Person signing an employment contract

Why employment contracts are important for your business

If you’ve ever wondered just how important employment contracts are for your business, or for your rights as an employee, we’ve got all the information you need right here.
Kerrie-Anne Chinn, Content & Editorial Manager

 These days, most companies will ask new employees to sign an employment contract before coming on board. Do you remember signing one of these in your current job?

If you’ve ever wondered just how important employment contracts are for your business, or for your rights as an employee, we’ve got all the information you need right here.

Employment contracts are an essential document for both staff and employers, legally establishing the working relationship and setting out important frameworks and policies.

These contracts provide both employee and employer with a clear agreement of what is to be expected from each party while outlining all rights, responsibilities and obligations. This works to protect the job security and rights of the employee and also protects the employer from certain risks such as breaches of confidentiality.

Here are five reasons why employment contracts are a must-have in any business.

Understanding of employee duties

One of the first things a good employment contract will do is clearly spell out the position and duties of the employee.

For employees, it helps to have a document that contains clear information pertaining to job description, duties, salary and benefits. There’s nothing worse than stepping into a new role and not being quite clear on the tasks and duties involved. This should be established by your employer, through your contract, before the onboarding process.

This also works in favour of employers. Having a contract that defines the standards expected of each employee is a great way to get the best out of each team member. With both parties aware of what is expected in terms of employee performance, there can be no room for confusion.

It also gives grounds to add or subtract benefits according to the employee’s performance. If an employee is consistently underperforming and not meeting the agreement set out in their contract, their employer will have reason to take action.

Job security for employees

An employment contract should also include clear details of the term of employment. That is, exactly how long an employee is contracted to stay with the company – for example, two or five years.

Having this information in the employment contracts guarantees job security for employees, as long as they do not violate the terms of the contract. When staff feel secure in the terms of their role, they are likely to have higher performance and engagement.

The employment contract should also specify exactly what actions can result in termination. Including this information ensures that each employee knows which activities are mandatory to their role and which actions or behaviours are against company policy and will result in dismissal.

Defined pay rates and income

Regardless of whether an employee is full time, part-time or casual, an employment contract helps to define pay rates and income.

Having this information contained in one document shows an agreement between both parties on salary, leaving no room for miscommunication. When it comes to workplace disagreements, it’s often to do with money – so an employment contract works to minimise this risk.

Within the employment contract, you can establish the income your employees will be receiving and how often they work. You can also set what their annual income will be and any relevant bonuses, or basis for bonuses.

Clear protocols for staff leave

It’s also a very good idea to include information about staff leave entitlements.

Throughout their employment, team members will need to take all different forms of leave, such as annual holidays, sick days, or potential maternity or bereavement leave. Having this information set out in a contract means that the procedure for taking leave is always consistent and legal, for all staff.

Employees can always refer directly to the employment contract for guidance on this topic. The contract will also clearly define any payments staff will receive when they take days off work, for whatever reason.

Confidentiality for employers

This one is primarily in the best interest of employers.

Many job positions give employees access to confidential company information and data. It’s a good idea to include a confidentiality clause in each worker’s employment contract, to protect your business.

With this clause in place, employees are prevented from divulging sensitive or confidential information to others. This can include being released to the media or public, shared on social media, or being used for any other purposes. If an employee was to breach their contract in this way, their employer is able to take legal action against them.

Employment contracts also often include a ‘noncompete clause’ – a clause that prevents the employee from working for any competitors for a certain period (perhaps two or three years) after the employment ends.

As you can see, employment contracts are absolutely essential in the workplace, protecting both employer and employee. Next time you’re asked to sign an employment contract before stepping into a new role, make sure you take the time to read it over and make sure it reflects your understanding of the position, salary and benefits. And employers, ensure you’re protecting your workers, and your business, with clear, well-defined contracts.

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