An employment agreement is a formal contract between the employer and employee that specifies the time of employment. These agreements are legally binding documents that have to be signed by the employer and employee agreeing to mutually acceptable terms and conditions related to employment.
The employment agreement is a covenant between the employer and employee that lays down the provisions of employment. This document governs all aspects of the job like the date of joining, designation, duties, and responsibilities, CTC, leave clause, termination rules, etc. This article hopes to highlight the most important points that should find a place in an employment agreement.
What is the need for an employment agreement?
Though there is no legal mandate for the employers to have an employment agreement, it is recommended to define the terms of the contract to avoid further legal issues. Importantly, an agreement defines very clearly the relationship between the employer and employee. This avoids misunderstandings and smoothens the functioning of the business.
An agreement reduces the chances of a dispute between the employers and employees and assists in limiting the liabilities of the parties.
Features of an Employment Agreement
An employment agreement contains a formal Offer of Appointment and Acceptance. It also details the consideration which is the essential component of a valid contract. The competent parties in this case the employer and the employee are also clearly detailed in the agreement. The purpose of the contract is provided in the Legal Object. The free consent clause explains that the agreement has been entered into without any coercion, undue influence, fraud, misrepresentation, or mistake.
Important points to be included in an Employment Agreement
1. Nature of Job
You should clearly define the role and responsibilities of the employee. This includes the Job Title, Job description, the department assigned to, the role and skill requirement, and educational qualification.
2. Remuneration and benefits
The agreement should contain details of the Annual salary package and should also include raises, bonuses, and incentives. The agreement should have details of Health benefits, Company stock options, if any, investments/retirement plans, and any other fringe benefits. The employer should adhere to the guidelines of the Equal Pay for Equal Work (Remuneration) Act and Minimum Wages Act while fixing the remuneration
3. Leave Policy
This clause deals with the number of holidays allowed by the business and the types of leave that can be availed by the employee during the course of his employment. These include Earned Leave, Sick Leave, Casual Leave, Privilege Leave, Annual Leave, Maternity Leave, Compensatory time-off, etc.
4. Non-disclosure Clause
An employer may include this provision to protect the confidentiality of important trade secrets of the organization. This provision may have an effect even after the employee has left the services of the services of the company and prevents the dissemination of propriety information of the organization.
5. Termination of Contract
The condition for termination of the contract has to be specified. This includes the period of notice to be given on both side, and the remuneration to the employee on termination.
6. Reimbursement of Expenses
A mention has to be made in the agreement that all expenses incurred by the employee on behalf of the company will be fully reimbursed to the employee.
7. Social Security Benefit
This clause should specify the deduction from both the employer and employee side towards EPF and Insurance. The benefits that accrue to the employee should be explained as per the statutory rules and regulations.
8. Probation Period
This is relevant when the employee is taken on probation. Normally the probation period is six months and the conditions during this period should be specified.
9. Breach of Contract
This clause specifies the remedies for liability if the parties breach any of the terms of the contract. The remedies and actions to be followed for the resolution of the dispute have to be specified.
10. Disability or Death
In the event of the death of an employee or if they suffer a serious disability, the kind of support that the family can get has to be mentioned. This could be in the form of monetary compensation or by providing a job opportunity to a family member of the deceased.
11. Jurisdiction for resolving disputes
This comes into effect when a dispute arises out of an employment agreement. When a jurisdiction clause is included in the agreement this specifies that the dispute will be resolved through a judicial court or forum and will be governed by the governing laws of the state. Laws relating to employment vary from state to state; therefore, it is advisable to state the governing laws in the contract.
An employment agreement is an important document that is proof of the relationship between the employer and the employee. This is a legally binding document that needs to spell out all the terms and conditions of employment. The agreement must be carefully drafted after taking into consideration all the laws and employment rules and regulations in the country. This may differ from state to state so a lot of effort must go into framing the agreement. What we have detailed above are the more important points to be noted when preparing an employment agreement. There are many more points that have to be included in such an agreement. A talk with GetifyHR would bring more clarity on the subject.
GetifyHR has had vast experience in employment-related activities and have simplified the art of drafting highly effective employment agreements. Our clients spread across the county have benefitted from our expertise in this regard. As one of the leading outsourcers, we have been providing excellent service through our platform that integrates Payroll management, HR management, Attendance & Leave management, Statutory Compliance and Task management. Talk to us for more guidelines in creating an employment agreement that takes care of all the laws and statutory requirements.