I often hear “we’ll just send the candidate an employment agreement and tax forms to get them started”. Sounds reasonable, right?
Aside from the fact that there are several other documents required for onboarding a new team member; you might want to stop and think long and hard before offering an employment agreement.
Both an offer letter and employment agreement outline the basic terms of employment – hire date, pay rate, title, job duties etc. But, an offer letter will also have an ‘at’-will’ statement that governs when and how someone can be let go (basically, at any time, for any or no reason). I know – this makes you wonder what all the HR hub bub is about, around ‘you must document disciplinary actions’. Well, just because the at will guideline says for ‘any or no reason’, you can still get dinged if you terminate (or it is determined that you terminated) for an unlawful reason such as discrimination or harassment. That’s why we want you to have your ducks in a row on all terminations.
In contrast to an offer letter’s at will statement; an employment agreement generally spells out specific reasons for termination. Makes sense – employment agreements are mostly reserved for the top members of the organization – the ones you want to ensure will stay aboard for a specific period of time, and not just give notice one day. At the same time, you will want to maintain the flexibility of ‘at will’ with most of your employees.
Any employment agreement should be drafted by your labor counsel – do not, I repeat, do not try to draft one yourself! It is a legal contract, and unless you graduated law school with flying colors, it isn’t something we recommend you try to tackle yourself. On the other hand, an offer letter contains fairly standard elements, and can be edited and reused for all new hires.
First up; state this is a letter of confirmation (vs. an employment agreement). As I mentioned earlier all employees, other than those at the highest levels in critical functions should have offer letters vs. agreements. Employment agreements tend to undermine the at-will status of the employee.
Next is the start date. And, be sure to include an expiration to the offer (usually it’s the end of business on the first day of employment). Also mention that the offer is contingent on references. List the proposed title, and briefly outline the position responsibilities. Remember to mention that the Company’s ability to change duties and responsibilities at any time.
“… all employees, other than those at the highest levels in critical functions should have offer letters vs. agreements. Employment agreements tend to undermine the at-will status of the employee.”
When you list compensation, state either the hourly (for non exempt employees) or the annualized (for exempt employees) rate. Make sure you use the word ‘annualized’, because ‘annual rate’ has been challenged to mean you must pay the full year’s pay for departing employees. You can add bullet points to outline bonuses etc.
Include a general statement regarding benefits. Don’t attempt to fully outline the details of benefits in the offer letter – it is better to have a separate benefits overview document that you can provide to prospects.
Be sure to note both the employee handbook and rules, and any other agreements the prospective employee will be required to sign.
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And most importantly – the will statement. Also be careful to avoid requiring any type of notice period. Something like that could require the Company to pay notice time as well.
Then close with the confirmation and counter signature
And lastly, try to avoid closing statements that point to continued employment. Things like “welcome to the family”, or “I know you will be successful” etc.
I know they feel good, but the unfortunate truth is – they can cause you trouble later.