An employment agreement is a contract between an employer and an employee that defines the terms and conditions of employment.
An employment agreement, or workplace agreement, solidifies the working relationship between the employer and employee by outlining both parties’ rights, responsibilities, and expectations.
Main types of employment agreements
Employers may use several employment agreements, depending on the desired employment relationship or type of work needed.
Below are four main types of employment agreements:
At-will employment agreement
In an at-will employment agreement, the employee and the employer can end the employment relationship at any time and for any reason without a notice period.
The U.S. is one of the only countries that use at-will employment.
Written employment agreement
A written employment agreement is a document that outlines the rights, responsibilities, and duration of the employee and employer relationship in writing.
Both parties must agree to the terms and conditions of the contract before signing it. Employers typically can't terminate an employee under a written contract without cause.
Written employment contracts are used in most countries and required in some countries, including the U.K., China, and New Zealand.
Verbal employment agreement
In a verbal employment agreement, the employer and employee orally agree to the terms and conditions of the working relationship. An oral employment agreement is made verbally, such as in person or over the phone.
Verbal employment agreements are legally binding if they meet specific requirements typically found in written employment agreements. However, they can also be difficult to prove in court since they lack written documentation.
Implied employment agreement
An implied employment contract is an agreement between the employer and the employee that’s based on past interactions and general employment conditions. It may combine verbal statements and written agreements developed over time.
Implied employment contracts may include elements related to job security, labor laws, employee handbook policies, and the length of employment.
Topics outlined in an employment agreement
The terms of an employment agreement depend on local employment laws, the employee’s position, and company policies and expectations.
The following is a non-exhaustive list that includes topics generally outlined in an employment agreement:
- Compensation. The agreement should specify the employee’s base salary or hourly wage and payroll schedule. Compensation may also include a commission and bonus structure, stock options, and any other global compensation opportunities.
- Benefits. The employment agreement should include all statutory benefits required by local law, such as health insurance, paid time off, and retirement contributions. The agreement should also include any employer-provided supplemental benefits, such as additional leave and insurance contributions.
- Work responsibilities. The employment agreement should define the employee’s role, job duties, and goals so the employee knows what to expect and deliver.
- Employment duration. The agreement should include employment start and end dates, as well as the probationary period timeline, if applicable.
- Confidential information. Most employment agreements also include non-disclosure language prohibiting the employee from sharing confidential information, trade secrets, and intellectual property with others outside the company. Additionally, the agreement may prevent the employer from working with competitors.
- Termination. Employment agreements define how and when either party can terminate the employment relationship and the required notice period, if applicable.
Why employment agreements are important
Employment agreements are critical in establishing expectations between the employer and employee and play a significant role in creating strong employment relationships.
Employment agreements ensure that employees understand their job duties, responsibilities, and company policies and perform based on those expectations. Employment agreements also hold employers accountable to compensate employees fairly and provide statutory job protections and rights.
Employment agreements also protect the employer and the employee from disputes or legal risks. They contain specific information regarding employment expectations and policies to help direct employers and employees on the next steps in employment disagreements and settle disputes.
Compliance challenges of employment agreements
Employment agreements are a crucial part of the hiring process. However, drafting them compliantly becomes more challenging when hiring abroad as employment laws vary by country.
Some compliance challenges when developing international employment agreements for distributed employees include the following:
Varying employment laws
Employment agreement requirements such as statutory benefits, notice periods, and termination vary around the world. Noncompliance with local employment laws can result in severe penalties, fines, and legal issues.
Employers must ensure compliant employment agreements based on the job role and regulations in the employee’s country.
Companies may consider working with a global partner like an employer of record (EOR) to help draft accurate and compliant employment contracts and mitigate risk.
Worker misclassification
Employers that engage contractors risk misclassifying them as employees. If an employer intentionally or accidentally misclassifies their workers, they could be liable for unpaid taxes, back benefits, legal fines, and damage to their reputation.
Employers must understand the difference between employees and contractors, ensure they follow local classification laws, and clearly define the employment relationship and roles in the employment agreement.
Velocity Global helps companies hire abroad with peace of mind. Through our EOR solution, our team of experts navigates the complexities of international employment laws and drafts compliant employment agreements so you can easily manage a globally distributed workforce.
Learn more about how our EOR solution helps you hire compliantly and quickly grow a top-tier distributed workforce in more than 185 countries.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2023 Velocity Global, LLC. All rights reserved.
