How Does The Concept Of Employment Contract Work

How Does The Concept Of Employment Contract Work

A contract’s employee is an agreement between an employer and an employee on the duration of the employee’s employment. It can be implied, verbal or written, including a long physical contract that the employee signs. The terms set out in the contract depend on what was agreed upon when the employee confirmed they would accept the position.

What are At-Will Employment Contracts?

Most employees work at will. This means they can quit or be terminated for any reason, as long as the termination is legal and not due to retaliation or discrimination. Almost every state follows the employment-at-will rule with the single exception.

 After an employee has completed the employer’s probationary period or worked for the employer for six months, unless there is a probationary period, the employee may be terminated only for good cause. Outside, at-will employment is assumed unless the employer and employee agree to a different relationship.

Advantages and disadvantages of employment contracts

Having an employment contract has some clear advantages and also some disadvantages.

Benefits of employment contracts

  • Clearly defined responsibilities and benefits: The employment contract defines the job responsibilities and benefits that are part of the job. Employers can use it to specify the standards for an employee’s performance and the reasons for which dismissal would be justified.
  • Protects both employer and employee: An employment contract protects the rights of both parties. An employer can include a non-competition or non-disclosure clause in an employment contract to prevent an employee from sharing confidential information for personal gain. It can also prevent them from leaving their jobs and competing with you at another company.
  • Stability: Both the employee and the employer know what to expect from their relationship.
  • Legal binding: The employment contract is legally binding and if the employee breaks the contract, there are consequences.
  • Attract employees: An employment contract can be used to attract candidates to work for you rather than a competitor, as you can promise job security or other favorable terms in the employment contract.

Return of employment contracts

The main disadvantage of an employment contract is that it limits the employer’s flexibility. Both the employer and the employee are legally bound by the terms of the contract and they cannot be changed without renegotiating the terms. This can be problematic if the employer later decides they need to change the terms. There is no guarantee that the employee will agree to the new terms in the renegotiation.

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What is included in the employment contract?

The employment contract may contain:

  • Wages or salary: Contracts will detail the wages, salaries or commissions agreed upon by the employer and the employee.
  • General Responsibilities: The employment contract may specify various responsibilities and tasks that the employee must perform during employment.
  • Schedule: The contract for work may include the days and hours when the employee is to be at work.
  • Length of employment: The contract may specify the length of time the employee agrees to work for the company. The agreement may be concluded for a specific period or may indicate that the employment relationship lasts.
  • Confidentiality: Employers sometimes include a non-disclosure agreement in the employment contract, although many also require employees to sign a separate non-disclosure agreement.
  • Benefits: The employment contract should include all the benefits promised to the employee, including health insurance, paid time off, retirement plans and other benefits.
  • Non-competition agreement: An employer may include a non-competition agreement or clause that prohibits the employee from leaving employment and taking a position that would put him in competition with the current employer.

What is a trial period?

A probationary period is when a new employee is hired on the basis that there are no commitments yet between the employee and the employer. This period is also sometimes referred to as a trial or probationary period.

Full time vs. part-time job

In fact, there are no federal laws that define what a full-time job is. However, an employee who works 30 to 40 hours per week is considered a full-time employee. Generally, under 40 hours is the maximum number of hours an employee may work for an employer without additional compensation unless exempt from overtime pay.

Minimum wage

The minimum wage is the lowest amount that employers can legally pay their employees per hour.  An exempt employee is an employee who is not exempt from overtime pay. These employees must be paid at a rate that is one and a half times their regular rate of pay for the hours they work after 40 years.

Types of jobs

There are several different types of recruitment agreements:

  • Employees: This can be a full-time or part-time relationship where the individual is directly employed by the company.
  • Independent contractors: This is where an employer hires an independent freelancer or firm to provide goods or services in accordance with the terms of the contract.
  • Apprentices: In this arrangement, someone works under the guidance of an experienced individual who teaches them the skills they need to learn in order to gain a trade licence.
  • Interns: This is an arrangement in which an individual works in a paid or unpaid position in a business for a short period of time to learn skills for a white-collar career.

Employee versus independent contractor

The main difference between an employee and an independent contractor is how their taxes are handled. An employer is responsible for withholding federal income tax, while an independent contractor is responsible for paying their own state and federal taxes.

Here’s a closer look at the main differences:


  • Paid by the hour or salary
  • The employer deducts tax payments
  • The employer is responsible for obtaining unemployment insurance
  • The employee works directly for the employer’s company

Independent contractor

  • Paid per project, task or sometimes hourly
  • Taxes not withheld from payments
  • The employer does not obtain unemployment insurance for the contractual partner
  • Works for his own business rather than an employer

How employment contracts work

Depending on the company and the job, there are different types of employment contracts:

Written contracts

A written contract can be beneficial as it allows the employer to define responsibilities, roles and benefits to avoid future confusion. Employees are required to comply with the terms of the contract, including respecting any limits on where they can work if they leave the company.

Anticipated contracts

An implied contract is where employment is inferred from informational communications and comments made during an interview or promotion. The assumed contract may also fit based on a handbook or training manual.

Should you have an employment contract?

It is generally a good idea to have an employment contract in place if you are paying for work that is completed for your company. An employment contract sets out the terms of employment and, being legally enforceable, protects both parties. You can use the employment contract if:

  • You are hiring a new employee and want them to understand their duties and responsibilities.
  • You want the new hire to sign a non-disclosure agreement.
  • You want to make it clear to the new employee that they are being hired “at will.”
  • You want a formal agreement to be made if you only had a verbal or implied agreement in the past.

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