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 organisation 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 organisation’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 popularised 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 organisation. 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?
Poorly drafted or verbal employment agreements can leave critical terms and conditions unclear or absent. Vital details such as the employee’s roles, health insurance, sick leave, annual leave, and termination rules might be overlooked.
Top 5 reasons for a Formal employment contract
- Job security for employees: It outlines the duration of employment and specifies grounds for termination, clarifying required behaviours and prohibited actions, fostering a trustworthy relationship between employee and employer.
- Understanding of roles and responsibilities: Clearly defining the employee’s duties and the employer’s expectations aids in performance evaluation and action on underperformance while detailing compensation, incentives, and benefits.
- Protection of employee rights: Contracts should comply with the local Employment Act, specifying wages, payment frequency, and overtime rules, safeguarding employee rights.
- Confidentiality and trade secrets: Incorporating confidentiality terms or NDAs protects sensitive company information with additional clauses to prevent competition and solicitation.
- Staff leave and dispute resolution: Formalising leave procedures ensures legal coverage and clarifies leave entitlements, while setting dispute resolution mechanisms reduces the likelihood of legal conflicts, outlining acceptable conduct.
A well-constructed contract benefits both parties by establishing clear expectations and legal protections, avoiding potential misunderstandings or disputes.
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 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.
Implied Contracts.
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.
Do you need an employment contract for part-time work?
Yes, part-time workers also need an employment contract like full-time workers before taking employment. In most cases, full-time work and part-time work are similar. Generally, the only difference is the number of hours in the contract. So, having an employment contract for a part-time job will help the employee and employer to nail down the working hours, pay rate, as well as other terms and conditions.
How many hours is the minimum for a part time contract?
Notably, this very much depends upon the country where the work takes place. Essentially, every country has its own laws and regulation. However, very generally speaking, most part-time jobs require a minimum of 20 hours and as many as 35 hours per week.
Can part-time employment contracts be combined with other types of contracts?
Yes, you can combine part-time employment contracts with other types of employment contracts. You can do this for an indefinite period of time or for a fixed period of time as well. For example, you can take on freelance assignments or sign another part-time employment contract (that does not interlude with your current timing). However, there are some slight exceptions to this such as in the case of training or apprenticeship contracts as you are required to devote part of your working day.
What is a Statement of Terms of Employment?
A Statement of Terms of Employment is a letter to state the terms under which a company would hire an employee. When drafting a Statement of Terms of Employment, the employer should be aware of certain statutory provisions in determining the terms of employment. This includes entitlements to sick pay, holidays, and minimum notice periods for termination of employment.
What is the difference between a Service Agreement and an Employment Agreement?
A service agreement is signed and entered with employees or a company to engage in certain services with a company on a day-to-day or regular basis, such as office cleaning services.
An employment agreement is offered to an individual to work under a company. It is more descriptive and details the nature of work, responsibilities, roles, and all expectations from the employee.
It should also include working hours, leave, and salary structure.
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