Employee Contracts: Important Sections to Include

by / ⠀Entrepreneurship Startup Advice / February 2, 2022
Hiring new personnel requires that you adhere to basic employment practices to avoid legal problems. Your employee contract provides the key.

Whether you are a startup or an established business, including the fine print in your employee contract might be difficult.

Small businesses often handle their workforce needs by recruiting family members, friends, or taking recommendations from close people. However, as your company grows, you have to hire unknown candidates for new job positions. Hiring new personnel requires that you adhere to basic hiring practices to avoid legal issues.

Besides using software to improve your hiring process, you should also learn to use employment contracts. It is important to know that you can use contract review software that could help with contract management in general and different contract amendments.Below are the essential items that you should include.

1. Job Description

Regardless of whether you are looking for an employee to fill a new vacancy or replace an outgoing employee, you should define the roles and responsibilities that come with the position.

Important information on the job description that should be part of any employment contract includes the following.

  • Job Title
  • Duties and Responsibilities
  • Educational Requirements
  • Skills and Other Requirements
  • Team and Department Assignments

You might have to define the scope clearly if you create an entirely new position.

Most of this information is also important in creating a job advert for potential hires. You should also highlight how employee performance will be monitored, available tools, and who the new hire reports to.

The best way to find out job information is to work back from the expected outcomes.

You can also search and analyze similar positions online. While searching online may take time, the position may later become a permanent role in the company. Doing extensive research is better than sending job offers to candidates who haven’t understood their duties and responsibilities clearly.

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2. Employee Compensation and Benefits

Employee wages are among the necessary costs to consider when starting a business. This negotiable section includes:

  • hourly rates or annual employee salary;
  • income raise, bonus, and incentives;
  • medical, dental, eye, and other health benefits;
  • options for company stock;
  • investment and retirement plans;
  • signing bonus; and
  • other fringe benefits.

Compensation is also a key factor influencing employee turnover and is among the key reasons most people are always looking for new jobs.

Skimping on employee benefits may cut costs for a short period. However, you will have to deal with low-quality candidates and high employee turnover.

Note that the perks mentioned above do not feature in all positions. For instance, part-time employees of retail stores won’t claim a signing bonus or company stock. This is why you should tailor every employee contract to suit.

3. Employee Classification

You should include employee classification in your employment contract for various reasons.

Be sure to classify your new hire appropriately, either as a contractor or employee, especially for tax and insurance reasons.

Apart from tax and insurance benefits, classification also determines employee rights and benefits.

For instance, you can’t provide health insurance to contractors. You should learn how to classify your employees and how hiring processes differ.

4. Schedule Employment Period

A hiring contract should indicate if the employee is hired full-time or part-time or for a specific period after the hiring date.

Some job positions, such as contracting, arise only on an as-needed basis. Job candidates need to know if the position has an expiry date, especially those looking for traditional roles or who want stable employment.

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As you define the employee schedule, ensure that you include the hours that employees should work.

If the job position has pre-scheduled hours that the employee should be available, highlight how employees should use these hours. Apart from the working hours, you should mention if flexibility, such as working remotely, is an option.

Don’t forget to indicate job positions that have exceptions to the standard work hours.

For instance, mention if the position requires job applicants to work on weekends or at night, either as part of regular work or as overtime.

Similarly, mention if there are different compensation rules guiding these exceptions. For instance, more hourly pay during weekends and holidays.

5. Time Off and Holiday Policies

While you can include this section in the “compensation and benefits” clause, you should have a separate section describing how employees can ask for time-off, sick leave, and vacations.

Besides compensation and good insurance, employees also consider paid time-off and vacation before signing a contract. The time-off policy should outline how employees can accrue time-off and when they can claim it.

In most organizations, accrued compensatory time-off, such as vacation and sick leave, is awarded as an annual lump sum. For holidays, ensure that you highlight when employees can request vacation time and the approval process.

6. Termination and Severance of Contracts

While thinking about termination even before the employee signs the contract might seem off, you should make plans if the employee decides to leave. More than three million people quit their jobs in the U.S. every month, which makes your concerns very relevant.

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Your employment contract should explain in detail the procedure for terminating employment, including the amount of time that the employee should issue a written resignation notice.

You should also include the terms and other legalities depending on your state. Regardless of how the employer-employee relationship ends, you should list other factors restricting employees from soiling your brand.

Key Takeaways

Remember that employment law is diverse and differs from one industry to another. Your approach should adhere to your state’s legal requirements, location, and industry practices.

For instance, manufacturing and medical industries should include confidentiality and privacy segments that employees should sign against in their employment contracts. You might also need additional clauses that restrict user behavior and actions at work, such as the use of company property and many more.

Creating employment contracts is a lengthy process that involves a lot of considerations. Fortunately, the same way a hiring software simplifies the hiring process, a contract workflow software provides an error-free and straightforward contract creation.

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