Overview of an Employment Contract
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, the employer should be aware of certain statutory provisions in determining 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 between a company or an employer and an employee at the time the individual is hired. 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 employer responsibility to write a detail 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 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 a detail of basic salary, allowance, insurance, provident fund, and all the deductions or facilities to which the employee is entitled.
Annual leave and holidays Normally the details about annual leave and holidays can be found in the organization calendar. However, mentioning those things in an employment contract 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.
Is the Probation period mandatory in an Employment Contract?
A 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, supervisors; reliability; and honesty. Because not everything comes out in an interview, 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.ie; 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. An Employment Contract includes 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 pay rates, income, benefits, and bonus should be clearly mentioned in the contract and employers should follow accordingly.
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 helps to set a better relationship between the employer and employee and also aid in the success and growth of any organization.
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Along with this document, make sure you see these other templates in our library:
- Consultancy Agreement
- Data Protection Policy
- Freelance Agreement
- Share Vesting Agreement
- Shareholders’ Agreement
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