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August 25, 2022

Employment Contracts for Small Businesses: Features and Requirements

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Typically, companies require new employees to sign contracts outlining the employment terms and responsibilities. However, small or mid-sized companies don’t have to issue physical contracts, they can verbally agree on employment terms and conditions.

Moreover, there are different types of contracts both parties can sign. It may be confusing for both parties when it comes to employment contracts. We’ve prepared this article to help figure things out. It explains what an employment contract is, its different types, and other details.

Understanding an Employment Contract

An employment contract or agreement states all responsibilities, rights, duties, and employment conditions that constitute legal relationships between an employer and employee.

The contract includes terms which are legally binding. For example, the terms of an employee doing their job include getting paid by the employer. The contract also states the salary, wage, or hourly pay.

There are different types of contracts depending on a person’s employment status. Each contract also consists of specific parts. It’s critical to correctly determine the employment status of the individual you’re hiring before creating and signing an employment agreement.

Employment Contracts for Small Businesses: Features and Requirements

Employment Contract Parts

Employment agreements outline the rights and responsibilities of both parties. Here is a list of things a potential hire may find in a contract:

  • Salary/wage/hourly pay information.
  • Employment duration.
  • Work schedule.
  • Insurance(s).
  • Paid time off (PTO) policy details.
  • Sick leave policy.
  • Retirement plans.
  • Protections and employee bonuses.
  • Limitations.
  • Non-compete clauses.
  • Conflict resolution protocol in case of any disputes.
  • Employment conclusion information.

However, an employer may sometimes not require you to sign a paper contract. The situation depends on your employment status or the form of the agreement a company offers you. But even so, if the company plans to hire you, discussing the employment terms before starting work is common.

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Types of Employment Contracts

As we all know, there are full-time workers and part-time workers. It’s logical to assume that they are employed according to different types of agreements. Moreover, many employees today work remotely, so they also work according to different terms. There are several types of contracts an employer and employee can sign:

  • Full-time contracts. Employers offer full-time contracts to permanent workers. Typically, they work a full workweek of 35 hours or more.
  • Part-time agreements. Businesses offer part-term agreements to employees working less than 35 hours per week. The agreement often includes similar or identical stipulations and protections to full-time contracts.
  • Zero-hour contract. These contracts imply that an employee works irregularly or only when work is available. Typically, employers use zero-hour agreements for temporary employers like day laborers, babysitters, etc.
  • Casual agreements. Seasonal workers are familiar with casual agreements. The contract describes an agreement between a business and an employee working temporarily or on a seasonal basis.
  • Freelance contracts. A freelance agreement outlines project details, payment terms, salary, and limitations of hours of work. The contract aims to protect a freelancer from receiving late payments or from a company breaching the law and not paying for the freelancer’s services.
  • Union contracts. Union agreements are standardized legal contracts. Individuals who join a local or nationwide union have to sign such agreements. The individual may work directly for a union or a private company working with the union.
  • Executive contract. If a company decides to hire a high-profile executive to perform upper management roles, it uses an extended executive agreement. The contract outlines standard employee benefits, protections, and bonuses. However, the contract may also include some unique bonuses to attract a high-profile executive.
  • Fixed-term contracts. Employers offer fixed-term contracts to individuals who work for a set period or until they complete a task.

So, the type of agreement an employer can offer depends on the employee’s role, status, type of work, and other factors.

When to Issue a Contract of Employment?

Whether you’ve created and printed out a contract or not, your new hire will enter into an employment agreement with you once they start working. For instance, if new employees don’t have a physical contract, it doesn’t mean a company doesn’t have to pay them.

You can avoid writing some employment contract elements. However, you need to provide employees with a written statement outlining the main terms and conditions regarding payment and work hours. Employers have two months to prepare this document, but it’s recommended to hand this document to new hires as soon as possible.

Is It Legal Not to Provide an Employment Contract?

An employment agreement comes into effect once a new hire starts working for a company. So, the employment contract exists regardless of any documentation. As mentioned, you must provide a written document outlining the main terms that both parties agreed upon. You should hand the document to an employee working for more than a month.

A new hire can go to an employment tribunal for a declaration of what the terms are. Moreover, they can claim 2-4 weeks as compensation if a company fails to provide the written document within two months from the day they began working.

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Author: Charles Lutwidge

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