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As a young business, how do I draft an employment contract?

Entering into an employment contract means that you are crossing the threshold from start-up to an established business, congratulations!

An employment contract, as the name suggests, is an agreement between you and the employee explaining the terms of your engagement.

Every employment contract must be customised keeping in mind the needs and interests of that employee – otherwise it can create problems later on. Every employee has to be integrated into the company, not merely hired by it – choose wrongly and you may find your business being hit by employees who do not share the values or ideals of the company.

Before we enter into the specific legal points, remember that the contract has to include as many details as possible about your engagement with the employee. Do not be afraid to go into specifics about the little things – they help to bring clarity in case of any disagreement.

For instance, include details about how long the employment is going to be for, whether there will be a probation period and if yes, how long the probation period is going to be, the salary that the employee will be paid (including how often it will be paid) and bonus details.

How long will the employment be for?

An employment contract can be for (a) a specific period OR (b) till it is mutually ended by the parties. Like everyone else, you are likely to enter into an agreement hoping that the employee will stay with the company and contribute more and more as the years go by.

There may be instances, however, when you and the employee mutually agree that he will leave your company after a few years. In very large technology companies, people are called in to ‘fix' problems, and to introduce systems. Such employees have a limited period at the end of which they should have completed the work they were brought into the company to do.

So if such a situation applies to you, you can add an ending date to your employment contract. Since you mention that this is a young business, this may not apply to you.

If you are bringing in a consultant and want to enter into an agreement with them (a consultancy agreement is quite similar to an employment agreement), you will almost certainly have to mention when the agreement with the consultant will come to an end.

It is not sensible to enter into an agreement with a consultant which is not timed to end after a certain period. For instance, if you hire a consultant to do Search Engine Optimisation for your website, mention when the consultancy services of the SEO expert will no longer be required.

If you wish, and are happy with the services of the consultant, you can always renew the agreement mutually, or enter into a fresh agreement with different terms.

In the next part of this series, we will answer two other questions we are asked often at – Should there be a probation period? How do I draft the ‘salary' clause?

(This article was published on November 13, 2011)
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