What Is an Employment Contract?
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.
Our employment contract template will help make a complex task much easier for you. It's free and covers all the basics—from the job details, working hours, services involved, severance pay, vacation time to paid time, contract termination, and much more.
Note: Sign-up now to start creating your free employment contract. It has all the basic elements you’ll need to get going and it’s been written and reviewed by top lawyers, so you’ll be totally covered.
Why You Need an Employment Contract
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 creating a contract from scratch, then Bonsai has your back. Our personalized contract templates are free for you to download and use, and will make sure you've covered all the basics you need for a legit employment agreement.
What Should an Employment Contract Include?
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 below are the 9 essential clauses that every contract should include.
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.
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.
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.
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.
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.
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.
If your business offers benefits, such as health insurance, pension schemes, or access to certain services, your employment agreement must go into detail about what they are and who is entitled to them. At this point, you should understand the difference between an employee and an independent contractor, as one may have the right to certain benefits over the other.
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.
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.
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.
IRS and Tax Requirements
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 (or W-9 for contractors) for Federal Income Tax Withholding
- Form W-2
- Form 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)
For freelancers, it's a good idea to use a tax guide to help ease the strain around freelance tax rules.
Types of Employment Contract
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.
Temporary or fixed Term
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.
NDAs, Non-compete and Other Types of Employment Agreements
Independent contractor agreement
Independent contractors will usually negotiate their own rates and working arrangements, which the employer will agree to. Although they can work the same hours as a full-time employee, they won’t usually be entitled to any benefits the employer offers their permanent full-time employees.
One main benefit of an independent contractor agreement is that they can work for more than one client at a time, provided the other client doesn’t infringe on another agreement.
If you fall into this category, then start using an independent contractor agreement instead.
This specific agreement between an employer and an employee means the employee cannot and will not work with the employer's direct competition. This will usually be for the duration of the contract and also for a specific period of time at the end of the contract.
(NDA) Non-disclosure agreement
A non-disclosure (NDA) or confidentiality agreement is an agreement between two parties to keep certain information confidential. This can include sensitive information like trade secrets.
Depending on the parties involved, you may need to sign a separate NDA from the one in your contract. You can use your own NDA template for this or request the other party to write one up.
A subcontractor agreement is a contract between a subcontractor and an independent contractor. The subcontractor is employed by the independent contractor, meaning the responsibility falls on the independent contractor to pay them.
Terminating or Breaking an Employment Contract
When an employee misbehaves or performs badly in their role in a way that breaches their contract or the code of conduct of a company, the employer can dismiss their services. It’s a type of termination that results from something that the employee does.
Termination of agreement clause
A termination of agreement clause outlines the specific reasons a contract between the employee and the employer can be terminated.
Some reasons could be:
- Both parties mutually agree
- The employer becomes bankrupt
- A law firm provides a legal order to terminate the contract
Breach of contract
A breach of contract is when an agreement or clause in a contract is violated, which can result in termination. It happens when one of the parties involved doesn’t uphold or honour certain agreements outlined in the contract.
Common Employment Contract Questions
What are the main differences between a permanent employment contract and a temporary employment contract?
There is one main difference between these two types of contracts—a permanent contract has no fixed end date, whereas a temporary contract does.
This means that a temporary employment contract can be used when you require a specialist for a project or a freelancer for a fixed amount of time.
What type of contract template can I use for freelancers?
There are all kinds of employment contract templates for freelancers, including in graphic design, wedding florist contract, influencing, copywriting, wedding photography contract, and project management. Here at Bonsai, we offer free templates for all of these services and more.
Using a contract template from Bonsai means it will be vetted by legal professionals and hundreds of other freelancers in those fields. They’re also easily customizable, so you can add your specific requirements when needed.
Can I write my own employment contract?
If you have the time, resources, and knowledge to put together a legally binding contract yourself, then by all means write your own employment contract.
The perk of signing up to Bonsai and using an employment contract template is that it's free and all the work is done for you. Because our employment contracts are vetted, you won't need a pricey law firm to validate the contract (although it's always a good idea to get legal advice about contracts from a professional). The best thing is you can still write and customize the contract in any way you want.