include the contract employee’s salary and benefits, as well as when they will be received. The basic categories are present in the template, but you may add extras if you provide them, such as relocation help. These subsections are optional for a 1099 contractor or freelance worker, apart from salary.

• Include the financial amount and the frequency with which it will be paid. For instance, you will be paid $22 per hour every other week on Wednesday.
• Include the financial amount or percentage to be received, as well as the terms under which it will be given. Example: A 5% yearly bonus is granted if an OSHA training audit is completed with a score of 95 percent or above.
• Benefits of health insurance include: Make a list of any and all perks you will provide to the employee. “We provide medical, dental, and vision benefits to our employees, and we contribute half of the ’employee-only’ premium.” For further information, see the benefits enrollment form.”
• Paid time off: Specify how many days of paid vacation and leave each year the employee is entitled to. “According to the employee handbook, the employee will earn ten (10) days of paid vacation time and five (5) days of paid sick leave.”
• List any additional employment perks that the firm provides and that the employee will get. Here’s where you may include things like life insurance or profit-sharing.

Keep in mind that you are not obligated to withhold taxes on 1099 contractors or freelancers’ pay. Furthermore, rather than hours spent, their pay may be dependent on project deliverables or milestones. Make any necessary changes to this section to indicate when and how the contractor will be paid.

It’s one thing to break out all of your workers’ benefit and pay data. It’s a different story keeping track of them all. Gusto can help you manage salary, incentives, and benefits for all of your workers and contractors, including health insurance and paid time off (PTO). You can try Gusto for 30 days for free, and you don’t need a credit card to join up.

Gusto is a great place to visit.

Non-disclosure and non-compete agreements

You may incorporate stipulations in your contract similar to those included in our employment agreement templates to safeguard confidentiality and your book of business. Another alternative is to send two papers that address these two concerns separately.

• A non-disclosure agreement (NDA) is a contract that prohibits the revealing of confidential information. An NDA, often known as a confidentiality agreement, prohibits workers from disclosing secret business information to anybody outside the company.
• A non-compete agreement (NCA) is a contract that prohibits a person from competing with them. When workers leave your firm, whether to work on their own or for another company, an NCA prohibits them from poaching your clientele.

Both are legally binding under most state laws, with the exception of California’s restrictions, which tend to invalidate non-compete agreements. As a result, if your primary place of business is in California, we suggest consulting with an attorney and drafting a more detailed non-disclosure agreement as well as an innovation patent (IP) clause or contract, rather than a non-compete agreement.

Consider joining up with Rocket Lawyer for legally sound customisable documents ranging from NDAs to innovation patents. You’ll have access to legally verified, customisable document templates for a modest monthly fee of $39.99. Rocket Lawyer is available for free for seven days.

Go to Rocket Lawyer for more information.

5. Process for Resolving Disputes

Most labor contracts should also include what will happen if there is a legal dispute, such as where the legal procedures will be held and who will pay the legal fees. You should also declare which state’s laws govern the deal (usually the state where your business is located). Our employment contract templates have spaces for you to record this information.

6. Signed documents

Both yours and the contract employee’s signatures are necessary for the employment agreement paperwork to hold up in court. You and the contract employee should both preserve a copy of the signed paperwork. To eliminate any conflicts or misunderstandings, it’s essential to have both parties sign and date the employment contract before work starts.

What Not to Put in a Contract of Employment

The following two topics should not be included in an employment contract: job length and reasons for termination, since they may jeopardize your ability to invoke the at-will provision if you need to fire the employee. Employers in California may face extra duties as a result of more stringent rules that undercut nondisclosure agreements and more clearly define the distinction between workers and contractors.

Term of Employment

Including a deadline or work length (e.g., we will employ you for at least one year) will help you get the most out of your at-will employment. Under the at-will theory, a contract that includes a time period becomes a “implied contract.” Even if you terminate the person before the contract’s expiration date, you may be required to pay them for the whole time period indicated.

Termination Criteria

Including reasons for terminating a contract employee might potentially jeopardize any protection provided by the at-will employment theory. If the employee sues for wrongful termination, the court may rule that the employee may only be fired for the reasons mentioned. As a result, rather of stating specific grounds for termination, some firms ask both employees and contract workers to follow the employee handbook.

Employment Contracts vs. Employment Agreements

You may be asking what the difference is between an employment agreement and a contract of employment. The phrases are often used interchangeably in common speech. However, unlike a contract, an employment agreement is usually verbal or less formal than a contract, and it may not be enforceable in all jurisdictions. For more information, here’s what attorney Kimberlee Gee has to say:

“Any meeting of the minds is referred to be an agreement in common parlance. A contract is a more formal agreement that has particular terms, conditions, and clauses that spell out what both parties are required to do as a consequence of the agreement. The actual provisions of the agreement, regardless of what you title it, will be legally binding. A ‘contract,’ on the other hand, requires ‘consideration,’ or an agreement between the parties to deliver something in return for something else. I propose calling it a ‘contract’ if the company wishes to be more official.”

— Kimberlee Gee, Esq., Kimberlee Gee Legal, Founder & Legal Consultant

To be safe, we advise company owners to use the phrase “employment contract” rather than “employment agreement,” and to get legal advice before turning any verbal agreement into a written employment contract document.

Businesses for Which Employment Contracts Are Most Appropriate

An employment contract works by laying out your, your employer’s, and your employee’s joint rights and duties. An employment contract for a direct-hire employee and an employment contract for a worker who freelances as an independent contractor are the two most common types. When both parties sign the contract, it becomes a legal document.

Consider the following examples of how an employment contract may be used by various types of businesses:

Companies that are looking to hire senior managers or executives

An employment contract is required for businesses recruiting a high-level management who will have access to private data in order to avoid the theft of trade secrets or clients (for example, if you’re hiring a marketing VP and you know they might do substantial harm if they left on poor terms). If the executive employee breaks your contract, the non-compete and non-disclosure provisions of your employment agreement may provide you with legal action and significant penalties.

Companies that want to keep their most valuable project employees

Businesses in need of project completion may wish to use a contract to ensure that personnel will stick it through. Let’s imagine you’re working on a large IT project and need to bring in some tech support. If one of the programmers decides to leave, you’ll need prior notification so you can find a replacement and keep the project on schedule. It’s a good idea to utilize an employment contract at this point. You may use it to provide incentives for project completion.

Firms Looking to Hire Talented Professionals on a Contract

Some staff may refuse to work with you until you provide written assurances. This is common among highly sought-after professions such as sales managers, media talent, and website developers. You may use the contract to record agreed-upon incentives that aren’t included in the employee handbook. For example, they may have negotiated an additional week of vacation, a company-provided luxury automobile, or a severance package if you fire them.

Startups Collaborating with Freelancers and Independent Contractors

When dealing with a freelancer or 1099 contractor, it’s important to be explicit about job responsibilities, deadlines, and deliverables. Once they learn about your company strategy and trade secrets, you must guarantee that they do not break confidentially or advertise to your customers. A contract won’t completely protect you, but it may give compensation if they break the conditions.

When Should You Use a Contract of Employment?

The majority of the time, employing an employee does not need the creation of an employment contract. Most workers come up for orientation on the first day after accepting a verbal or written job offer, complete new hire paperwork, sign your business rules or employee handbook, and go to work. Most of the basic data a new employee needs to know about their employment with your organization may be found in the job description and the employee handbook.

When recruiting contract workers or in high-tech or highly sensitive firms that seek guarantees that their employees will follow a specified code of conduct, an employment contract is more likely to be employed. It contains elements that safeguard your business, such as promises of secrecy, a demand to return corporate equipment, and penalties for departing before a project is completed.

Let’s have a look at some more places where you can get more employment contract templates:

Providers of Employment Contract Templates

You may either alter one of our two employment contract examples above or contact your local company attorney to see if they have a template you can use. Regardless, get your contract reviewed by a professional attorney to verify that it complies with your state’s and local labor regulations.

Here are some fantastic locations to explore for a sample employment contract:

Request an Employment Contract Template from your lawyer.

Your company lawyer may be able to offer you with a typical employment contract as part of your account. They’ll almost always be the best informed about employment law in your area and industry. It’s a question worth asking. If their price is too high, there are less expensive alternatives below.

An Employment Contract may be downloaded from a legal website.

Standard contract templates and services are available on legal websites. Some, like as Rocket Lawyer, provide a half-dozen free copies of employment contracts that you may alter and download, or they’ll evaluate your employment contracts for as little as $59.99 per session. With a seven-day trial of Rocket Lawyer, you may download and personalize your document for free.

Go to Rocket Lawyer for more information.

The Society for Human Resource Management (SHRM), for example, provides templates to its members. You may also be able to get samples through your local chamber of commerce or other company or industry organizations.

Request a sample agreement from your human resources or payroll provider.

To assist their customers, several HR and payroll suppliers offer downloadable templates and document samples. If you already have an HR or payroll provider, see if they provide a printable employment contract template you may utilize.

Gusto is a payroll software that includes e-signature and document storage as part of its payroll processing. Gusto can manage a worker’s paycheck and maintain their signed contract paperwork online after you engage them, whether they’re a 1099 freelancer or a W-2 employee. Request your free 30-day trial.

Gusto is a great place to visit.

How Much Does a Job Contract Cost?

You may often download and alter an example contract for free. However, this might be dangerous. Alternatively, you may acquire contract templates from a legal website like Rocket Lawyer for as little as $39.99 per month. In any instance, invest in a legal review once you’ve customized it for your company (to ensure it will stand up in court). Finally, if you ever need to enforce the contract, you should account for those expenses as well.

The following are the expenses of administering employee contracts:

• Write: Outsource it for $50 to $500 per hour; otherwise, your time is the sole expense.
• Alter: $0 to $39.99 in addition to your time to edit or adapt an employment contract template for your company that you obtained or downloaded.
• An attorney will analyze your employment contract for $50 to $500 per hour.
• If your employment contract is broken, you may be paid $50 to $500 per hour to enforce it.

The good news is that having a contract may save you time and money by establishing explicit employment conditions from the start. Even if you don’t engage a lawyer to draft your contract, changing a free or low-cost template is preferable to not having one at all.

The Benefits and Drawbacks of Using an Employment Contract

Using an employment contract may help eliminate uncertainty from the outset; but, it can also result in extra work for you and can be expensive. To help you weigh your choices, here are some advantages and disadvantages to consider before implementing an employment contract with your employees:

Advantages of Using a Contract of Employment

The main advantage of putting your employment agreement in writing is that it outlines everyone’s expectations and gives you peace of mind that the task will be completed as promised. The following are the three main advantages:

• Expectations are clear: you’re less likely to encounter problems with the task or the employee.
• Legally binding: If both parties sign and date it, it will most likely be upheld in court.
• You may be eligible to seek damages if you are the victim of a contract violation.

The Disadvantages of Using an Employment Contract

Consider the following points on the negative side:

• Employee trust might be harmed: It may make your working connection seem too formal. An employee handbook is often sufficient for entry-level positions.
• It must be maintained: If you do not update it on a regular basis, it will be of little use to you. The contract may have ended or the work conditions may have changed from year to year.
• It is expensive to have the contract reviewed and updated on a regular basis.
• If contract provisions do not match legal standards, the agreement may be declared unenforceable, or worse, you may be charged with a labor law infraction.

When Should You Use an Employment Contract Template?

Consider popular alternatives that may achieve the same fundamental aims if an employment contract seems too formal for your small firm or you wish to save written employment agreements for your higher-level and freelance workers.

Alternatives to a structured employment agreement that are potentially simpler to administer include:

Job Description & Offer Letter

The most frequent methods that firms explain the employment relationship with direct-hire workers are via an offer letter and a job description. You provide the hire date, salary rate, and job title in an offer letter, as well as any other essential agreed-upon information like a hiring bonus or additional paid time off. To explain the job tasks and expectations, you’ll usually include or attach the job description.

Employee Contract

An employee agreement is a less formalized version of a contract that spells out exactly what the employee is hired to accomplish and how the company will reward them. It may also contain attachments like an NDA, although it isn’t need to be as formal as a contract. It is frequently presented together with a job description.

Handbook for Employees

The most frequent technique to define work standards and guarantee that your staff follow them is to create an employee handbook. Using the employee handbook in addition to giving a job description is a less expensive approach to guarantee that your staff follow the rules. In reality, the most typical document used to define the employment relationship and workplace norms for W-2 direct-hire workers is an employee handbook.

Goals for Performance Management

Without resorting to a formal employment contract for each and every staff member, having an employee performance evaluation procedure that clearly specifies job expectations is a wonderful approach to manage your personnel. Employees work with their bosses to develop objectives, which they then revisit on a regular basis. This guarantees that managers and their teams are on the same page when it comes to expectations.

Employment Contracts: Frequently Asked Questions (FAQs)

When it comes to establishing and executing an employment contract, small company owners may be anxious about doing it correctly. Below are some of the most frequently asked questions.

Employer or employee, who profits the most from an employment contract?

An employment contract may benefit both employers and workers. However, it’s in your best interest to construct the employment contract in a manner that protects your employer rights, such as stating the amount of prior notice you must obtain from the employee if they quit (in order for them to be eligible for bonuses or severance).

How can I get out of my employment contract?

To terminate a contract, all you have to do is provide the employer written notice of your intended termination date. The at-will employment concept will apply in most states. That implies you have the freedom to leave your job at any moment. Examine your contract, though, to discover what you could lose. You may forfeit any promised severance money, 401(k) match, or bonus payment if you quit without giving early notice.

Is it possible for an offer letter to perform the same function as an employment contract?

A job offer letter, which may be as basic as an email, and an employment contract, which is more official, vary in three ways. They are as follows:

1. The date on which you will deliver the document: The first thing you provide to someone you wish to recruit is an offer letter. Only after someone accepts the offer would you present an employment contract.
2. The document’s degree of detail is as follows: A formal job offer specifies the start date, wage rate, and place of employment. A contract for employment is substantially more detailed.
3. The degree to which the papers are legally binding: A letter of offer is not a legally enforceable contract. A properly prepared and signed employment contract, like a signed NDA or non-compete agreement, is legally binding.

Is there a difference between a written employment agreement and an employment contract?

A court may consider an employment agreement to be a contract if it is written and signed by both parties, regardless of what you label it. A document that hasn’t been signed by both parties is difficult to defend in court, since the individual who didn’t sign it might claim ignorance.

Conclusion

If you’re recruiting a manager-level employee or need to reaffirm conditions with a contractor or freelancer, an employment contract is a handy document to keep in your personnel file. Use our free printable templates as a starting point to safeguard your company and yourself, as well as to establish clear expectations for the worker’s job and remuneration.

Consider employing a legal partner like Rocket Lawyer if you need assistance writing an employment contract for your company. You’ll answer a few questions and supply information such as your company’s location so that the contract may be tailored to your needs. Sign up for your free seven-day trial at the website.

Go to Rocket Lawyer for more information.

An employment contract is a document that outlines the terms of an agreement between an employer and employee. It includes some basic information about the job, as well as any other important details. This includes what to include in your employment contract, as well as how long it should be. Reference: importance of employment contract.

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