A lot of my clients come to me when they need an employee handbook, offer letter, or contract for employment. That makes sense to me. Hiring your first employee is a minefield of legal troubles. In most cases, I start with the same few discussions.
- Employee versus Independent Contractor
- Employee Contract or Offer Letter
- Payroll & Withholdings
- Other Requirements
In this article, we’re only going to cover these legal documents necessary to bring on an employee. These are the handbook and offer letter or employment contract. Mostly, we’re going to discuss the differences between an offer letter and the employment contract.
If you have employees, you’re supposed to have an employee handbook. They’re not as required as the labor posters, but you are required to share certain employment information with your employees, like benefits, anti-discrimination policies, etc. that you generally include in your handbook.
Because the handbook is incredibly generic, your offer letter is the main place you distinguish one employee’s role from another. Your offer letter needs to contain anything that is unique to this position like wages, start date, duties, and supervisor. Offer letters are super laid back. There’s minimal legalese in these until you get to a more advanced level. At that point, your legalese will primarily be referencing certain agreements your new hire will have to sign, like non-compete agreements. Fortunately, your average employee won’t need anything so complex.
In this letter, you might also want to put anything left to complete before employment begins. For example, if you need to verify references and do a drug test, these should be in there. These will likely also be listed in your handbook, but there’s no reason to not have them in both places.
An employment contract is the most formal of all of these legal documents. There is some overlap with handbook and contract. Some people, like professionals, might have all three of these legal documents. In other roles, like CEO, you’ll have just the employment contract, but don’t worry, it’ll be pretty intense.
Here’s some reasons you’ll have an employment contract:
- Offer includes stock options.
- The employment is for a period of time instead of at-will.
- Employee will have bonuses based on performance.
- Employee is in the C-Suite or other upper management.
- Any special employment terms.
That’s not an exhaustive list. Ideally, you set up your handbook and offer letters in a way that you can use them for most circumstances. Employment contracts are more complex, and therefore more costly.
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