If you’re hiring your first employee or formalizing a working relationship, you’re probably wondering how to create an employment contract that actually protects both parties. I remember when I had to draft my first employment contract years ago—I stared at a blank document for what felt like hours, worried about missing something crucial that could come back to haunt me later. The truth is, a well-written employment contract isn’t just a legal formality. It’s the foundation of a healthy working relationship that sets clear expectations, prevents misunderstandings, and saves everyone from costly disputes down the road.
Why Every Employment Relationship Needs a Written Contract
You might think a handshake and a verbal agreement are enough, especially if you’re hiring someone you trust. That’s a common myth that gets employers into trouble. Even the best working relationships can sour when memories differ about what was originally agreed upon. Was the salary $50,000 or $55,000? Did you promise three weeks of vacation or four? These questions become impossible to answer without a written record.
A professional employment contract protects both the employer and the employee. It clarifies compensation, responsibilities, working hours, benefits, and termination conditions. More importantly, it demonstrates professionalism and gives your new hire confidence that you’re running a legitimate operation.
Essential Elements Every Employment Contract Must Include
Let’s break down what actually needs to be in your contract. Missing any of these elements could create legal vulnerabilities or confusion later.
Job title and description: Be specific about the role, responsibilities, and reporting structure. Don’t just write “Marketing Manager”—explain what that means in your organization. Will they manage a team? What are their primary duties? The more detail here, the better.
Compensation and payment schedule: State the exact salary or hourly rate, how often payment occurs (weekly, bi-weekly, monthly), and the payment method. If there are bonuses, commissions, or performance incentives, spell out exactly how they work and when they’re paid.
Work schedule and location: Specify whether it’s full-time or part-time, the expected hours (including any flexibility or remote work options), and the physical work location. In today’s hybrid work environment, being crystal clear about remote work policies prevents future disputes.
Benefits and perks: Detail health insurance, retirement plans, paid time off, sick leave, holidays, and any other benefits. Include when these benefits begin—some companies have waiting periods.
Probationary period: If you’re including a trial period (typically 90 days), state this clearly along with what evaluation criteria will be used and what happens at the end of the probation.
Protecting Your Business Interests
This is where many first-time contract writers get nervous, and rightfully so. You need to protect your business without being unreasonable.
Confidentiality clauses prevent employees from sharing proprietary information, trade secrets, or sensitive business data. Be reasonable here—you can’t prohibit someone from discussing basic industry knowledge, but you can protect your client lists, pricing strategies, and unpublished products.
Non-compete agreements are trickier and aren’t enforceable everywhere. If you include one, make sure it’s reasonable in scope, duration, and geographic area. A non-compete that prevents someone from working in their field for five years across an entire continent won’t hold up in court and makes you look unreasonable.
I once worked with a small business owner who included an overly broad non-compete clause in his contracts. When an employee left and challenged it, the entire clause was thrown out because it was deemed too restrictive. He would have been better off with a more reasonable agreement that actually held legal weight.
Intellectual property rights should clarify that work created during employment belongs to the company. This is especially important for creative, technical, or research roles.
Termination Conditions and Notice Periods
Nobody wants to think about endings when starting a new employment relationship, but this section is crucial. Specify the notice period required from both parties—typically two weeks to one month depending on seniority. Include grounds for immediate termination (such as theft, violence, or gross misconduct) and the process for regular termination.
Address severance pay if applicable, what happens to benefits upon termination, and how company property should be returned. Also include information about final paychecks and any accrued vacation time.
Common Mistakes to Avoid
Using generic templates without customization is the biggest mistake I see. Every business is different, and your contract should reflect your specific needs and local employment laws. A template from the internet might be governed by laws in a different country or state that don’t apply to you.
Another mistake is using overly complex legal language that nobody understands. Yes, it needs to be legally sound, but it should also be readable. If your employee can’t understand what they’re signing, that’s a problem waiting to happen.
Don’t forget to include a severability clause—this states that if one part of the contract is found to be unenforceable, the rest still stands. It’s a small addition that can save the entire agreement.
Getting the Contract Reviewed and Signed
Before presenting your contract to a new hire, have it reviewed by an employment lawyer familiar with your jurisdiction. Employment laws vary significantly by location, and what’s legal in one place might not be elsewhere. This investment in legal review can save you thousands in potential disputes.
When presenting the contract, give your new employee time to review it—don’t pressure them to sign immediately. Encourage them to ask questions or have their own lawyer review it if they want. This transparency builds trust.
Both parties should sign and date the contract, and each should keep an original copy. Store your copy securely but accessibly—you might need to reference it later.
Frequently Asked Questions
Can I modify a contract after it’s signed? Yes, but both parties must agree to changes in writing through an addendum or amendment. You can’t unilaterally change terms.
Do I need a lawyer to write an employment contract? While not legally required, it’s highly recommended, especially for your first few contracts. Once you have a solid template reviewed by a lawyer, you can modify it for subsequent hires with minor adjustments.
What if an employee refuses to sign? You can make employment conditional on signing the contract. If they won’t sign, you’re not obligated to proceed with hiring them.
How specific should job duties be? Specific enough to set clear expectations, but flexible enough to allow for reasonable evolution of the role. Include language like “and other duties as assigned” to allow some flexibility.
Creating a professional employment contract takes time and attention to detail, but it’s one of the most important documents you’ll create as an employer. It protects everyone involved, sets the tone for a professional relationship, and provides clarity that helps both parties succeed. Take the time to get it right from the start.