Employment Contract: What It Is, Types, and How to Create One

Congratulations! You have found the perfect candidate that fits best for that new position! But, do you think a firm handshake between you and the new hire is enough?

Maybe! however, for most employers, written contracts are a legal obligation to protect and establish that golden employee-employer relationship.

Simply put, an Employment Contract is a legit document that outlines the duties and regulations between you and your employee legally.

Whether you are a company of two people or 20, wielding a contract is a significant step in the whole hiring process.

Indeed, an employment contract is essential because every action taken in an organization should always be written and put on paper.

But, many businesses- big or small do not have the resources and eventually have to compose their own agreements or contracts.

Seem like a lengthy process? Don’t worry, we have got you covered! With simple language, certain components, and knowing how to put it all together, crafting an employment contract can be as easy as a handshake.

Otherwise, you can use a template as the one mentioned at the bottom!

Before we begin, let’s take a quick look at what exactly is an employment contract and what are the components one needs to include in these documents.

What is an Employment contract? (Definition)

An employment contract form is written to legally define the relationship between the employee and the employer. Both parties have to agree and sign a written contract before the new hire can start working.

This document ensures employees follow the company as per rules and regulations.

A well-defined contract sheds light on expectations and protects the employer in case of resignation, termination, or salary disputes. It’s a replacement for any prior verbal agreements between both sides.

Why Employee Contracts are Important?

An employment contract spells out the obligation and rights of each party- provides job security to the employee and protects the employer from risks like lowered productivity due to unclear working hours.

But, there is more on how important employment contracts are for your business and we’ve got all the information you need right here.

1. Defined Income and pay rates

Whether an employee is part-time, full-time, or casual, an employment contract helps to define the income and pay rates.

This information inside a document shows an agreement between the employer and employee about salary or wages, leaving no room for miscommunication.

You can also set a fixed annual income and any relevant bonuses, or perks if any!

2. Confidentiality for Employers

This is the primary interest of all employers! Most jobs provide employees with access to confidential company data and information.

Therefore, it’s important to add a confidentiality clause in each employee’s contract, to protect your company and business.

If an employee was to violate their employment contract in any way, their employers are bound to take legal action against them.

3. Define Clear Protocols for Staff Leave

Employees need to take different times of leave, like sick days, annual holidays, or potential maternity.

Having information about staff leave entitlements in an employment contract means that the process for taking a leave is always consistent and legal, for all staff members.

The contract also clarifies any payments that employees will receive when they take days off work.

Types of Employment Contracts

Different types of employment contracts govern the relationship between employers and employees. Understanding these contract types is essential for both parties involved.

1. Verbal Employment Contract

A verbal employment contract is an agreement between an employer and an employee that is established orally, without any written documentation. While verbal contracts are legally binding in many jurisdictions, they often pose challenges when it comes to resolving disputes due to the lack of written evidence.

Verbal contracts typically cover basic details such as job title, compensation, and general expectations. However, both parties should have written contracts to ensure clarity and avoid misunderstandings.

2. Full-time Contract

A full-time contract is the most common type of employment contract, particularly for permanent positions. It specifies that the employee is expected to work a predetermined number of hours each week, typically 35-40 hours.

Full-time contracts typically provide comprehensive benefits, such as health insurance, paid time off, retirement plans, and other perks. They also outline the terms and conditions of employment, including job duties, salary, promotions, and termination procedures.

3. Part-Time Contract

A part-time contract is designed for employees who work fewer hours than those stipulated in a full-time contract. Part-time positions are often ideal for individuals seeking work-life balance, students, or individuals with other commitments.

Part-time contracts outline the number of hours employees are expected to work each week or month, along with any relevant benefits they may receive. However, part-time employees may not be entitled to the same level of benefits as full-time employees.

4. Freelance Contracts

Freelance or independent contractor agreements are essential for establishing clear terms between freelancers and their clients. These contracts outline the scope of work, project timelines, payment terms, and deliverables expected from the freelancer. They also clarify intellectual property ownership and address issues such as confidentiality, dispute resolution, and termination procedures.

Freelance contracts help protect the interests of both parties, ensuring that expectations are well-defined and that payment is received for services rendered. It is crucial for freelancers to carefully review and negotiate the terms of the contract to maintain a professional and mutually beneficial working relationship.

5. Executive Contract

An executive contract is a specialized type of employment agreement typically offered to high-level executives or senior management. It outlines the terms and conditions specific to executive roles, including compensation, bonuses, stock options, severance packages, and non-compete clauses. These contracts often have additional provisions related to confidentiality, intellectual property, and the executive’s responsibilities and authority within the organization.

6. NDA Contract

An NDA (Non-Disclosure Agreement) contract is a legal document that establishes confidentiality obligations between parties. It is commonly used when sensitive or proprietary information, such as trade secrets, client lists, or innovative ideas, needs to be shared.

NDA contracts outline the scope of information covered, the duration of confidentiality, and potential consequences for breaching the agreement. They are crucial in safeguarding confidential information and protecting the interests of businesses and individuals.

7. Casual Employment Contract

A casual employment contract is a flexible arrangement where employees are hired on an as-needed basis, usually for irregular or short-term work. This type of contract is prevalent in industries with fluctuating demand or seasonal work. Casual employment contracts often provide limited benefits and fewer employment rights than full-time or part-time contracts. However, they offer flexibility to employers and employees, allowing for temporary staffing solutions and balancing work with other commitments.

8. Fixed-Term Employment Contract

A fixed-term employment contract is an agreement that specifies a predetermined duration of employment. It is commonly used for projects, seasonal work, or to cover employee absences. Fixed-term contracts outline the start and end dates of employment and any specific conditions or benefits.

While employees under fixed-term contracts have similar rights and protections as permanent employees during their contract period, their employment automatically terminates at the contract’s end unless renewed or extended.

9. Zero-Hour Employment Contract

A zero-hour is a type of employment contract agreement where the employer does not guarantee a minimum number of working hours per week or month. Employees under zero-hour contracts are typically on-call and work as needed, with their schedules varying according to the employer’s requirements.

While these contracts provide flexibility for employers, they may offer employees limited employment rights and benefits. Zero-hour contracts have been scrutinized due to concerns about job insecurity and unpredictable worker income.

It is worth noting that employment laws and regulations may vary across jurisdictions. Therefore, it is advisable to consult local labor laws or seek legal advice to ensure compliance with applicable regulations when drafting and signing employment contracts.

Remember, understanding the terms and conditions of your employment is crucial. It helps create a harmonious and transparent work environment for everyone involved.

How to Make/Create an Employment Contract? Follow these Steps!

A typical Employee Contract should include the following components:

Step 1. Add employment details

Agreement to employers policies, rules & regulations. Some of these details can even include the job description and the team or department with which the employee will work.

Step 2. Mention position related responsibilities

Agreement to the position responsibilities. This section would specifically mention the employment role, title, and responsibilities followed by the candidates.

Step 3. Compensation package

Agreement to the compensation package. It should include the hourly rate or annual salary information about raises, bonuses, or incentives offered to the employee.

Step 4. Vacation contract

Agreement to the vacation and PTO. Also, explains employee expectations regarding sick days, family emergencies, or unpaid leave.

Step 5. Employee benefits contract

Agreement to the benefits. It should explain what does the compensation plan includes — dental, medical, eye care, etc. offered by the employer.

Step 6. Add probation period details

Agreement to the probation period for both sides. Explain what is needed for both parties to entail for the probation before they terminate the relationship.

Step 7. Performance reviews

Agreement to monthly or quarterly reviews. This involves framing an overview of the employee’s performance, work, punctuality, and honest feedback from the senior employees.

Step 8. Termination

Agreement to how termination would work. Next, enter the amount of notice each party is required to give to terminate employment. This notice can be based on employment periods or can be at-will.

Step 9. Non-Competition

Agreement on how to protect the company. This clause prohibits the employee from engaging in any activities that directly or indirectly compete with the employer’s business.

and other clauses based on the company’s work attributes!

Create a well-defined Employment Contract the Right Way with Bit

After learning about all the key elements on how to write an employment contract, we know you are excited to get on with creating one.

However, what is the purpose of knowledge if you don’t have the means to deploy it? That’s why we would like to introduce you to Bit, the smartest document collaboration tool to help you create a strong marketing strategy!

Bit.ai is a new-age document management and collaboration tool that helps teams to collaborate, share, track and manage all information in one place. It’s the perfect tool to create, store and share Marketing plans.

Apart from marketing plans, one can create everyday documents like ebooks, case studies, onboarding docs, fact sheets, sales decks, project proposals, media kits, and many more.

Bit has an amazing UI that’s easy to understand by a new user, making onboarding easier. The user experience is phenomenal too as things flow from documents to workspaces swiftly.

Still not sure how Bit can help you write an impressive marketing strategy to help you execute that business plan? Let’s see some more of Bit’s awesome capabilities!:

Collaborate in real-time

Multiple people can simultaneously collaborate on a Bit smart document in real-time. Suggest edits, work collectively and ask questions with real-time mentions, and comments.

Interlink business plan documents

Now, you can interlink your contract form with other important assets that are supposed to be posted like pay receipts, offer letters, and more within the platform.

Distraction-free and quick documentation

The best part is Bit’s support for Markdown which allows developers to quickly create and format text without any distractions. Once you are done creating your contract, you can easily export it as PDFs, Word files, Markdown, and much more.

Markdown is supported by GitHub and other software development tools, making it easy to share the work you do inside of Bit with other platforms.

Track engagement on shared employee contract documents with HR, partners, etc.

Imagine if you were able to track the time spent by others on your contract, how frequently they were viewed, and if they were viewed at all. Well, Bit allows you to track your documents and gain amazing insights, helping you create an even better version of your documents.

Automated table of contents

Bit also has an automated table of contents based on the headers you add to your document. This makes sure you can scroll to different sections of your marketing strategy quickly as an employer, employee, and for your HR viewing the final published document!

Keep documents safe and secure

Bit allows users to manage permissions and information access that suits your organizational needs. It supports features like document tracking, password protection, file access restrictions, etc. that help keep your important company information safe. This is a must-have feature for all types of employment contracts!

Multiple ways to share

Bit documents can be shared in a live state meaning that all changes that you make to the document will update in real-time. If you are sharing your documents with clients, they will always get your most up-to-date changes.

You can even embed Bit documents on any website or blog. Since Bit documents render and are responsive, any changes made to these documents will reflect live on the site! Moreover, features like document tracking, password protection, file access restrictions, etc. help keep your contracts and other workplace documents safe.

Now, that you have learned everything about a business plan and how to create one, feel free to check out Bit’s amazing Employment contract template to make that planning a success!

Employee Contract Template by Bit

To make the process of crafting an Employment contract easier and fun, we have created a ready-made template for you! Check it out below:

How to use Employment Contract Template with Bit

The process of creating an employment contract document on Bit is insanely easy! Just follow these four simple steps to create an employment contract document quickly:

Step 1: Create a Bit Account

Go the home page of Bit.ai and click on Get Started for Free or Sign Up to get started. Enter your email address to sign up. Once in, you can create your personal profile.

Step 2: Create a Workspace

Workspaces are where the work gets done. Click on the ‘Create Workspace’ button on the right. A popup will show up prompting you to add a name for your new workspace.

You can create a workspace around a team, department, large project, client, partner, etc. Inside each workspace, you can create an unlimited amount of Bit documents and access your content library (storage area for all of your digital assets – web links, files, cloud files, rich embeds, etc.).

Step 3: Add Team Members

Bit allows your team members to collaborate in real-time and get work done. Collaboration starts at the workspace level.

You create private workspaces by default. However, you can invite others to join you inside of a workspace and collaborate together with the knowledge, projects, documents and content inside of the workspace.

Step 4: Create Your Desired Document

Once you are in the workspace, click on the ‘Create New’ button. Select ‘From Template’ in the dropdown. A pop up will display allowing you to select a template from the gallery.

In the search box on the top left corner, you can search for “employment contract template”. Once your desired template pops up, click on it and click on the “Use Template” button on the bottom right corner.

That’s it! Your employment contract document is ready for use!

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Bottom line

It goes without saying that a good employment contract can restrain long disputes or even legal action for both parties. Further, a well-written contract manages the scope of an employee’s services and accordingly offers a level of certainty with respect to his/her duties towards the company.

If you have any questions about the employment contract template above or want to learn how Bit can help your business succeed, tweet us @bit_docs right away!

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