8 Primary Types of Employment Contracts and How to Draft Them
An employment contract is a formal work agreement between an employee and their employer. It specifies which rights and responsibilities the parties have, how long their professional relationships are expected to last, and how the agreement may be terminated.
It’s crucial for your business to select the right type of employment contract for each employee — it will give you better control over staff-related expenses and help you enhance team performance.
So, let’s explore the main types of employment contracts and find out how to draft them.
8 Main Types of Employment Contracts
The contents and the form of a contract always depend on a person’s employment status and duration. Hence, a single business can use several types of employment contracts simultaneously. Let’s walk through the main ones of them:
Types of contracts by employment period
- Permanent contract — This type of employment contract is concluded for an indefinite timeframe. It applies to all employees who work for you regularly (either full-time or part-time). It specifies how many hours a day / week a staff member should work; indicates which policies, norms, and performance standards they must adhere to; and entitles them to a full range of employee benefits and rights given by the law.
- Fixed-term contract — This is a temporary employment agreement with a set expiration date. It applies to any professional who works on a specific task for a limited period (e.g., external consultants, trainees, seasonal workers, etc.). It offers them the same (or equivalent) rights as to your permanent staff members and protects them against unfair dismissal.
Note: Since a fixed-term agreement gets automatically terminated on a set date, you have to clarify whether an employee can renew or extend it and on which conditions.
Types of contracts by number of working hours
- Full-time contract — This kind of employment agreement is intended for every professional who works the standard number of business hours throughout the week (which normally equals 40). The contract states the minimum and maximum amount of time an employee should spend on their job, how many breaks per day they are legally entitled to, and if they may work flexible hours. Besides, it specifies what you consider overtime, whether you endorse it or not, and how you’re going to handle overtime pay.
- Part-time contract — This document is applicable to employees who work merely a portion of the standard business hours during the week / month. Just like a full-time employment contract, it specifies for how long a staff member must work every day, if there’s a rigid schedule they need to stick to, and whether they will be paid for extra hours worked.
- Zero-hour contract (aka casual contract) — This type of employment agreement applies to on-call employees who come to work only when you want them to complete a particular task or fill in a temporary staff shortage. You don’t have to provide a minimum amount of business hours and regular workloads to these employees. Also, they are free to decline your work requests and accept jobs from other employers. In other words, this contract gives employees a lot of freedom in choosing when to work and for whom.
Note: The rights of zero-hour workers vary from one country to another. For instance, in the United Kingdom, employers must provide them with minimal wages and statutory annual leave just like regular employees. And in Australia, they are entitled to a higher pay rate than regular staff members. This means it’s pivotal to research your local laws prior to drafting a zero-hour contract.
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Types of contracts by employee role
- Contractor agreement — It is intended for professionals who work on a contractual basis, i.e., perform a specific task for a limited amount of time. In other words, if you hire a solo consultant or a freelance designer for a project, you need to draft a contractor agreement for them. It should describe the terms of their job, state the contract termination date, and note whether the working relationships between the parties can be renewed.
- Internship agreement — This contract applies to students and trainees who seek to acquire practical knowledge and skills by working at your company. It should cover the standard set of employment issues, including employee duties, compensation, and the duration of your working relationships with an intern.
- Apprenticeship agreement — As the name suggests, this contract is created for apprentices — those who come to work for a skilled person to level up their own expertise and master a certain job or craft. Apprentices usually have relatively small pay and handle primarily routine tasks. So, the contract should clarify what your apprentices must do, what they’ll get throughout the apprenticeship period, and for how long this period is going to last.
How to Create a Perfect Employment Contract
- Decide on an employee’s term of employment and number of working hours — This always depends on your current staffing needs, overall team workloads, and candidates’ job responsibilities. For instance, if you require additional help for just one project, it makes sense to use fixed-term contracts and dismiss the hired experts right after the job is done. Yet if you have a constant inflow of tasks and problems to solve, hiring full-time employees and drafting permanent contracts for them is not a bad idea.
- Figure out all the legal nuances — Some of the most important topics to explore are minimal pay, overtime regulations, annual time off benefits, liability insurance, workplace discrimination, and special rules for hiring younger people.
- Dedicate a part of the contract to workplace safety — As an employer, you’re always responsible for the health and safety of your staff members, regardless of their employment status. Hence, the contract you create must include explicit workplace safety provisions and outline your legal obligations in establishing a secure work environment. Plus, the contract should explain which rules your employees need to follow to prevent injuries and stay sound during their working hours.
- Expound on the legal ways to terminate the contract — All employees are considered to work at will, and it means they can quit their jobs whenever they want. However, as an employer, you also have the right to fire them whenever you deem appropriate and for any legal reason (which doesn’t involve discrimination or retaliation). Hence, the employment contract should include an employee at-will disclaimer and indicate how either of the parties can terminate the agreement.
- Provide each employee with an exhaustive list of their work responsibilities — Comprehensive job descriptions and performance standards will help you ensure higher-quality employee performance and reduce risks to your company’s reputation and overall well-being.
- Don’t forget about employee benefits — They are one of the primary things that draw new talents to your organization and motivate them to show the best work results possible. Thus, explain which compensation your employees can expect to receive, how many days off they are entitled to per year, and whether vacation will be paid or not. A clear statement about employee benefits will make your staff members trust you more and prevent them from hoping for something you can’t and don’t plan to provide.
A properly drafted employment contract ensures security and reduces risks for employees and employers alike. It guarantees you treat your workforce fairly and comply with all the relevant labor laws. It helps you better control staff-related expenses, including overtime pay and time off pay. And besides, it promotes positive organizational behaviors among employees and makes them feel more confident that they will receive all the benefits they’re officially entitled to.
To fulfill your contractual obligations successfully and always provide your team members with accurate amounts of time off, consider applying actiPLANS. This absence management system is all you need to simplify the leave management process. It accrues time off automatically, makes it effortless to monitor employees’ vacations, and lets you see how many more days off they still must get.