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An employment contract is a written employment agreement documenting the shared rights and responsibilities between your company and an employee. A strong employment contract template should include terms of the agreement, the employee’s responsibilities, compensation and benefits, and an at-will statement.
We’ve provided a general employment agreement template for you to download and use. You can customize it to your individual circumstances and state requirements.
What to Include in an Employment Contract Template
An employment agreement template works as a fill-in-the-blank document, with boilerplate information that doesn’t change, and sections throughout where you will add details specific to your business and any agreements made with the worker.
Beyond describing the details of the job that the employee is being hired for, the job agreement template should address compensation, benefits, and employment terms. In addition, it’s helpful to include a clause to ensure confidentiality and clarify how disputes will be resolved.
Here are nine critical sections to include in an employment agreement template:
The introduction should include information like company name, employee name, contract start date, and so forth. Our template provides fill-in-the-blank placeholders with subsections for you to provide these basics.
For the terms of agreement, your contract should include language that directs the employee to follow all company procedures, rules, and regulations.
Clearly defining job responsibilities in an employee contract template sets expectations about an employee’s role at your company. This is essential to prevent miscommunication. It’s often easiest to attach an existing job description if you have one; if not, summarize the position’s key responsibilities within that section of the template.
Many employment contracts and job descriptions will state “additional duties as assigned” or something similar. This leaves you free to adjust the employee’s responsibilities later should the need arise. Be aware this only applies to minor changes. If the job changes significantly, you may need to provide the employee with a new contract.
Include the compensation and benefits, if any, that the worker will receive and on what schedule. The primary categories are included in the template, but you could add others, like relocation assistance if you offer it.
- Compensation: Include the dollar amount and how often it’s to be paid. Example: You will receive $22 an hour paid every other week on Wednesday.
- Bonus: Include the dollar or percent to be received and under what conditions. Example: 5% annual bonus paid if OSHA training audit at or above 95%.
- Health insurance benefits: List all of the benefits you will offer to the employee. Example: We offer medical, dental, and vision benefits, contributing 50% toward the “employee-only” premium.
- Paid time off: Outline how many days of paid vacation and leaves the employee is entitled to take each year. Note that some states require you to provide paid sick time (whether you offer paid time off or not). Example: The employee will receive ten (10) days of paid vacation time and five (5) days of paid sick leave annually per the employee handbook.
- Other benefits: List any other employee benefits the company offers that the employee will receive. This is where you might add life insurance or profit-sharing. For help setting up an employee benefits program, see our guide.
If your business has a probationary period, include this language in your employment contract. Typically, a probationary period is a set amount of time (up to 90 days) where the employee is not eligible for benefits, such as paid time off, 401k contributions, or healthcare coverage.
An at-will employment clause should be added to any employment contract so that there is no question as to whether a worker can be terminated. This protects both parties consistent with US labor law. Because at-will employment is the default in the US and applies even without an employment agreement, if you have an employment agreement but do not include at-will language, it could restrict your ability to terminate the employee.
If you and the employee agree in advance to terms like 30 days’ notice or severance payments, be sure to include that language in the contract itself. Our template includes standard language you’re welcome to modify as part of the employment terms.
To protect the confidentiality of your business, you can include clauses in your contract similar to the one provided in our employee agreement template, which prohibit employees from disclosing confidential information outside of the company.
You can also take it a step further to state that employees are not allowed to engage in outside businesses that directly compete with your company. However, be sure not to use language that prohibits an employee from seeking gainful employment upon termination from your company, as new rules have been proposed.
In the News:
The Federal Trade Commission (FTC) has proposed a new rule that could ban non-compete clauses between employers and employees in all 50 states. This is based on their finding that non-competes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.
Additionally, a group of US Senators has reintroduced a bill, the “Workforce Mobility Act of 2023,” that would largely ban the use of employer non-compete agreements nationwide per federal law.
This section of your contract of employment notifies the employee that once signed the current contract supersedes any previously signed contracts. Additionally, this is the section to state that this contract may be amended in the future only by written and signed documentation.
This notifies employees that if any part of the contract becomes unenforceable or invalid, that only that part will be stricken from the contract. The remaining parts of the contract will remain valid and enforceable.
Both the employer and the employee’s signatures are required for the employment agreement to be valid. A document that both parties do not sign is hard to defend in a court of law, as the person who didn’t sign it can claim they didn’t know about it.
You should keep a copy of the signed document, as should the employee. It’s best to have both parties sign and date the employment contract before work begins to avoid potential issues or misunderstandings.
Who Needs an Employment Contract?
An employment contract is typically drawn up when you hire a new employee in conjunction with the job offer. Once signed by both parties it is a legally binding contract.
Contracts can also be drawn up for existing employees, usually in the case where the employee has received a promotion or been assigned to a leadership position. The details will remain the same as a contract for a new employee and should be filed in the employee’s personnel file.
Pros & Cons of Using an Employment Contract
| PROS | CONS |
|---|---|
| Expectations are clear: It’s less likely you’ll have issues with the work or the worker. | Could damage employee trust: It may make your employment relationship feel too formal. For entry-level roles, an employee handbook is often enough. |
| Legally binding: If signed and dated by both parties, it will likely stand up in court. | Needs to be maintained: If you don’t update it regularly, it may work against you. Work terms may change from year to year, or your contract may have expired. |
| Remedy is available: If a breach of contract occurs, you may be able to request damages. | Costly: Having your contract reviewed and updated regularly costs money. |
| Protects your business: A signed contract protects your business trade secrets, client list, and prevents employees from disclosing sensitive information. | Might violate the law: If contract terms don’t meet legal requirements, the document may be unenforceable, or worse, subject you to a labor law violation. |
Both employers and employees can benefit from an employment contract. However, it’s in your best interest to write the employment contract in a way that preserves your rights as an employer, such as by specifying the amount of advanced notice you need to receive from the worker if they resign (for them to be eligible for bonuses or severance).
Using an employment contract can go a long way toward eliminating confusion from the start; however, it can also create more work for you and is sometimes costly. The primary benefit of documenting your employment agreement in a written contract is that it clarifies expectations all around and provides you with an assurance that work will be done as expected.
Employment Contract vs Job Offer Letter
Different from an employment contract, a job offer letter is a more common way that businesses clarify the employment relationship with direct-hire employees. In an offer letter, you specify the hire date, pay rate, and job title and spell out any other pertinent agreed-upon information, such as a hiring bonus or extra paid time off.
The differences between a job offer letter and a more formal employment contract are:
Job Offer Letter | Employment Contract | |
|---|---|---|
Type of Document | Can be as simple as an email to the candidate | A formal document that is signed by both parties |
Timing | Provided to a candidate once completed the recruiting process | Provided only after an offer has been accepted, typically during onboarding |
Level of Detail | Includes a start date, pay rate, and work location | Provides detail that includes terms of the employment, employee responsibilities, compensation and benefits, confidentiality clause, and signatures |
Legality | Not a legal contract; therefore not enforceable | Legally binding contract when correctly drafted and signed; therefore enforceable |
Employment Contract Frequently Asked Questions (FAQs)
You can use an employment contract for any W2 employee that you hire. Typically, businesses will enter into an employment agreement with full-time employees, however, you can still require them for part-time, and even temporary employees, as long as they are not classified as independent contractors.
You can, but we don’t recommend it. Employment contracts are ripe for mistakes that can lead to costly litigation and disputes. It’s best to use a template and have it reviewed by an employment attorney before using it.
No. Employment contracts and freelance contracts are different agreements. Freelancers should receive your standard independent contractor agreement. With a formal written contract, you will be able to hold the contractor accountable.
Bottom Line
An employment contract is a useful document to have in the personnel file if you are hiring a manager-level employee or higher. Use our free downloadable templates as a starting point to protect your business and yourself, as well as set clear expectations about the role and compensation of the worker.
