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A letter of agreement between an employer and an employee defines the work arrangement t between the two parties. The employee letter of agreement explains all the terms and conditions of the employment and includes details like the contact information of the involved parties, the agreed-upon payments and the timeline.
It is essential due to the following reasons:
- A letter of agreement offers clarity regarding employment, job responsibilities, work hours, perks and benefits, termination of employment, etc., and eliminates ambiguity in case of conflict
- It offers legal protection to both the parties involved. In case of a dispute, a letter of agreement can be referred to resolve the dispute.
- It guardrails intellectual property rights and confidentiality, thus protecting the interest of the employer.
Different types of agreement letters
While the essence of the agreement letter is the same, different types can be used depending on the business's needs.
- Permanent employment contract
A permanent employment contract is a letter of agreement between an employer and an employee valid until you or the employee terminates the contract. The employee can work full-time or part-time and is either salaried or paid hourly.
- Fixed-term employment contract
This type of employment contract is used in cases of fixed-term employment. The contract must clarify the dates when the employment begins and ends.
- Independent contractor employment contract
An independent contractor employment contract is used when an employer hires an independent contractor for a specific project. Remember:
- Independent contractors manage their taxes and set their rates and work hours.
- Independent contractors are not on the company payrolls and do not receive any statutory benefits.
- Independent contractors must classify employees correctly. Determine the nature of their employment in the agreements more carefully, as misclassifying employees can be a serious offense, leading to penalties and lawsuits.
Important terms to include in an agreement letter
Every letter of agreement between employer and employee must contain some important terms that include:
Employee: The person you hire full-time or contract, on payroll, or as an independent contractor.
Employer: The organization that is doing the hiring.
Position: The role for which the employee is hired, along with the description of the job responsibilities.
Contractor: If the employee is hired to work on a particular project.
Termination: The conditions that will bring the employment to an end.
Start date: A contract should have a start date when the employee begins work with the organization.
Compensation: A letter of agreement between employer and employee must have the compensation details that the employer promises to pay the employee upon completing the work. This includes the payment schedule, bonuses, commission, overtime, etc.
Benefits: A letter of agreement should include all the benefits the employer promises to offer the employee, including leaves, health insurance, paid time off, etc.
Important components of the letter of agreement
An employee letter of agreement must have some important components. These include:
Job title and personal information
The letter must have the job title/designation and the employee’s detailed job responsibilities. It should also include the details of the department where the employee will be joining.
The employee's personal information must be included in the employee letter of agreement, including the employee’s complete name, address, telephone number, and postal address.
Details of the employer
The agreement letter must include the employer's details, including their complete trade name, address, and contact details.
Include the joining date of the employee. If you’re hiring a contractor for a particular project, the contract must include the time period for the contract's validity.
Compensation and benefits
List all the compensation and benefits employees will receive during their employment tenure. This should include the salary structure, bonuses, allowances, incentives, insurance, health policies, etc.
Non-disclosure, also known as the NDA agreement, is a clause in the employee agreement letter that prohibits the employee from sharing confidential information about the company outside their scope of work. Examples are company research data, trade secrets, client information, internal procedures, etc.
This important clause prohibits employees from competing against their former company.
Code of conduct
Includes workplace policies and code of conduct that an employee must adhere to during their tenure of employment.
If the new joiner has to serve a probationary period, mention its duration and other special conditions in the agreement letter. For example, an employee must complete six months of probation before becoming a permanent employee.
Mention the different conditions under which either party can terminate the employment. Include the notice period to be served in case of a termination and the consequences if the due notice period is not served or the employer does not give notice.
Include all the details about the severance pay, the amount, and the circumstances under which the severance will be paid.
Applicable law and jurisdiction
Mention the applicable employment law and jurisdiction that are applicable for the employment.
Include a clause that outlines the process of dispute resolution, if any, between the employer and the employee.
The letter of agreement is only valid if it's accepted and signed by both parties. So, leave the provision for signatures and ensure both parties sign it with the date.
Sample letter of agreement template
Employment contract when hiring overseas
Companies face many compliance challenges when hiring across borders. While onboarding employees from a foreign country and managing their payroll is just one of the challenges, the biggest challenge is creating a compliant letter of employment.
So how does one hire international employees, then?
Here’s how Gloroots Can Help
Creating a letter of agreement is crucial and requires a thorough understanding of labor laws and policies. This is where our expertise can help.
Gloroots is a SaaS-based Employer of Record solution that enables employers to hire talent beyond their base country. Regarding employment agreements, employers can use our SaaS platform to generate employment contracts and onboard employees in over 170+ countries in a matter of few clicks.
We ensure that all hiring processes and onboarding are 100% compliant with local labor laws. Employers can also manage global payrolls without partnering with multiple local payroll vendors and pay employees in multiple currencies.
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