Employee Contract Agreement | Guide to All the Points You Need to Include

An employment contract formalizes the employer-employee relationship. In addition, an employment contract ensures that all parties know their respective obligations, roles, and responsibilities. Therefore, there should be a written agreement outlining the employment terms for all parties involved (employer and employee).

When you hire a new employee, you may use an employment contract template to ensure that the contract terms are clear. An employee's contract includes work hours per week, the contract clauses/terms, compensation, and more. Both parties must refer to the contract in case of a disagreement about the terms and conditions of employment.

Employee Contract Agreement: How Do You Write an Employee Contract?

An employment contract has a few standard components. Follow these steps to draft your free employment contract:

Include Your Employment Title

The contract should have an employee's job title. "Employment Agreement" or "[Company Name] Employment Contract" are examples of this.
Company Name Employment Contract

Identify the Involved Parties

Start the contract by listing the parties. After that, you should provide basic information about the participants and the firm where they would work.

Probationary Period with a magnifying glass

Include the Terms and Probationary Period

You should provide the necessary terms and conditions of employment mandated by state, federal, and municipal governments. You should include the vacation pay, working hours, and severance pay. Specify whether the employment contract is at-will, permanent, or temporary. Include whether and how long the employee will be on probation.

Lay Out Employment Duties

The employment contract should have a written agreement outlining all of the tasks and obligations of the position. There will be no misunderstandings between the employee and employer if you include all the job responsibilities.

Provide Compensation Details and Employee Benefits

The contract should identify the job's compensation. Include how the employee will be paid—hourly/weekly/salary or commission. You should explain exemption or non-exemption status in detail to avoid misunderstanding. Specify details on paid time off, holiday pay, payment means, bonuses, etc. You will be eligible for employee benefits only after the probationary term has expired.
A woman holding a contract

Outline the Contract Terms

Consider adding more clauses to your contract. For example, non-solicitation, probationary, confidentiality, failsafe, and non-compete are popular employment clauses.

  • The non-solicitation clause prohibits staff customer solicitation and corporate dismissal.
  • The probationary clause grants an employer the employee termination rights within a specified time without notice.
  • The confidentiality clause sets privacy requirements for employer-issued equipment and correspondence. A non-disclosure agreement (NDA) or confidentiality agreement (CA) restricts employees from disclosing trade secrets, customer lists, and other confidential information while working for a specific employer or any future employers.
  • The failsafe clause ensures the employer meets employment standards.
  • Non-compete clauses ban employees from competing against their former employers for a predetermined period. A non-compete clause protects companies who don't want their employees to compete with them or maybe start their own business with the information they acquire while working for them.

Add Termination and Severance Details

The parties involved are hoping to build a long-term and mutually beneficial relationship. However, parties can terminate this relationship at any time. One party must provide written notification must to the other party.

Your employment agreement should clearly state how much notice must be given to the employer and the other way around when terminating the relationship. Upon termination, the employee agrees to return any intellectual property belonging to the employer. The employee must also indicate any severance benefits to which the employee is entitled.
Man riping a contract document

Consult an Employment Attorney

Consult an employment lawyer knowledgeable about employment rights, benefits, and standards to ensure that your contract complies with these regulations. Then, send your employee the contract. The employee will read and sign the agreement to make it valid.

What Is the Difference Between an Employment Agreement and a Contract?

It's common for individuals to interchange the terms "contract" and "agreement." However, is there an actual distinction? A comparison of contract vs. agreement terminology is crucial to the legality of the entire agreement.

An arrangement or understanding struck by multiple parties constitutes an agreement. A contract is a specialized written agreement that is legally enforceable and binding in a court of law because of the terms and aspects of the agreement. Using contemporary contract management software, you can transform an agreement into a legally binding contract.

What Are the Different Types of Employment Contracts?

Various employment contracts available to choose from can accommodate the different employment statuses. These are some of the most common types of employment contracts:

Executive Employment Contract

An executive contract highlights the executive's contractual obligations and employer's expectations. Parties may use legal counsel if they are willing to negotiate.

Permanent Employment Contracts

Permanent employment contracts cover employees with regular hours and a set salary or hourly rate. Contracts can be for full-time or part-time employment and are in effect until one party or the other decides to call them off. Employees under these contracts have all statutory rights.

Fixed-Term or Temporary Employment Contracts

Fixed-term contracts have a predetermined end date. Employers may use this contract to cover a massive staff project, maternity leave, or hire interns. Permanent and fixed-term employees have the same rights.

Casual Employment Contracts

Casual employment contracts are ideal for situations where you want someone to be a long-term employee. You're unsure how many hours per week you can provide them and can't promise a regular schedule. You will be entitled to statutory sick pay, minimum notice periods, and holiday pay based on your work hours each week.

At-Will Employment Contract

If the motive for the termination is legal, employers may terminate their employees at any time, without cause or notice, under an at-will employment contract. The contract of employment, employment procedures & policies, and employee handbooks must all be explicit if the employer wants the authority to terminate their employees at will.

Do You Need an Employment Agreement?

Most employees don't need employment contracts. Instead, the precedent court decisions and federal & state laws will define the employees' rights and obligations often referred to as "common law." However, there are two primary reasons to put the entire employment agreement in writing:

  • To Avoid Disputes and Misunderstandings: It is impossible to support your position in court without having the specifics of the contract in writing.
  • To Manage Expectations: Employers may better manage their relationship with their employees if they have everything in writing. The employee will understand the scope of their rights and obligations.

You don't need a contract when hiring a shipping clerk, an administrative assistant, or an IT specialist. However, using one is a good idea when you're looking to cover other positions. For example, an employment agreement is necessary when recruiting professionals or high-ranking management staff. The new employee should sign the employment contract.

Employee signature on a contract with a pen

What Should I Include in a New Employee Contract Template?

What your employment contract covers depends on the position at hand. Some companies incorporate the information in separate documents. However, a decent employment contract template is likely to include some of the following terms and conditions:

Compensation Details:

Hourly rates or salaries, commissions, and other forms of compensation should all be in the contract. Payroll schedule information is also likely to be included.

Employee Benefits:

The agreement should address whether the employee is eligible for benefits. Such benefits include dental insurance, health insurance, life insurance, vision insurance, disability insurance, vacation time, and paid time off. 

Employment agreement document with glasses and a pen


Employees are expected to work for a predetermined time. All new workers may be required to sign a one-year employment contract with the opportunity to extend it upon evaluation.


The employee is the name of the individual who will be doing the job.


Who the new employee will be working for.


The position is the description and title of the employee's duties and obligations.

Lastly, if there are still some uncertainties left, we recommend seeking advice from other top formation services and registered agent services out there. Here are some of the most reliable:

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Swyft Filings

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SunDoc Filings

When compared to other formation services, SunDoc Filings provides volume discounts for multiple states and entities and equally amazing customer support. However, if you want a service that will save you money, you may find other services in the market that cost less. Also, you may not choose SunDoc Filings if you are looking for a service with payment packages with tons of features and free registered agent service.

Inc Authority

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My Corporation

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Can I Work for a Competitor?

It is unlawful for an employee to work for a rival company throughout their employment with the employer. Any additional employment opportunities you have will be made clear to your new employer. It's acceptable for you to look for alternative employment if it doesn't interfere with your ability to perform your job responsibilities.

Your new employment should not help a rival organization in its efforts to compete with your current employer. Employers often require departing employees to give advance notice of their intention to leave to help recruit and train their replacements.

Can an Employer Force You Not to Work for a Competitor?

Your employer can restrict what employment you can conduct to safeguard their business. However, an employer cannot prevent employees from working for a competitor if they haven't signed a non-compete clause. You can choose whatever job you want if your contract says nothing about it. An employment lawyer can assist you in knowing the terms of a non-compete agreement and how it may influence your employment alternatives if you have signed one.

What Is a Contract of Employment?

Employer-employee relations are formalized through a written agreement known as an employment contract. A good illustration of this would be the duties an employee will be expected to complete and the compensation the employer is willing to provide in return for those duties.

Employment agreement document

Are Employment Agreements Legally Binding?

All employment agreements legally bind employers. As a result, it is in the best interests of employers to have an employment law attorney prepare and evaluate these documents. Contract law is a highly complex discipline that heavily relies on common law or the body of law established by court cases and judges.

A breach of contract occurs when the employee or the employee breaks a term, such as not paying wages or not working the stipulated hours. Not all contract terms are written. A contract breach can be verbally agreed upon, written, or implied.

Can I Use a Free Employee Contract Agreement Template for Freelancers?

If you do not plan to recruit a freelancer, you cannot enter into an employment contract with them. Alternatively, you may employ an independent contractor agreement. Independent Contractor Agreements are written contracts that explain the terms and conditions between independent contractors and clients.

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