Employment Contract Can Be a Valuable Part of Your Hiring Process

For many small businesses, success goes hand-in-hand with the need for more employees. While growth is something to celebrate, adding people to your team also adds a new level of risk to your operation.

Most small businesses don't have a legal or human resources department to protect the company's interests as an employer. Thankfully, there's one simple thing small businesses can do to reduce the risk that comes along with a growing staff: use employment contracts.

Making an employment contract a standard part of your hiring process is an easy way to protect your business from liability and clarify important boundaries for your employees. While employment contracts were used primarily for executive hires in the past, many companies have made them part of the standard hiring process for all new workers - from sales to customer support personnel - because it reduces the risk of liability and establishes clear policies for all employees.

By communicating your expectations in writing, you also help to build employee confidence and a stronger employee-management relationship.

What's In an Employment Contract?

A written employment agreement, signed by both you and your new hire, protects your intellectual property rights and confidential information. It establishes your relationship as "employment at will," reducing the risk of an unfair termination claim. It can also include non-compete and non-hire provisions that prohibit a departing staff member from stealing your workers or clients.

Typically, employment contracts cover the basics of employment - such as compensation and benefits - as well as policies and procedures you choose to enforce for all team members.

For example, your contract might define:

- How much the employee will be compensated on an annual basis, and how often your employee will be paid

- What health care, 401(k) or other benefits your organization will provide, and at what cost to the employee

- What expenses will be reimbursed, and the process to follow for reimbursement

- The process for you or the employee to terminate employment

- What company information is to be kept confidential

- Terms to prevent your employee from soliciting your company's clients or employees, should he or she leave the company

- Remedies for any issues that may arise during employment

- Terms defining who owns intellectual property

Do I Need a Lawyer?

Because most small-business owners aren't lawyers or human resources experts, writing an employment agreement may feel like a daunting task. But in most cases, developing a general employment contract isn't necessarily expensive. Standard employment agreement templates are a good place to start.

Certain websites offers employment contract templates that make creating your agreement easy, with examples and a simple Q&A process that populates the form and helps ensure that you've addressed every possible variable. The sites can also provide sample employment contracts for you to review, eliminating much of the guesswork. You can always have a lawyer review your completed template or form contract for your peace of mind.

An employment contract is an excellent way to start off on the right foot with your new hire. But like any contract, an employment agreement is only beneficial if all parties fully understand its importance and comply with the rules it establishes. Many employers elect to review the contract annually, often in coordination with an employee's annual performance review.