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Importance of Employment Contracts to Employers and Employees

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In this modern world that we live in, everything needs to be done by the book. If not, then there can often be nasty repercussions, and when it comes to running a business, it’s best not to invite this willingly. In the public sector alone, around 31% of employees have some form of conflict that’s common in the workplace.

With that said, it’s good to do all you can legally and in the right manner. Most businesses and those in the position of hiring employees will have an employment contract in place. This article will discuss what an employment contract is and why it’s so important to have it in place.

There are also some helpful tips towards the end when creating an employment contract for the first time.

Employment Contracts

What is an employment contract?

Employment contracts are legal agreements between the employee and employer providing written acknowledgement of the terms between the two parties.

Depending on the type of employee the employer is hiring, this might affect the type of contract they provide. The employment contract will list the relevant information concerning the role and the various aspects of working for the employer.

You’d typically find the working hours, pay and terms of employment in general. Many employment agreement templates are available online for those who aren’t quite familiar with the structure and how to draft them up correctly.

Both parties are legally protected.

Any type of contract is good because it’s an agreement that’s legally binding. Whenever an employer wants to hire a person for their company, they want to ensure the person they’re hiring will benefit the company.

The same goes for the person looking for a job and wanting to join somewhere that does everything legally and legitimately. Both parties will be protected when this contract is drawn up, agreed upon, signed and dated. That way, both parties should have had the opportunity to dispute or negotiate anything within that first draft and be happy with the agreement.

Protecting both parties can help in keeping the relationship a trustworthy and respectful one. This contract can be seen as the foundation of any employee/employer relationship. Without that foundation, either party can find themselves running into some form of trouble as a result.

The contract can also assist either party in terminating the agreement should there be a reason to do so. For example,  maybe the employee wants to leave the job, or the employer uncovers a breach of the agreement.

Outlines everything expected from either party

An employment contract of any type is likely to be very detailed. It will contain everything that the employee needs to know before commencing their role within the company. For the employer, it’s a chance to detail everything that is needed to make the role valuable for the company.

Having communication is important, and the contract clearly outlines everything that’s expected from both parties. With 64% of businesses finding communication in their strategy, values and purpose as a key priority, there’s no doubt that this is essential.

There can often be somewhat of miscommunication or lack of in some businesses, and so to avoid this happening for yours, these contracts are beneficial. Having good communication in everything that’s done in a business will likely aid its success and growth.

From an employee’s perspective, it’s useful to know what the employer expects from them and everything they do for the business. It’s often detrimental to their own happiness and appreciation for the job.

Enforces accountability where necessary

If everything went as expected, then there would likely be very little that goes wrong. However, that’s wishful thinking when it comes to business and being part of a workforce.

Things won’t always go smoothly, and in the case of employment, not every employee or employer behaves appropriately. There may be times when workplace disputes occur, which may result in legal action from either party.

The employment contract is a written document that has been signed and dated. It, therefore, acts as proof of a mutual agreement and evidence that can be used if either party finds it necessary to do so.

It, therefore, enforces accountability to be taken should either party be found to have breached or broken their agreement with the other. For example, if you’re an employer, your employee may decide to take action against overtime that hasn’t been stipulated prior in the contract.

In the case of an employer, confidential data could have been stolen by an employee and used to damage the company’s reputation. Many cases have come up over the years relating to employment law.

Keeps confidentiality and maintains data security

data

For the average business, there is often a lot of confidential data that the company holds, whether concerning the company itself or their customers’ trust in storing.

An employment contract will ensure confidentiality is maintained when employees are accessing such data for work purposes.

Data security is one of the main concerns for businesses nowadays, especially as 95% of cybersecurity breaches are caused by human error. You really can’t be too careful!

In the contract, there will likely be more detail depending on what role the employee has and how much influence they may have regarding the company’s data. For example, some employees may have access to more data than others. It’s good to pay attention to this section of the contract for accuracy.

Keeping confidentiality and data security at the top of your list as a business will also strengthen the relationship and trust with your customers.

Creates a trustful working relationship

A successful company is often down to the happiness and productivity of its workforce. Companies with a highly engaged workforce are seen to have around 21% more profit as a result.

As mentioned above, with a contract in place, there’s this trust and reliance created between the two parties.

You must do everything possible to cement this relationship from the beginning. Your employees are an integral part of the business, and if you’re not willing to put a legal contract in place or one that isn’t detailed enough, that’s not a good start to the working relationship.

The creation of the contract should be open for discussion. Even though the employee has accepted the job and the employer has offered it to the employee, there can still be some room for negotiation if either party isn’t happy with the agreement.

Tips for creating an employment contract

So now that you know the importance of employment contracts, it’s imperative to include every detail. With that said, here are a few top tips when creating one.

Remember the basics

Some basics are essential to include, and these will be the key information regarding the role itself. Usually, this will be the job title, the department and the head of that department or manager for the employee.

There will also be the location of the business included here, so don’t forget that!

Pay and benefits package

It’s not all about the money, but it’s important for your employment contract to include details and pay.  Remember, the detail here may change depending on the type of employee you’re hiring and whether or not they’ll also be incorporated into the benefits package that a company provides.

There may also be levels of benefits that are available depending on the role.

Annual leave, sick pay and parental leave

There are certain entitlements that an employee is allowed to have regarding matters of annual leave, sick pay and parental leave. In this section of the contract, you can outline the individual benefits that the employee has when it comes to taking time off.

Employment type and duration

For your employees, not all of them might be working full-time, and there might be some who are on fixed-term contracts and others on temporary.

The employment contract will mention the type of employment and duration, as well as any mention of overtime.

Policies and terminations

Most businesses will have privacy policies relating to the internet and use of data, as well as termination procedures should either party want to terminate the contract. Notice periods will also be mentioned here.

An employment contract is a must-have and having one, and it’ll protect both parties. Not only that, but it’ll be useful should either party need to refer back to it.

Editor’s note: A shout-out to Natalie Redman for her contribution – thanks.

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