Starting a small business can be an adventurous journey. The route that most entrepreneurs take when starting out on their entrepreneurial journey often begins with creating an LLC, a corporation, or other similar legal business entities. Then they move on to trying to grow the business.

However, things start to get more complicated for the business when it becomes large enough to need to hire employees to help shoulder some responsibilities. 

The question at this stage then becomes how to go about employing your staff? One critically important element that comes into play when hiring new employees is the employment contract. 

Employment contracts are essential for your small business because they set the foundation for the relationship between you and your employees. Understanding contracts is crucial whether you’re new to hiring or expanding your team. Here’s a practical guide to help you draft solid agreements.

What Are Employment Contracts?

Employment contracts are written agreements between an employer and an employee. They specify the terms and conditions of employment and cover job responsibilities, compensation, benefits, and termination procedures. Clearly stating the contracts will help avoid misunderstandings and legal drawbacks later.

Key Elements of an Employment Contract

1. Job Description and Duties: Clearly outline and specify what the employee’s role demands. A detailed job description helps you and your employees understand the expectations and responsibilities. For example, if you hire a digital marketing manager, list specific tasks such as social media management, campaign development, and analytics reporting.
2. Compensation and Benefits: Spell out the salary, payment schedule, and any additional benefits. Include details about health insurance, retirement plans, and bonuses. Being transparent about their compensation will improve the trust and satisfaction of your employees.
3. Work Schedule and Location: Define the working hours and the location. Will the job require the employee to work on-site, remotely, or hybrid? Clarity on work hours will clear confusion and set clear expectations for availability.
4. Employment Duration and Termination: Specify whether the employment is at-will, for a fixed term, or project-based. Include termination clauses detailing how either party can end the employment relationship. For instance, outline notice periods and conditions for immediate termination.
5. Confidentiality and Non-Compete Agreements: Protect your business’s sensitive information with confidentiality clauses. Non-compete agreements can prevent employees from joining competitors or starting a competing business for a certain period after leaving your company. Consult a local business attorney to ensure these clauses are enforceable in your state.
6. Dispute Resolution: Outline the process for resolving disputes. This might include mediation or arbitration before resorting to litigation. Having a transparent dispute resolution process can save you time and money if disagreements arise.

Tips for Creating Effective Employment Contracts

1. Use Clear Language: Avoid legal jargon and write in plain English. Your employees should easily understand the contract. If legal terms are necessary, provide explanations or footnotes.
2. Be Specific: Vague terms can lead to misunderstandings. Specify details wherever possible. Instead of stating “occasional travel,” specify the expected frequency and locations for travel.
3. Keep It Updated: Employment laws and regulations change. Regularly review and update your contracts to comply with the latest laws. This is especially important if you operate in multiple states with different regulations.
4. Seek Professional Help: While templates are available, consulting with a business attorney ensures your contracts are legally sound and tailored to your business needs. This is especially crucial when dealing with complex clauses like non-compete agreements. The one-size-fits-all approach may cost you way more than what an attorney will charge you.

Common Pitfalls to Avoid

1. Overly Restrictive Clauses: Too restrictive non-compete clauses can be unenforceable. They should be reasonable in terms of time, geography, and scope. Your employee can challenge an overly broad restriction in court.
2. Ignoring State Laws: Employment laws vary by state. Make sure your contracts comply with local regulations. For example, some states have strict rules about what can be included in non-compete clauses. In California, for example, non-compete agreements are not enforceable.
3. Failing to Update Contracts: Your employment needs and legal requirements may change as your business expands. Regularly updating your contracts will help you avoid legal pitfalls and keep your agreements relevant.
4. Not Getting Signed Copies: Verbal agreements can lead to disputes. Always get signed copies of employment contracts from your employees and keep these records in a secure place.

Conclusion

Employment contracts are vital for protecting your business and setting clear employee expectations. You can create agreements that benefit both parties by including key elements such as job descriptions, compensation, and termination procedures. 

Stay informed about state laws and seek professional advice to avoid common pitfalls. A well-drafted employment contract can prevent disputes, help your business thrive, and save you time, money, and stress in the long run.

Published by: Khy Talara