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What is a Contract of Employment

A contract of employment is a written agreement between an employer and an employee. It covers a number of essential elements that detail the precise nature of the relationship between the two parties.  This might include the salary that will be paid and whether the employee is bound to any agreements of confidentiality (such as an NDA), in addition to other conditions.

Contracts of employment can be known by a number of alternative names, such as:

  • Employment contracts

  • Employment agreements

  • Work contracts

  • Job contracts

  • Contracts of service

Types of Employment

Employment can take many different forms. Whether you are running a company or applying for a job, you will see a variety of employment types that can be secured by prospective employees. This will usually include one of the following examples: 

  • Full-time employment: Full-time jobs are an indefinite working position (i.e. there is no pre-defined end date to it) that usually requires employees to work a full schedule of around 40 hours per week.

  • Part-time employment: Part-time jobs are another kind of indefinite work, although they require an employee to work fewer hours per week than a full-time position (usually below 30 hours per week).

  • Period or term employment: This kind of employment is usually used for shorter-term projects. Period or term employees are employed for a defined amount of time and most often leave the company once the duration has elapsed.

  • Trial period (probationary employment): Most full-time and part-time employment contracts will include a trial period of a few weeks or months to allow both parties to decide if the agreement meets their needs as expected. This allows one side to end the contract early without penalties if it doesn’t live up to its promise.

  • At-will employment: At-will contracts cover a working arrangement where an employee may be terminated at any time for any reason as long as it doesn’t contravene federal workplace discrimination laws.

  • Temporary employment: Temporary employees are contracted for a fixed period of time to fill sudden or short-term vacancies in a company’s workforce. Workers may be hired on this basis for a few weeks or months at a time.

How Does an Employment Contract Work

An employment contract is used to set expectations and clarify the nature of a relationship between an employer and an employee. It does this by binding both parties and outlining their responsibilities in writing.

The contract provides legal protection for both parties by defining what obligations must be met. It also sets clear and understandable conditions for the relationship to avoid any confusion or misunderstandings about who is responsible for what.

Terms to Include in a Working Employment Agreement

It is very important that your employment agreement covers a number of essential terms. These will define, among other things, the type of employment that will be contracted, and the salary that will be paid.

However, each individual contract is different and will usually be written to allow the conditions to fit the needs of the employer and employee best. The following terms will normally be covered in an employment agreement:

  • The names of both parties.

  • A description of the employee’s duties.

  • The employee’s daily schedule and the hours of work they must fulfill.

  • The salary that will be paid.

  • When the contract will end or how it can be legally ended.

  • Notice periods for ending the contract early.

  • The applicable state law that will prevail over the agreement.

  • How disputes will be resolved.

  • Additional employment provisions, for example, terms that protect the confidentiality of company data or stipulating indemnification.

How to Write a Contract Agreement

An employment contract must be written with care in order to be fully effective and valid. It is important to ensure that all the information is written in plain English in full sentences so that there can be no ambiguity about its contents.

The main body of the document will be structured into essential sections that outline and explain the main terms of the contract. At the end of the form, it is also possible to add additional clauses and restrictive covenants that place controls on what the employee can and can’t do whilst working under the agreement.

Our step-by-step template customization questions can take you simply through this process. It will help you ensure you don’t miss any important information in your final draft and will help explain each essential element you must add. 

Employment contract tips infographic

Employment Contract: Pros and Cons

Most employers and employees choose to create employment contracts to create trust and a clearly defined working partnership between them and the other party. However, these agreements don’t work best in every situation.

Depending on the type of employee you want to hire and the type of work that is to be done, an employment agreement may or may not suit your needs. Some of the most important pros and cons to consider before deciding if this is the right kind of contact for you can be found below.

Pros Cons
Employment contracts create a clear and understandable outline of the obligations of both parties. Whilst this is also an advantage, the legally binding nature of the contract can deter some parties.
Employment contracts can be written to include special protections for private data and copyrighted material that is being used by the employee. Employment contracts usually contain rigid, unchangeable terms and offer little in the way of flexibility.
Employment contracts are usually the most stable form of working agreement available. Parties can face financial penalties if they break the contract.
The agreement provides legal protections for both parties so that nobody can be defrauded. As the terms are set from when the contract is signed, the agreement can only be changed following negotiation and a new agreement being approved by both parties.

IRS Requirements for Employment Contracts

Usually, employers are required to withhold and pay income taxes, Medicare taxes, social security taxes, and unemployment tax on wages paid to employees, but not to independent contractors. 

If you are unsure whether a worker is an independent contractor or employee, you can fill out a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The IRS will review the circumstances and decide the worker’s status. 

In the case of employees, employers must report taxes by filing one or more of the following forms:

Employment Contract Sample

It can often help to see a real example of how your final employment contract will appear before starting one of your own. If you want to understand more about how these essential documents are structured and written, take a look through our template example below.

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Example of an employment contract

Employment Contract FAQs

There are many fine details that must be considered when creating a secure and legally effective employment contract. To find out more about some of the key elements found in these agreements read through our FAQs and answers below.

Who are the Parties in an Employment Agreement?

There are two main parties in an employment contract, the employer and the employee. Under the agreement, the employee agrees to provide a service in return for financial remuneration from the employer.

What is the Difference Between an Employment Contract and a Temporary Employment Contract?

The main difference between a conventional employment contract and a temporary employment contract is its duration

Most employment contracts will be created with no end date and will only terminate once an employee or the company serves official notice by submitting a resignation letter or an employee termination letter. Temporary contracts on the other hand will have a pre-arranged expiry date when they will come to their natural end.

What is a Probationary Period?

Probationary periods are exit clauses that are often written into employment contracts to give both parties a chance to assess the new agreement. This will normally consist of a number of weeks and months at the beginning of the contract in which either party can terminate the agreement early without notice. 

It is possible that in this period, a party might decide not to continue working under the contract before the probation period ends. This might happen if they are dissatisfied with their new working relationship and wish to pursue other opportunities instead.

What are Confidentiality Clauses?

Confidentiality clauses are important restrictive covenants that police how employees and contractors can use secret information and private data. These kinds of clauses are often found in employment contracts and independent contractor agreements and prevent hired workers from sharing certain types of data outside the remit of their employment.

What is a Notice Period?

A notice period for an employment contract indicates the minimum amount of time that either party must give to inform the other party of their intention to terminate the agreement. In many jobs, this will often be just 2-4 weeks in advance of ending the contract. However, for positions of greater seniority, it might be necessary to serve a notice period of several months.

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Example of an employment contract

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Preview of your Employment Contract

This Employment Contract (hereinafter, the “Contract”), is dated as of _________ (hereinafter, the “Effective Date”), and is entered into by and between the following Parties:

_________, with a permanent address at _________, on behalf of _________ (hereinafter, the “Employer”),


_________ with a permanent address at _________ (hereinafter, the “Employee”).

1) _________ is engaged in the business of _________.

2) _________ desires to employ and retain the services of _________ according to the terms and conditions hereinafter set forth.

3) _________ desires to enter into such employment upon the terms and conditions hereinafter set forth.
In consideration of this mutual understanding, the Employer and the Employee (hereinafter, the “Parties”) covenant and agree as follows:

1) _________ hereby employs _________ as a(n) _________.

2) _________ hereby accepts such employment, and agrees to abide by _________ and _________'s supervisory personnel rules, regulations, policies, and practices, including those concerning work schedules, vacation, and sick leave, as they may from time to time be adopted or modified.

3) _________ will perform the services described on the attached Exhibit A, which is made a part of this Contract by this reference.

4) _________'s title and responsibilities may be changed by agreement during the course of this Contract. However, the terms and conditions set forth in this Contract shall remain in full force and effect, unless otherwise specified by the Parties.
Best Efforts of Employee: _________ will at all times faithfully, industriously, and to the best of _________'s ability, experience, and talents, perform all the duties that may be required by the express and implicit terms of this Contract, to the reasonable satisfaction of _________. Such duties shall be provided at such place(s) as the needs, business, or opportunities of _________ may require from time to time.

_________ will primarily perform the job duties at the following location:

     - _________.
Indefinite Term: This Contract shall become effective on the _________ and shall continue to have effect for an indefinite term of years, unless otherwise terminated in accordance with the provisions of this Contract.

_________ acknowledges and agrees that all intellectual property and related material, including but not limited to any copyrightable works, ideas, discoveries, inventions, patents, products, or other information (hereinafter, the “Work Product”), performed under this Contract shall be owned by and belong exclusively to _________.

If requested by _________, _________ will provide and execute all necessary documentation to confirm or perfect the ownership of _________ to the Work Product.

1) Employee's Termination: _________ shall have the right to terminate this Contract at any time, with or without notice, in accordance with applicable local, state, and federal labor laws.

2) Employer's Termination: _________ shall have the right to terminate this Contract at any time, with or without notice, in accordance with applicable local, state, and federal labor laws.

If _________ is in violation of this Contract, _________ may terminate employment without notice and with compensation to _________ only to the date of such termination. The compensation paid under this Contract will be considered _________'s exclusive remedy.

Any and all notices, requests, demands, or other communications to be given under this Contract must be given (i) in writing and (ii) personally delivered, mailed, or transmitted by electronic mail to the Party to whom such notice or communication is directed.

Notices will be deemed received when hand delivered, delivered by agent, seven (7) days after being placed in the post, postage prepaid, or three (3) days after transmission by electronic mail, addressed as follows:


Change of Address: Either Party may, from time to time, change its address by providing written notice to the other Party in the aforementioned manner.
Governing Law: This Contract shall be governed, construed and interpreted in accordance with the laws of the .
Non-Discrimination: The Parties shall not discriminate against any Employee or participant in the performance of the duties, responsibilities, and obligations under this Contract because of race, color, religion, gender, age, marital status, disability, political or religious beliefs, national or ethnic origin.
Entire Agreement: This document constitutes the entire agreement and understanding between the Parties, and supersedes all prior agreements and understandings, whether oral or written, with respect to the subject matter of this Contract.
Severability: This Contract will be enforced to the fullest extent permitted by applicable law. If for any reason any term or provision of this Contract is held to be invalid or unenforceable, such invalidity or unenforceability will not affect any other term or provision of it. However, the Parties shall cease performing such invalid or unenforceable provision and negotiate in good faith to replace such invalid or unenforceable provision with a valid, legal and enforceable one consistent with its original purpose.
Amendment: This Contract may be amended or modified as needed. However, any modification, variation, or amendment of it shall only be valid if made in writing and duly signed by the Parties obligated under the amendment.
Waiver Of Contractual Right: The waiver by either Party of a breach, default, delay, or omission of any of the provisions of this Contract by the other Party will not be construed as a waiver of any subsequent breach of the same or other provisions.
IN WITNESS AND AGREEMENT WHEREOF, _________, on behalf of _________ has executed this Contract with the consent of _________, given here in writing. This Contract is effective as of the date _________ above written.

By: ___________________________________       Date: __________________

By: ___________________________________       Date: __________________
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