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An employment contract is an agreement between an employee and an employer. It details the employee’s role, the responsibilities of both parties, provides legal protection, and other benefits for both the employee and the employer.
Writing an employment contract can seem like a complex task, but with the right information and a little help, you’ll be able to have a contract that works for both you and the other party. If you're concerned about covering all the necessary details in your employment agreement, then this guide has everything you need to write a comprehensive document that's easy for everyone to understand.
If you're still feeling unsure about writing a whole contract yourself, you can always use our free employment contract templates to put your mind at ease. It covers all the basics—from the employee’s job title, working hours, services involved, severance pay, vacation time to paid time and contract termination guidelines.
A contract of employment is essential for legal protection and assurances that both worker and employer rights are upheld.
An employment agreement is helpful for the two (or more) parties involved to understand their responsibilities and employment terms, and can act as a point of reference for issues surrounding benefits, payments, and workplace expectations.
A clear employee contract is also vital for reducing miscommunication between the two parties and can reduce the likelihood of disagreements or disputes further down the line.
If you're concerned about making contracts, then creating a personalized employment contract template for yourself is a good idea. Bonsai offers a free employee contract that you can download, which will ensure you've covered all the basics you need for a legit employment agreement.
Now you know why an employee contract is important, the next step is to create your own!
Whether you’re offering a job to a new employee or you are the new employee, it's important you know how to create an employment contract. This type of document will need to include specific information to make sure both the employer and the employee involved have their requirements met and agreed to.
If you're creating an employment contract template from scratch, you should hire an attorney or law firm to make sure it's legally binding. At the very least, you should get legal advice. If this sounds like too much effort, you can use an employee contract template from Bonsai. It will contain everything we’re about to cover on this page.
If you're unsure exactly what this type of agreement should look like, let alone write one yourself, then here are the 9 essential clauses that every contract should include:
1. Details of the Employee and Employer
This section introduces both parties and you’ll need to include everything from the employee and company name, to postal addresses and contact information. The same goes for the employer.
2. Terms of Employment
In this section, you should summarise the employment conditions that have been agreed upon by all involved parties.
This will include a job description and the responsibilities involved with the position. You may wish to highlight how employees are expected to handle confidential or sensitive information.
These types of details can affect the outcome of the employment agreement, so it's a good idea to include as much as you think is relevant.
Some employment conditions are considered 'obvious' and therefore do not need to be included in this section. If you're feeling unsure, use one of our contract templates to help you out.
3. Key Working Dates
The contract template should clearly state the employee start date, and should also include an end date if applicable–such as for fixed-term positions or temporary employees.
You may also wish to state whether your employee will need to pass a probationary period, and give the date that the probation will end.
4. Work Schedules
The work agreement should stipulate the employee's expected working hours in an average week.
It should also discuss whether overtime is permitted, and what is expected in the event the employee cannot fulfil their expected hours. The desires of the employer could be that they don't wish to pay for overtime and that the employee should use their best efforts to stick to a schedule. Depending on the governing law, you may need to research overtime rights where you're based.
5. Terms of Payment
Your employment agreement should stipulate whether an employee is salaried, or will be paid based on hours worked. You should also define how often an employee will be paid and in what manner.
If your business offers overtime, you should highlight how employees will be paid for that time.
6. Terms of Holiday and Leave Entitlement
Depending on the length of the contract, you will need to outline how much vacation time the employee will receive. If they will be a permanent employee, you can simply state how many days of annual leave they can take.
If applicable, you should also highlight the other reasons that new hires could obtain leave–such as illness, bereavement, or maternity leave.
It is also important to define how employees should request leave, such as by stating the desired notice period.
7. Employee Benefits
If your business offers benefits, such as health insurance, pension schemes, or access to certain services, your employment agreement must name how and when these things can be used.
Depending on the company, benefits can also range from an education allowance, work equipment, or paid travel to business conferences. The employer should list all the benefits included with the position in the employment agreement.
8. Notice Period and Job Termination
This section will vary depending on the type of employee contract you are drafting.
For permanent positions, you may wish to document the amount of notice you will give to an employee, and state how much notice you require from them in the event they decide to leave.
If the position requires an initial probationary period, you should state how the employee will be notified if they do not make it through this period.
For fixed-term positions, you should restate the agreed leaving date, and stipulate how the employer should be notified in the event an employee wishes to leave early.
You should also highlight your company's standard procedure for terminating contracts.
9. Details of Employment Rights and Unions
As an employer, you must inform the employee of their workplace rights and your stance on Unions.
Key things to mention include the right to a safe workplace and your staff's entitlement to redundancy provisions. Depending on where you are, the employer may need to provide legal advice and other services for their employees.
If you're unsure which rights apply to your industry, or how to discuss Unions, then use an employment template to ensure you've got everything covered.
For the US specifically, both the employee and the employer will need to complete certain forms for the IRS and tax requirements.
If you’re not sure what these are, here’s a list below:
Register as an Employer With the IRS
[Form W-4] (https://www.irs.gov/forms-pubs/about-form-w-4) (or [W-9] (https://www.irs.gov/forms-pubs/about-form-w-9) for contractors) for Federal Income Tax Withholding
[Form W-2] (https://www.irs.gov/forms-pubs/about-form-w-2)
[Form I-9] (https://www.uscis.gov/i-9) and E-Verify System for Employment Eligibility
Job Application Form
Register With State Employment Agencies (check your state's regulations)
Other state-specific regulation forms (check the regulations of your state)
A permanent full-time employment contract is required when the employee is hired to do full-time hours (which can be country-specific) for the employer. It also requires the employer to provide certain benefits to the employee, such as health insurance and holiday leave.
Similar to a permanent full-time contract, this employee contract type usually states the employee will be hired on for half of the hours required in a full-time contract agreement. They will still be entitled to benefits such as health insurance or holiday leave, but the employee may qualify for less in some cases.
This type of employment contract offers greater flexibility for both parties. Generally, the employee will be hired for a specific amount of time or for a specific project. Once the project is complete (or amount of time reached), the contract will be terminated. The timeframe of this employment contract can be dependent on whether the employee agrees to the specific dates or not.
This Contract is between Sample Client (the "Client") and John Doe (the "Employee").
The Contract is dated [the date both parties sign].
1. WORK AND PAYMENT.
1.1 Project. The Client is hiring the Employee to do the following: The Employee will assist the Client with professional services.
1.2 Schedule. The Employee will begin work on March 09, 2021 and the work is ongoing. This Contract can be ended by either Client or Employee at any time, pursuant to the terms of Section 6, Term and Termination.
1.3 Payment. The Client will pay the Employee a rate of $38.00 (USD) per hour. Of this, the Client will pay the Employee $800.00 (USD) before work begins.
1.4 Expenses. The Client will reimburse the Employee's expenses. Expenses do not need to be pre-approved by the Client.
1.5 Invoices. The Employee will invoice the Client weekly. The Client agrees to pay the amount owed within 15 days of receiving the invoice. Payment after that date will incur a late fee of 5.0% per month on the outstanding amount.
1.6 Support. The Employee will not provide support for any deliverable once the Client accepts it, unless otherwise agreed in writing.
2. OWNERSHIP AND LICENSES.
2.1 Client Owns All Work Product. As part of this job, the Employee is creating “work product” for the Client. To avoid confusion, work product is the finished product, as well as drafts, notes, materials, mockups, hardware, designs, inventions, patents, code, and anything else that the Employee works on—that is, conceives, creates, designs, develops, invents, works on, or reduces to practice—as part of this project, whether before the date of this Contract or after. The Employee hereby gives the Client this work product once the Client pays for it in full. This means the Employee is giving the Client all of its rights, titles, and interests in and to the work product (including intellectual property rights), and the Client will be the sole owner of it. The Client can use the work product however it wants or it can decide not to use the work product at all. The Client, for example, can modify, destroy, or sell it, as it sees fit.
2.2 Employee's Use Of Work Product. Once the Employee gives the work product to the Client, the Employee does not have any rights to it, except those that the Client explicitly gives the Employee here. The Client gives permission to use the work product as part of portfolios and websites, in galleries, and in other media, so long as it is to showcase the work and not for any other purpose. The Client does not give permission to sell or otherwise use the work product to make money or for any other commercial use. The Client is not allowed to take back this license, even after the Contract ends.
2.3 Employee's Help Securing Ownership. In the future, the Client may need the Employee's help to show that the Client owns the work product or to complete the transfer. The Employee agrees to help with that. For example, the Employee may have to sign a patent application. The Client will pay any required expenses for this. If the Client can’t find the Employee, the Employee agrees that the Client can act on the Employee's behalf to accomplish the same thing. The following language gives the Client that right: if the Client can’t find the Employee after spending reasonable effort trying to do so, the Employee hereby irrevocably designates and appoints the Client as the Employee's agent and attorney-in-fact, which appointment is coupled with an interest, to act for the Employee and on the Employee's behalf to execute, verify, and file the required documents and to take any other legal action to accomplish the purposes of paragraph 2.1 (Client Owns All Work Product).
2.4 Employee's IP That Is Not Work Product. During the course of this project, the Employee might use intellectual property that the Employee owns or has licensed from a third party, but that does not qualify as “work product.” This is called “background IP.” Possible examples of background IP are pre-existing code, type fonts, properly-licensed stock photos, and web application tools. The Employee is not giving the Client this background IP. But, as part of the Contract, the Employee is giving the Client a right to use and license (with the right to sublicense) the background IP to develop, market, sell, and support the Client’s products and services. The Client may use this background IP worldwide and free of charge, but it cannot transfer its rights to the background IP (except as allowed in Section 11.1 (Assignment)). The Client cannot sell or license the background IP separately from its products or services. The Employee cannot take back this grant, and this grant does not end when the Contract is over.
2.5 Employee's Right To Use Client IP. The Employee may need to use the Client’s intellectual property to do its job. For example, if the Client is hiring the Employee to build a website, the Employee may have to use the Client’s logo. The Client agrees to let the Employee use the Client’s intellectual property and other intellectual property that the Client controls to the extent reasonably necessary to do the Employee's job. Beyond that, the Client is not giving the Employee any intellectual property rights, unless specifically stated otherwise in this Contract.
3. COMPETITIVE ENGAGEMENTS. The Employee won’t work for a competitor of the Client until this Contract ends. To avoid confusion, a competitor is any third party that develops, manufactures, promotes, sells, licenses, distributes, or provides products or services that are substantially similar to the Client’s products or services. A competitor is also a third party that plans to do any of those things. The one exception to this restriction is if the Employee asks for permission beforehand and the Client agrees to it in writing. If the Employee uses employees or subcontractors, the Employee must make sure they follow the obligations in this paragraph, as well.
4. NON-SOLICITATION. Until this Contract ends, the Employee won’t: (a) encourage Client employees or service providers to stop working for the Client; (b) encourage Client customers or clients to stop doing business with the Client; or (c) hire anyone who worked for the Client over the 12-month period before the Contract ended. The one exception is if the Employee puts out a general ad and someone who happened to work for the Client responds. In that case, the Employee may hire that candidate. The Employee promises that it won’t do anything in this paragraph on behalf of itself or a third party.
5.1 Overview. This section contains important promises between the parties.
5.2 Authority To Sign. Each party promises to the other party that it has the authority to enter into this Contract and to perform all of its obligations under this Contract.
5.3 Employee Has Right To Give Client Work Product. The Employee promises that it owns the work product, that the Employee is able to give the work product to the Client, and that no other party will claim that it owns the work product. If the Employee uses employees or subcontractors, the Employee also promises that these employees and subcontractors have signed contracts with the Employee giving the Employee any rights that the employees or subcontractors have related to the Employee's background IP and work product.
5.4 Employee Will Comply With Laws. The Employee promises that the manner it does this job, its work product, and any background IP it uses comply with applicable U.S. and foreign laws and regulations.
5.5 Work Product Does Not Infringe. The Employee promises that its work product does not and will not infringe on someone else’s intellectual property rights, that the Employee has the right to let the Client use the background IP, and that this Contract does not and will not violate any contract that the Employee has entered into or will enter into with someone else.
5.6 Client Will Review Work. The Client promises to review the work product, to be reasonably available to the Employee if the Employee has questions regarding this project, and to provide timely feedback and decisions.
5.7 Client-Supplied Material Does Not Infringe. If the Client provides the Employee with material to incorporate into the work product, the Client promises that this material does not infringe on someone else’s intellectual property rights.
6. TERM AND TERMINATION. This Contract is ongoing, until ended by the Client or the Employee. Either party may end this Contract for any reason by sending an email or letter to the other party, informing the recipient that the sender is ending the Contract and that the Contract will end in 7 days. The Contract officially ends once that time has passed. The party that is ending the Contract must provide notice by taking the steps explained in Section 11.4. The Employee must immediately stop working as soon as it receives this notice, unless the notice says otherwise. The Client will pay the Employee for the work done up until when the Contract ends and will reimburse the Employee for any agreed-upon, non-cancellable expenses. The following sections don’t end even after the Contract ends: 2 (Ownership and Licenses); 3 (Competitive Engagements); 4 (Non-Solicitation); 5 (Representations); 8 (Confidential Information); 9 (Limitation of Liability); 10 (Indemnity); and 11 (General).
7. INDEPENDENT CONTRACTOR. The Client is hiring the Employee as an independent contractor. The following statements accurately reflect their relationship:
- The Employee will use its own equipment, tools, and material to do the work.- The Client will not control how the job is performed on a day-to-day basis. Rather, the Employee is responsible for determining when, where, and how it will carry out the work.- The Client will not provide the Employee with any training.- The Client and the Employee do not have a partnership or employer-employee relationship.- The Employee cannot enter into contracts, make promises, or act on behalf of the Client.- The Employee is not entitled to the Client’s benefits (e.g., group insurance, retirement benefits, retirement plans, vacation days).- The Employee is responsible for its own taxes.- The Client will not withhold social security and Medicare taxes or make payments for disability insurance, unemployment insurance, or workers compensation for the Employee or any of the Employee's employees or subcontractors.
8. CONFIDENTIAL INFORMATION.
8.1 Overview. This Contract imposes special restrictions on how the Client and the Employee must handle confidential information. These obligations are explained in this section.
8.2 The Client’s Confidential Information. While working for the Client, the Employee may come across, or be given, Client information that is confidential. This is information like customer lists, business strategies, research & development notes, statistics about a website, and other information that is private. The Employee promises to treat this information as if it is the Employee's own confidential information. The Employee may use this information to do its job under this Contract, but not for anything else. For example, if the Client lets the Employee use a customer list to send out a newsletter, the Employee cannot use those email addresses for any other purpose. The one exception to this is if the Client gives the Employee written permission to use the information for another purpose, the Employee may use the information for that purpose, as well. When this Contract ends, the Employee must give back or destroy all confidential information, and confirm that it has done so. The Employee promises that it will not share confidential information with a third party, unless the Client gives the Employee written permission first. The Employee must continue to follow these obligations, even after the Contract ends. The Employee's responsibilities only stop if the Employee can show any of the following: (i) that the information was already public when the Employee came across it; (ii) the information became public after the Employee came across it, but not because of anything the Employee did or didn’t do; (iii) the Employee already knew the information when the Employee came across it and the Employee didn’t have any obligation to keep it secret; (iv) a third party provided the Employee with the information without requiring that the Employee keep it a secret; or (v) the Employee created the information on its own, without using anything belonging to the Client.
8.3 Third-Party Confidential Information. It’s possible the Client and the Employee each have access to confidential information that belongs to third parties. The Client and the Employee each promise that it will not share with the other party confidential information that belongs to third parties, unless it is allowed to do so. If the Client or the Employee is allowed to share confidential information with the other party and does so, the sharing party promises to tell the other party in writing of any special restrictions regarding that information.
9. LIMITATION OF LIABILITY. Neither party is liable for breach-of-contract damages that the breaching party could not reasonably have foreseen when it entered this Contract.
10.1 Overview. This section transfers certain risks between the parties if a third party sues or goes after the Client or the Employee or both. For example, if the Client gets sued for something that the Employee did, then the Employee may promise to come to the Client’s defense or to reimburse the Client for any losses.
10.2 Client Indemnity. In this Contract, the Employee agrees to indemnify the Client (and its affiliates and their directors, officers, employees, and agents) from and against all liabilities, losses, damages, and expenses (including reasonable attorneys’ fees) related to a third-party claim or proceeding arising out of: (i) the work the Employee has done under this Contract; (ii) a breach by the Employee of its obligations under this Contract; or (iii) a breach by the Employee of the promises it is making in Section 5 (Representations).
10.3 Employee Indemnity. In this Contract, the Client agrees to indemnify the Employee (and its affiliates and their directors, officers, employees, and agents) from and against liabilities, losses, damages, and expenses (including reasonable attorneys’ fees) related to a third-party claim or proceeding arising out of a breach by the Client of its obligations under this Contract.
11.1 Assignment. This Contract applies only to the Client and the Employee. The Employee cannot assign its rights or delegate its obligations under this Contract to a third-party (other than by will or intestate), without first receiving the Client’s written permission. In contrast, the Client may assign its rights and delegate its obligations under this Contract without the Employee's permission. This is necessary in case, for example, another Client buys out the Client or if the Client decides to sell the work product that results from this Contract.
11.2 Arbitration. As the exclusive means of initiating adversarial proceedings to resolve any dispute arising under this Contract, a party may demand that the dispute be resolved by arbitration administered by the American Arbitration Association in accordance with its commercial arbitration rules.
11.3 Modification; Waiver. To change anything in this Contract, the Client and the Employee must agree to that change in writing and sign a document showing their contract. Neither party can waive its rights under this Contract or release the other party from its obligations under this Contract, unless the waiving party acknowledges it is doing so in writing and signs a document that says so.
(a) Over the course of this Contract, one party may need to send a notice to the other party. For the notice to be valid, it must be in writing and delivered in one of the following ways: personal delivery, email, or certified or registered mail (postage prepaid, return receipt requested). The notice must be delivered to the party’s address listed at the end of this Contract or to another address that the party has provided in writing as an appropriate address to receive notice.
(b) The timing of when a notice is received can be very important. To avoid confusion, a valid notice is considered received as follows: (i) if delivered personally, it is considered received immediately; (ii) if delivered by email, it is considered received upon acknowledgement of receipt; (iii) if delivered by registered or certified mail (postage prepaid, return receipt requested), it is considered received upon receipt as indicated by the date on the signed receipt. If a party refuses to accept notice or if notice cannot be delivered because of a change in address for which no notice was given, then it is considered received when the notice is rejected or unable to be delivered. If the notice is received after 5:00pm on a business day at the location specified in the address for that party, or on a day that is not a business day, then the notice is considered received at 9:00am on the next business day.
11.5 Severability. This section deals with what happens if a portion of the Contract is found to be unenforceable. If that’s the case, the unenforceable portion will be changed to the minimum extent necessary to make it enforceable, unless that change is not permitted by law, in which case the portion will be disregarded. If any portion of the Contract is changed or disregarded because it is unenforceable, the rest of the Contract is still enforceable.
11.6 Signatures. The Client and the Employee must sign this document using Bonsai’s e-signing system. These electronic signatures count as originals for all purposes.
11.7 Governing Law. The laws of the state of Alaska govern the rights and obligations of the Client and the Employee under this Contract, without regard to conflict of law principles of that state.
11.8 Entire Contract. This Contract represents the parties’ final and complete understanding of this job and the subject matter discussed in this Contract. This Contract supersedes all other contracts (both written and oral) between the parties.
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