An employment contract is a written legal document that lays out binding terms and conditions of employment between an employee and an employer. An employment contract generally covers:
- an overview of job responsibilities,
- reporting relationships,
- paid holidays,
- paid vacation,
- paid sick leave,
- paid time off (PTO),
- sales commissions,
- bonus pay potential and how bonus is determined,
- profit sharing and how profit sharing is determined,
- stock options and stock buy-back provisions,
- employment contract signing bonus,
- phone allowance,
- car mileage and travel allowance, and
- moving and transition expenses,
- any additional negotiated perks,
- details of employment termination including cause, severance package, and notice.
An employment contract is written most frequently for high level jobs and for senior employees who have a lot to lose if an employment relationship does not work out as planned. An employment contract is also negotiated for union represented employees. A union contract covers employment issues that an employment contract may not, such as grievance procedures, hours of employment, representation by a union steward, and layoff procedures.
A job offer letter is an informal employment contract that usually spells out just the basics of compensation and benefits, job title, and reporting relationships. Employers may need to offer senior level employees a job offer letter that spells out many of the components of the employment contract.