5 Reasons why Employment Contracts are Important for Your Business

by Startacus Admin

Thinking about hiring your first employee? These tips outline why an employment contract is essential as well as the key things you should consider

For anyone starting a new job or being part of any business, we’d like to hope that things are done properly. An employment contract is something that is introduced as one of the first documents that a new employee will get and will need to sign. It outlines the employee’s role within the company as well as the various details regarding the job itself such as working hours and various agreements between both parties.

Employment contracts are vital for a number of reasons, particularly from a legal standpoint. With that being said, here are five reasons why employment contracts are important for your business.

1. Helps solidify the basics of the role and duties required

With any form of employment, it’s helpful for the employee to know exactly what is expected of them. In a way, the contract allows the employer to set out the terms whilst protecting the employee from being taken advantage of.

One of the main and most important parts of this contract is the working hours. On average, full-time employees have an average working week of around 39.9 hours, but this might vary depending on the job or industry the business is in.

Some may specify a certain number over a week, whereas others might mention this but include a line that mentions overtime requirements.

There’s also holiday allocations, sick pay and where the employee will be working during their employment. A lot of it will be common knowledge but by having it in a legal document, it keeps everyone on the same page. This is particularly important if there are roles where the role or duties expected are more complex or lengthy.

2. Legally protects both the employer and employee

A good reason for any type of contract to be drawn up is to help protect all the parties that are involved. From the employer to the employee, it’s essential that both are protected legally through this document.

Both parties will read through the contract before signing it and both parties will have the opportunity to terminate the contract if there’s any reason to do so. It’s important that both the employer and employee have read the document carefully to ensure they’re happy with everything that has been put in it.

If the employer needs to add in anything extra or the employee wants to dispute certain parts of it, then this is good to do so before signing on the dotted line. Both are rightfully able to do so and it’s better to make adjustments before signing than after.

By not putting an employment contract in place, there’s a risk that one party could take advantage of the other. Of course, this might be few and far between but it does happen. Whether that be employer negligence or negligence by the employee.

3. Minimizes miscommunication between parties

Contracts are a great form of evidence so that should a clause be breached or one party hasn’t fulfilled certain duties as promised, it can be used as such.

Employment contracts are a formal way of detailing all the necessary information that each party requires. With its existence, it minimizes any miscommunication between the parties. Unless it’s within the contract and the signature confirms the agreement between parties, then it won’t be valid.

There may be situations where the employer has discussed certain aspects of the job via email or over the phone to the employee but if it’s not been confirmed in the contract, it’s not legally agreed.

Whether you’re the employer or employee, an employment contract is a benefit that can help with communication. It’s best to have in-person meetings when providing the contract or when amending it or negotiating the terms of the contract.

4. Maintains confidentiality and security

This reason is in the interest of the employer because confidentiality and security are critical for any business. There have been many examples of cyberattacks and breaches of data in the past, including Adobe back in October 2013 which impacted 153 million user records. More recently in 2019, Canva saw 137 million user records affected.

The breach of data or confidentiality when it comes to your customers can be devastating. It’s not just the reputation of your business but the loss in trust. As a result, many customers may walk away from the company.

Therefore, an employment contract can be beneficial because most employees are likely going to be given access to confidential company information and data. A confidentiality clause is often included to help protect the business and to hold individuals accountable if they were negligent with their access.

As a result of this clause, if it were to be breached, the employer could take legal action against the individual in question. Noncompete clauses are also often used for some employees which prevents them from working for a competitor for a certain period of time after the employment ends. This might be anywhere from six months to three years.

Both confidentiality and security is perhaps one of the greatest risks to any business if it’s not done correctly. It’s better to put in as many preventative measures as possible in order to protect both your business and it’s customers.

5. Provides employee satisfaction and support

Any employee wants to go into an organization feeling supported and satisfied with their decision to join. Without an employment contract, there’s a lack of foundation when it comes to the working relationship between employer and employee.

Keeping your employees happy and satisfied in the job is important. As found by Smarp, 69% of employees said they’d work harder if they were better appreciated - so it pays to be appreciative.

Having a contract in place is going to show support for the employee and trust is created as a result of it. From the employer’s perspective, it’s the same satisfaction in knowing that the employee will be doing everything that they need in order to help support the business where required.

With no employee satisfaction or support in place for either parties, the working relationship can very quickly fall apart. This then leads to staff members leaving and employers having to spend more time and resources in recruiting new employees. If better effort is put into retaining staff, it’ll positively impact the growth of any company.

How to create an employment contract
So how do you create an employment contract when you’ve never done one before? There are plenty of employment contract templates available online to use as a reference point but here are some of the basics you’ll need to include when drawing up a contract for the first time.

Basic information
Any basic information in the contract will refer to key details relating to the role itself. For example, this would be the job title, the department in which the job is in and any other relevant information that you feel needs including.

Pay and benefits package
Outlining the employee’s pay and also the relevant benefits package they’ll be on. Some companies may have levels to their benefits package or there may just be a standard one offered to everyone.

Holiday, sick pay and maternity/paternity leave
What holiday does the company offer? Consider the terms when it comes to sick pay, maternity and paternity leave. As well as overtime, family emergencies and flexible hours, this should all be mentioned where applicable.

Employment period and type
Not every employment contract will be the same due to the employment type and period of employment. Some may have short-term contracts, whereas others are permanent. As mentioned above regarding overtime, there may be expected hours or days to work on occasion if needed.

Privacy policy
A privacy policy is one that relates to the privacy of the company. This might be what’s acceptable and what’s not acceptable when using social media or via email usage, etc. Not every organization may have one but for the most part, this will be common to have and include in this contract.

Termination agreement
And finally, the termination part of the contract. It’s not something that either party wishes to happen but in the event of either party terminating the contract, there needs to be notice periods and any various clauses detailed in this section.

Notice periods may also vary depending on the role and how long the employee has been there. This can be anything from one to three months, and in some cases, longer.

Always provide an employment contract for your business
Although there may be a rare occasion where you skip on an employment contract, most businesses will require one for every employee that’s hired.

Utilize the tips in this article when creating your first contract and if you have any queries or concerns, you could always seek legal advice from any relevant governing bodies. There’s lots of information and resources out there online to take advantage of when it comes to drafting out a contract in business.

 

Subscribe to our newsletter

If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.

Published on: 28th June 2021