Employment contract

An employment contract is a written agreement between an employer and an employee that outlines the terms and conditions of employment.

Homebase Team

Min Read

What is an employment contract?

An employment contract is a written agreement between an employer and an employee that outlines the terms and conditions of employment. It’s like a rulebook for your working relationship—it sets clear expectations for both parties from the start.

For small business owners, having a solid employment contract helps avoid confusion, miscommunication, and legal disputes. Whether hiring your first employee or adding to a growing team, an explicit agreement protects everyone involved.

What does an employment contract include?

Employment contracts can vary depending on the role and industry, but most will cover:

Job title and duties – What the employee is responsible for
Compensation – Hourly rate or salary, bonus structure, and pay frequency
Work schedule – Expected hours and days of work
Benefits – Health insurance, vacation days, sick leave, and other perks
Duration of employment – Whether it’s a permanent, temporary, or fixed-term role
Termination terms – Notice period, grounds for termination, and severance (if applicable)
Confidentiality and non-compete clauses – To protect your business information

The goal is to put everything in writing so you and your employee are on the same page.

Do all employees need an employment contract?

Technically, not all businesses are required to have formal contracts with employees, especially in at-will employment states, where either party can end the relationship at any time. But having at least a basic agreement in writing is always a smart move.

Even if it’s not legally required, a written contract helps:

Clarify expectations from day one
Set professional boundaries
Establish trust with new hires
Minimize legal risk if issues arise later

Types of employment contracts

Here are the most common types of contracts you might use:

Full-time or part-time employment contracts – For permanent roles with defined hours and pay
Temporary or fixed-term contracts – For seasonal work or specific time-bound projects
Freelancer/independent contractor agreements – For 1099 contractors (note: these are not employment contracts but still important!)
At-will employment agreements – A basic contract that clarifies either party can end the relationship at any time

When hiring, be sure you classify your worker correctly as an employee or independent contractor—this affects taxes, benefits, and legal obligations.

What should small business owners watch out for?

Vague language – Be as specific as possible about job duties and expectations.
Missing termination clauses – Clarify how either party can end the contract and what happens if they do.
Unenforceable clauses – Some non-compete or confidentiality agreements may not be valid in certain states.
Lack of legal review – It’s always a good idea to have a lawyer review your contracts.

Once a contract is signed, it’s a legally binding document—so make sure it’s accurate and tailored to your business.

How to create an employment contract

You don’t have to start from scratch. Plenty of templates are available online, but the best contracts are customized to fit your specific business and team.

Here’s a simple process:

Write out the job title, responsibilities, and compensation
Add in schedule, benefits, and any company policies
Include termination conditions and confidentiality terms
Review it for clarity and accuracy
Have both parties sign and keep a copy on file

Using Homebase, you can streamline the hiring and onboarding process, making it easier to organize contracts, collect e-signatures, and stay compliant.

Try Homebase hiring and onboarding to simplify hiring paperwork and set up your team.

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