An Employment Contract is a legally binding document outlining the rights & responsibilities of both the employer and the employee. At its core, an employment contract involves the employee performing a particular service in expectation of a financial reward from the employer. From working hours and pay rates to leave policies and notice periods, an employment agreement touches on every possible aspect of the job.
For companies in the U.S., we offer a pre-formulated employment contract based on our study of other employment contracts and employment laws. We have included the most essential clauses that are standard in most employment contracts.
All you need to do is decide which clauses or sections to include, which boxes to check, and which ones to leave out, and, if needed, rephrase any text in line with your company policies, preferences, and state laws.
Our template can be used to finalize job contracts in any industry or field. Once hired, your employees are officially categorized as W-2 Employees. All W-2 employees have their taxes withheld from their paycheck by their employer.
Here’s a step-by-step breakdown of how to finalize an employment contract using our pre-made template:
Step 1: Identify Parties to the Contract
Your first step is to add details to accurately identify both parties: the employer and the employee.
- Write down their full legal names
- Where do they live (for employees) or operate (employers)?
- On what date does the contract officially start?
- Where (in geographical terms) is the contract being signed? (Name of City/State)
You also need to specify (in the blank space provided) the type of business or industry the employer works in. For example, textile, software development, or marketing.
Step 2: Add Employment Details
From an HR point of view, a contract provides clarity about what’s expected of employees. In Clauses I to V, we cover the most basic details about the employment, say:
- What position or service is the employee hired for? Fill in the job title or designation in the blank space.
- How long does probation last in terms of weeks/numbers? Specify the number in the blank space provided, and check the relevant box.
- Specify if the position is full-time or part-time. Either way, you will need to add a minimum number of working hours in the space provided. This information is crucial for ensuring compliance with laws such as the FLSA, which sets the rules for things like overtime pay and working hours.
- Now, decide on a duration for the employee probation period (in terms of weeks of months). Also, clarify if the employee has any company-provided benefits available to them during this time.
- Moving on, it’s time to decide the nature of your contract. Is it a fixed-term contract where parties are bound to each other for a set period, or an at-will agreement where both parties retain the freedom to end the contract without cause or with prior notice?
For fixed-term contracts, you need to add both a start and end date for the agreement. For at-will ones, you only need to add an ‘effective from’ date. Either way, you will need to specify (in number of days) how long notice periods must be for each type of employment term.
Step 3: Determine a Compensation Structure for the Employee’s Work
Now, let’s talk money! At its core, all employment contracts involve the employee offering a service in exchange for a financial reward. Call it salary, fee, or wages, employees need a certain level of security & guarantee when it comes to when, how, and what they’ll be paid.
In our template, clauses VI, VII, VIII, and IX are added to cover four different types of payments: compensation, overtime, commissions, and bonuses (respectively).
All you need to do is:
- Determine on what basis the employee will be remunerated for their services. Our template gives you four options to choose from: per hour, per week, bi-weekly, or per month.
- In the space provided, specify a pay rate, say, you will pay an employee 25 USD per hour.
- Specify how often the payment will be made: weekly, biweekly, or monthly. Either way, you will need to specify on what day of the week or month employees will be paid.
- In clause XIII, specify the basis on which all commission payments shall be disbursed. For example, commission can be a fixed fee, a percentage of the total sales, or a combination of both.
Step 4: Provide Clarity on Leave & Time-Off Policies
When you are reading & reviewing clauses XI to IX, you must nail down the following points of agreement by using the checkboxes & blank spaces we have provided:
- Check the first box if an employee is eligible for paid vacation leave. Now, specify the number (in terms of either days, weeks, or months, depending on which option applies to your case).
- Tick off the next box if the employee is also entitled to paid sick leave. But what if employees have a bunch of unused sick leaves at the end of the year? In that case, check the relevant box to specify if those leaves can be forfeited, carried over to the next year, or must be compensated in monetary terms (also specify the amount in the blank space).
- Check the last box if an employee gets paid casual leave too, and specify how many. In case of unused ones, you need to check a box to specify if those leaves can be forfeited, carried over to the next year, compensated in monetary terms, or handled in any other way.
- In case of leaves that don’t fall under any of the above categories, our template has a separate section at the end to specify & qualify other leave types.
In Clause XI, specify how many unpaid leaves the employee will be entitled to in a year. If unpaid leaves are not a policy in your company, simply write; otherwise, specify the exact number of days. Do the same for federal holidays in the next clause.
Why Leave Policies Matter?
Both parties have a stake in completing their contractually specified working hours. Employers get work done, and employees get paid – it’s a win-win (mostly).
However, there are some situations, such as pregnancy, sickness, or travelling, when employees will simply have to take some time off. Thankfully for employees, there are a number of protections available under the law.
At the federal level, the FLSA is the main law regulating certain minimum wages and working hours. But the FLSA does not make it mandatory for employers to offer their employees paid time off for leaves like vacations, sick leave, or holidays. However, there is a separate law, called the Family & Medical Leave Act (FMLA), that does provide employees with unpaid, job-protected leave for specific family and medical reasons.
Here are some more federal laws about leaves:
- The USERRA mandates leave for military service (with job protection).
- The ADA (Americans with Disabilities Act) requires unpaid leave as a “reasonable accommodation” for a disability.
- The Pregnancy Discrimination Act requires employers to treat pregnancy-related conditions the same as other temporary disabilities when it comes to job-protected leave.
Ultimately, how you go about finalizing these clauses is determined by which particular US state you are signing the contract in and what internal policies your company adheres to.
Step 5: Decide What Other Benefits Employees are Entitled To
Beyond a salary, think about what other benefits you are ready to offer your employees? Depending on the nature or size of your company, benefits act as an incentive to help you attract & retain top talent.
From health insurance & pension schemes to employee discounts & retirement plans – in our default clause, the Employer reserves the right to revise, amend, or discontinue any such benefits at its sole discretion, provided that any changes comply with applicable laws.
Step 6: Foreseeing Cases of Death & Disability
At this stage of formulating the contract, you want to be extra cautious and ensure you are prepared for the worst possible situation.
To this end, we added clause XIV to tackle situations where an employee becomes physically or mentally unfit to perform their duties. In such a case, you must specify the duration of the written notice that the employer must provide before they can lawfully end the contract. For those in the U.S., federal laws like the Americans with Disabilities Act (ADA) will play a crucial role in shaping these clauses. The ADA ensures that employers don’t discriminate against otherwise worthy employees simply on account of their disability.
Under clause XV, we stipulate what happens if an employee dies during the course of employment. In such a case, the contract shall automatically terminate, and the employer shall pay any pending payments to the deceased’s designated beneficiary (usually a family member). Use the blank space provided to specify the exact number of days within which such a payment must be made.
Step 6: Navigating Post-Employment
But what happens when the contract duration ends, or an employee is terminated against their will? Just because an employee is no longer working for you, it doesn’t completely absolve them of all legal duties & responsibilities towards you.
To protect their interests, companies often include two specific types of clauses in employment contracts.
Here’s an easy breakdown of each and what purpose it serves…
Confidentiality
This is the classic “keep things private” clause. It means the employees agree not to share the company’s sensitive info — like client lists, product plans, or financial details — with anyone outside the company.
In clause XIX (a), you get to specify a duration (in terms of weeks or months) for which this confidentiality obligation must hold. This provision protects the company’s interest and can be relied upon in a court of law to seek injunctive relief, specific performance, and any other equitable remedies available against a former employee.
Non-Compete & Non-Solicitation
Now this one can be a bit tricky. A non-compete clause says you can’t work for a direct competitor (or sometimes even start a similar business) for a certain time after leaving the company — usually in a specific region.
In clause XX, check the first box if you don’t wish to include a non-compete restriction in your contract. If you do, check the second box and specify some further details like:
- For how long the restriction applies? Specify the number of months or years post-employment in the space provided.
- The geographical zone where the restriction holds. Use blank space to specify the physical area within which the employer is disallowed from directly or indirectly engaging with competing businesses.
Remember, the goal of a non-compete clause is to protect the employer’s business interests by limiting the employee’s ability to work for a competitor or start a competing business during or right after employment.
Right below, we have also added a solicitation clause. This part says you can’t try to take the company’s clients or employees with you when you leave. So if you start your own business or join another firm, you can’t poach your old coworkers or clients. It’s a way for the company to protect its relationships.
What’s a Fidelity Bond Requirement?
If you are hiring for a position that involves handling money, you might wanna keep this clause. A fidelity bond requirement means an employer needs certain employees to be insured against losses caused by dishonest acts, like theft or fraud. Most common in banking or finance type roles, this clause (in our template, clause XXII) protects employers if any trusted employee steals money, property, or commits fraud.
Step 7: Navigating Disputes
Most employment contracts also specify what happens in case of a conflict between the two parties. For example, on what grounds can an employee be terminated, or how many formal warnings must be given to an employee before strict action is taken against them.
To avoid confusion or legal ambiguity later on, it’s best to decide beforehand which laws or dispute resolution mechanisms apply to you.
We use the following two clauses:
XXIII. Governing Law
This clause basically states that if there’s ever a disagreement over the terms of the contract, both parties must follow the laws of a specific state (you’d fill that in, like ‘New York’ or ‘Texas’).
If a party needs to go to court, it has to be in a certain city or area within that state, which you get to specify in our template. Both you (the employer) and employee agree that those courts have the exclusive authority to handle your case.
XXIV. Arbitration
Arbitration is a formal method of dispute resolution where both parties agree to be bound by the decision of a neutral third party. Our template chooses this method over the traditional litigation route because it is faster and less expensive than litigation. It also offers more privacy and flexibility in the process.
Use the blank spaces to confirm the following details:
- Whose arbitration rules apply?
- Which city and state will the arbitration take place in?
Your filled clause should read like this:
‘’Such arbitration shall be conducted in accordance with the rules of the American Arbitration Association (AAA) and shall take place in the city of Atlanta, in the state of Georgia, unless otherwise mutually agreed by both parties.’’
Step 8: Sign & Date!
As with every written contract, you need the dated signatures of both parties to render it valid and authentic. Signatures help verify that both parties fully acknowledge the terms laid out in the contract, and agree to be bound by these terms, and act in good faith.
Before you finalize the contents of this agreement, we recommend you have the whole document vetted by a registered legal practitioner in your area. Preferably, you should consult a lawyer who is well-versed in the ins & outs of employment & labour laws in general, and the specific practices, protocols, and processes of your industry!
Wrap Up
And there you have it! A pre-drafted employment contract you can easily customize to suit your legal or business interests & needs. Whether you want to protect company information, like special techniques and trade secrets, or enhance the level of job security felt by your employees, this template helps you ensure clarity and mutual understanding in your work relationships.
Use our free, 100% editable, and easy-to-fill Employment Contract template to streamline your hiring process and lay down the foundation for a harmonious working relationship with new employees!
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