At first glance, understanding employment contracts can sound like a convoluted task with legal implications you’d rather not deal with. Unfortunately, it’s a necessary part of hiring employees.
Employment contracts are a stellar way to protect yourself, your business, and the employee as you outline clear terms and conditions that set the tone for what your interactions will look like going forward. However, it’s essential that you know the ins and outs of employment contracts so they become an asset to your business, instead of a liability.
From the first employee you hire, you should be equipped with the knowledge and the tools to create and manage clear cut employment contracts that make your business dealings a smoother process. This guide dives into everything you need to know about employment contracts—how to manage them, why they matter, how to create better contracts, and how to avoid common contract mistakes.
Why Do Employment Contracts Matter?
At their simplest, employee contracts are legal agreements that set out clear terms for both the employer and the employee to abide by. Therefore, the value of employment contracts can be summed up in one word: protection.
With employee contracts, you can transact and solicit goods and services with employees safely and with added peace of mind. This, and many other reasons we get into later, is why knowing how to create and manage your employment contracts can be such a valuable asset to your business.
What Does Success Look Like?
Say you’re a young business owner that’s looking to employ your first handful of hires. This is where employee contracts can be a saving grace by making expectations from both parties, and boundaries they both agree to abide by, clear from the outset. Employee contracts serve the common goal of being and feeling protected if anything were to go wrong.
If down the road there’s a point of contention between you as the employer and the employee, you have a legally binding contract with clearly outlined terms and conditions that can help clear up any misunderstandings. As you’re probably aware, the last thing any business needs is to have to deal with lawsuits that suck up resources.
The terms that can be included in an employment contract can be things like:
- Company regulations, policies, and workplace rules
- A non-compete clause
- Job description and job title
- Employment duration
- Confidentiality agreements
- Sick days, time off, or vacation policies
- Employee schedule
- The specifics of employee compensation and benefits
- Company mission and expectations
- Terms and conditions for termination of employment
- General specifications
Employee contracts can also be useful in protecting any proprietary trade secrets or sensitive information your business uses throughout its operations. Contracts help your business protect its assets in a lawfully binding manner.
Case Study
There are plenty of examples where keeping employee contracts worked to better a business and protect it from conflict and lawsuits.
H.G. Smith, a company operating in the pharmaceutical wholesale distribution space, was facing a number of contract management challenges. For one, they needed a contract management system that integrated into its existing workflow.
Once it found a contract management solution to work with, it was able to get a handle on its many contracts through a contract lifecycle management system that helped them take care of missed deadlines and making sure people were aware of the terms and conditions in their contracts.
With employment contract systems in place, reviews and approval workflows became much easier. If you’re looking to create similar results, read on below.
One Secret Weapon To Master Employment Contracts
Creating quick and accurate employee contracts is made easy by software like Agiloft. Though there are plenty of HR management tools that might have built-in employee contract tools, Agiloft ensures you’re covered through the entire employee contract lifecycle.
Agiloft enables you to create enterprise-grade contracts online without needing to learn to code anything. You can either have its systems working in the cloud or on-premise. With it, you can create contract management workflows for your salespeople, vendors, and employees. If you get stuck at any part of the contract management and creation process, Agiloft offers helpful training webinars.
However, it’s important to note that Agiloft comes with advanced contract and license creation features. So if you’re looking for a more straightforward contract management system, this might not be the end-to-end solution you need right now. If you’re interested in trying it out, you can try its free trial and get access to its contract creation and management features.
3 Essential Strategies For Better Employment Contracts
The more thorough your employee contracts are, the better off every party involved will be. Consider these pointers when drafting your contracts for maximum efficiency.
Be Ready To Negotiate
Once you draft a contract, it doesn’t mean it’s set in stone. You need to be prepared to face any contract negotiations your employee might bring to the table.
Chances are, your new employee might want to negotiate better pay or PTO. This is one of the reasons you want to make sure, after drafting a contract, that you’re well versed on what your business can and cannot negotiate. Where are your boundaries in case employees decide to contest the terms outlined in your contract? Where can there be leeway if your employee wants to change something?
When you create a contract, be prepared and ready to answer the tougher questions. While this might not be the case with every employee you onboard, there’s bound to be situations where you’ll need to be prepared for contract negotiations. This is generally true the higher profile the position you’re drafting the contract is for.
Use Employment Contract Software
Using software to create employment contracts as opposed to penning them the old school way can be a great way to ensure you aren’t leaving out crucial information. Better yet, once you draft your employment contract and it’s been finalized with an e-signature from all parties, employment contract software makes it easy to store, organize, and archive all your contracts.
One of the best perks of onboarding employment contract software? You don’t have to deal with the piles of paperwork that traditional contracts are drafted on. A secure cloud-enabled contract system also makes it easy to get employees to revise and sign contracts in a timely manner. You no longer have to go looking for a certain employee to gather initials and signatures. It can be as easy as sending an email notification with a prompt to revise and e-sign your contract.
As your workforce grows bigger, the benefits of using employee contract software only become more apparent. Managing contracts at scale can prove to be a true burden on HR and management if you don’t have a digital system in place that streamlines the process.
Consider shopping for employee contract software that fits your existing workflow. Once you find something that fits your needs, make sure it integrates with your existing tech stack.
Use and Create Templates
Sometimes, inspiration doesn’t strike. And you can’t always remember everything that goes into a contract off the top of your head. This is where using contract templates that are specifically designed for your business can save you tons of time as well as potential headaches down the road.
Templates help to ensure you’re creating a contract that outlines every necessary section with the information that’s specific to that particular employee. They also help you follow industry standards and ensure your contracts are legible and organized correctly.
Consider the use of templates for all your contract documents. They’ll cut your contract management time in half while ensuring you’re creating compliant and legally binding documents that don’t come apart under closer scrutiny.
Most Common Employment Contract Mistakes
By this point, you know how to create better employment contracts as well as what tools and systems you can use to manage them seamlessly. However, it’s important to note that it’s easy to make contract mistakes that may end up costing you down the road. Below are a few mistakes to look out for when you’re outlining thorough and binding contracts.
Not Knowing Your State Laws
Employee contract laws can vary by state. Especially, if you employ remote employees, you should pay special attention to what state laws apply to what contracts.
This is where streamlined contract management software can help you stay on top of the changing landscape of workplace laws and regulations. As they vary from state to state, and as the number of employees grows, this can be increasingly hard to manage manually.
For example, what are the laws in place in your state if you work with independent contractors? How does this change from state to state? How can you make sure you’re complying with independent contractor guidelines in your contracts?
These are some of the questions that you need to be actively asking as you manage your fleet of employees. It becomes considerably more important when you’re working with a number of contractors that are spread through lots of states and that have different contractor laws that might apply to them.
In these cases, it’s always safer to be safe than sorry. Invest the time and resources necessary to be aware of the contract laws you need to be mindful of.
Winging it And Going Without A Contract
Startups and small businesses are more prone to falling into the trap of “winging” it without drafting and signing a proper employment contract and calling it a day. This is a huge misstep, and as you can guess, can lead to a number of headaches that can end up costing you more than you bargained for in the beginning.
If you’re ever on the fence about whether or not to draft an employee contract, it’ll always be better to err on the side of caution. Take the time to create a contract. It’ll protect your business in the long run. It’ll also help you set a precedent for how you deal with future contracts.
In todays’ age, there is no excuse for not drafting a contract you can count on. Even if cost is an issue as a young business, there are plenty of free contract templates you can use to create your own. All it takes is being proactive and conducting a simple search to find what cost-effective options you have.
Failing To Update Contracts As Laws and Guidelines Change
It might not come as a surprise that creating a contract isn’t a one and done situation. It’s helpful to think of a contract as a living document.
Over time, laws can change. So can workplace policies and guidelines. If laws, policies, and guidelines change and you’re still operating under an old contract that leaves you vulnerable to lots of less than favorable scenarios, including lawsuits, if you’re thinking of worst-case situations.
Employment laws can and will change over time. It’s good practice to schedule periodic contract reviews so you can go over things like company policies, employment terms and conditions, job descriptions, and employee compensations and benefits just to name a few. The interval at which you want to review your contracts is completely up to your discretion.
Do you operate in an industry that sees a lot of changing workplace laws? Maybe it’s best to revise your employee contract terms twice a year. At the very least, an annual revision is better than creating a contract, storing it, and never looking back.
As you draft your contracts, it helps you keep in mind the entirety of the contract lifecycle. Employee contracts are a task to be managed over time instead of a set it and forget it task.
Disclaimer: This guide was created solely as a source of general information on employee contracts that is meant to inform. It is not intended to replace professional legal advice. For legal counsel on employee contracts, please take the time to consult with your lawyer.