What is an Employment Contract?
A Contract of Employment (also called an employment agreement) is an agreement between the employer and employee setting out detailed terms and conditions of the employment.
How to create an Employment Contract
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What is an Employment Contract?
An Employment Contract is a contract by which a company hires an employee. It sets out detailed provisions on various aspects of employment.
When drafting an employment contract template, the employer should be aware of certain statutory provisions. This is to better determine the terms of employment. For example, the amount of minimum wage (if applicable), rest days, paid annual leave, statutory holidays, or maximum working hours (if applicable).
An Employment Contract is a legally binding document that is signed at the time an individual is hired. It is signed between a company or an employer and an employee. It states the nature of the work and also establishes both the rights and responsibilities of the two parties.
What should be included in an Employment Contract?
The HR department of a company typically handles the provisions to be included in an Employment Contract. These include:
- Details of the job: It is an employer’s responsibility to write details about the nature of the job in an employment contract.
- Duration & probation period It should specify the duration of the job and probation period if exist. Normally the probation period lasts at least 3 months.
- Remuneration details including benefits, bonuses, and reimbursements: A clear breakdown of remuneration will help both employee and employer to have a clear understanding of what investment an organization is making in its employees. It should include details of basic salary, allowance, insurance, provident fund, and all the deductions or facilities to which the employee is entitled. Further, employees should also be told of the benefits they will receive such as lunches, accident coverages, discounts along with reimbursements for goods like stationeries and others.
- Annual leave and holidays Normally, details about annual leave and holidays can be found in the organization’s calendar. However, mentioning those things in an employment contract template will make it easier for an employee to understand.
- Details of work arrangements The workplace of an employee, the possibility of a client-side visit, and the working environment should be clearly mentioned in an employment contract. Those details will help a new employee to know more about the working environment of the office.
- Work Permits: With increased connectivity, the job market receives a diverse portfolio of employees. Sometimes, this can include international migrants from foreign countries who have specific immigration statuses. Always be sure to have the work permits clause clarified beforehand in such cases.
Key terms in Employment Contract:
- Probation Period:
It is common for new appointments to be subject to the completion of a probationary period. It is worth noting that probationary periods increase the probability of new employees succeeding in their roles. The main objective of the probationary period is to give both the employer and the employee some time to evaluate the skillset, behavior, and role during an initial work period. It basically gives an opportunity to the employer to assess the performance of the employee and his suitability for the role while considering his skills, capabilities, conduct, and attendance. On the other hand, it also gives a chance to the employee to see if they like the new job, work culture, and surroundings.
- Term of Employment: The time duration of a contract will depend on multiple factors with the type of employment being the key factor. Further, the contract at time specifies if the period will be extended under certain conditions so one should always be on the lookout for this.
- Dismissal of Employee:
The reasons for the dismissal of an employee by their employer can be manyfold including misconduct, performance, or substandard work levels. A responsible employer should determine the rights of an employee before dismissing him from his position. The rights considered should include statutory as well as contractual requirements so as to not be against employment law principles or breach of contract.
- Period of notice
Companies are always on the lookout for bright and talented employees and as one; employees, can easily weigh options and juggle offers. But they should always be careful about how long the period of notice is in the contract. It mentions how far ahead you need to hand in your notice before you are allowed to leave.
- Temporary lay offs’:
This a concept that has been widely popularized post covid. As the economy saw a drastic downfall during the pandemic, many companies began laying off their employees in hopes of survival. Temporary layoffs are periods when employees are temporarily asked to quit their jobs. It is not a final layoff and employees could be rehired as well. This can be paid, semi-paid, or unpaid. So, one should look out for these clauses carefully and understand what they could mean for them personally.
Is the probation period mandatory in an Employment Contract?
Probation or probation period is a status given to new employees of a business or organization. This allows the employer to evaluate the progress and skills of the new employee, and monitor other aspects of the employee such as interaction with co-workers, customers, and supervisors; reliability; and honesty. Not everything comes out in an interview. So, the probationary period gives both parties time to assess whether the employee is a proper fit. The probationary period varies widely depending on local labor laws. A probationary period allows the employer to terminate an employee that is not suitable for the position.
Why is an Employment Contract important?
An Employment Contract is a contract signed by both parties. Which are the employee and the employer. It binds both parties to their duties and responsibilities and thus helps in minimizing disputes between an employee and employer in the future. Here are 3 basic reasons why it is important for both parties.
1. Job security for the employee and labor certainty for the employer This is the most important purpose of an Employment Contract. It states the time frame of how long an employee is contracted to stay with the company. This ensures the job guarantee for employees whereas employers can be positive about staff dropping off jobs, as long as they do not violate the terms of the contract.
2. Dispute resolution Another purpose of an Employment Contract is dispute resolution. A good Employment Contract reduces the disputes between two parties and minimizes the time and expense of a courtroom battle.
3. Better understanding of duties An Employment Contract has a clear description of the duties of the employee. If an employee is consistently underperforming and not meeting the agreement set out in their contract, their employer will have reason to take action Employers also have a responsibility to pay their employees, facilitated with different incentives, bonuses, or benefits. The employers should follow the pay rates, income, benefits, and bonuses mentioned in the contract accordingly.
Pros and cons of an Employment Contract
There are definitely upsides as well as downs to having an employment contract in place.
On the plus, an employment contract sets down well-defined roles and responsibilities. The contracts help protect both the parties as the expectation and ground rules are laid out beforehand and agreed upon. It also covers a wide range of situations and can help guide everyone involved in case of specific situations and can help prevent future misunderstandings. For employers, it is also a great way to impose non competes so they can safeguard their interests without worry of the competition poaching talent.
On the other hand, the contracts limit flexibility; meaning they can force someone to remain within certain bounds. Also, they are legally binding and so can have legal consequences too. Further, as they are mostly agreed upon beforehand, any change will require renegotiation and it could be a long process in itself. Additionally, in cases of breach, there could be more paperwork involved when an employment agreement has already been signed.
Types of employment
Employees with full-time employment work the maximum allowed hours in a week. They are entitled to benefits and allocated leaves. An employment agreement for a full-time employee will outline their responsibilities, and conditions associated with their service, and mention other applicable laws.
Employees who clock in for less than the full allowed time which is usually 40 hours a week are signed under the part-time employment agreement.
Casual or seasonal employees come under this type of employment and it is used by companies when they need to hire people for a certain period of time. every year. They are usually pulled in to help with the increased work demand during peak industry seasons. This employment is often accompanied by confidentiality and copyright agreements as well.
Temporary employment is usually used for a set time such as 3 months or 4 months. Employees can be hired for a specific project and their term could end as soon as the project is done.
Is an employment contract legally necessary?
Technically there is already an agreement between an employer and employee when the latter decides to work for the other. However, it is important to have a legal written contract of employment in place as it helps to have clear expectations of the responsibilities and limits any future liabilities. Furthermore, if any dispute arises in the future, it can be a good basis to sort things out or even take legal action with.
In terms of legal enforceability to sign one, it depends on local jurisdiction and regional laws. Be sure to check them to ensure that you are on the right side of the law.
Making changes to an employment contract
Many things can change during the course of one’s employment. Here are a few things to remember when you are changing an employment contract from both an employer as well as employee’s perspective:
-Employers need to consider what issues they are trying to address or resolve by proposing the change and if the change is truly required to be made contractually as well. For instance, one common reason why employers make contractual changes is to address new laws and make legal changes as per the rules. Another reason employers propose a change of contract is to address the changing roles of an employee within the office environment. Employers need to be careful of the changes they propose. Depending on the industry, you have to consider the roles of unions while drafting a changed contract too.
-Employees need to give thought to changes being made to an employment contract as well. Changes will not always be good or favorable. It could change the scope of an employee’s responsibilities or it could reverse what the employer had previously negotiated. Look into the details and always ask for clarification if you have doubts.
What are collective agreements in Employment Contracts?
At times, when employers are signing on new employees, they are also required to make agreements with staff welfare associations or trade unions. This type of agreement is called a collective agreement. The employment contract should make it very clear what applies to the individual employee and what can be negotiated by the unions on one’s behalf.
How do Employment Contracts Work?
Depending on the hiring company, position, and job, the contracts will function differently. Let’s discuss how written contracts and implied contracts work differently.
A written contract has well-defined responsibilities, designated roles, and all details of benefits and perks mentioned in writing to prevent any future confusion. Employees are bound to each of the conditions mentioned in the contract and need to comply with all the rules which can include restrictions following the end of the contract too. For example; a non-compete agreement.
On the other hand, implied employment agreements are loosely based on the exchange of communication and information made during the interview as well as the vetting process. These are mostly always followed by another formal letter or contract.
In a nutshell, an Employment Contract is an agreement between an employee and employer, which safeguards the rights of both parties in case of any disputes in the future. It should have a clear understanding of roles, responsibilities, payments, and benefits. So, a well-written employment contract template helps to set a better relationship between the employer and employee and also aids in the success and growth of any organization.
You might also like:
- Consultancy Agreement
- Data Protection Policy
- Freelance Agreement
- Share Vesting Agreement
- Shareholders’ Agreement
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