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.


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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 other.

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 immigrations 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, contracts at time specify 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. If is not a final layoff and employees could be rehired as well. This can be paid, semi paid or unpaid. So, one should lookout for these clauses carefully and understand what it 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 the 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

Full-Time 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.
Part-Time employment
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.
Seasonal employment
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
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 later 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 actions 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.

Conclusion

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.

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