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10 Top Essentials Of A Great Employment Contract For Startups

10 Top Essentials Of A Great Employment Contract For Startups

I am sure that you already know about an employment contract. Either side of the business i.e. whether you are an employer or an employee, this term forms the first step of building a team.
I understand it is a scary thing for a startup when it comes to drafting contracts or getting contracts drafted. As per my experience of registering startup private limited companies, the first few things that come in mind are:

  • Whether we have included all the possible clauses in the contract?
  • Is our contract binding enough?
  • Is it complete?
  • Can it be enforced at the time of need?

Ok, we cannot discuss all the problems faced while drafting an employment contract. But we surely can discuss the most essential clauses of an employment contract. I am not including the clauses of name of employee, company name, address, date of contracts for obvious reasons. Don’t ask me why 😉

Let me tell you first of all that I have compiled one for you. You can download a sample format of a good employment agreement here. It is free of cost. You can also Real time edit the contract to customize the name, position, salaries etc. in our live editor application. So as per our discussion here are the top 10 Essentials of a great employment contract for startups:

Position

Many a times I have seen employment contracts without the mention of the position at which the employee is hired. Sounds really strange to me! Any Professional company will always have the system of reporting to superiors and taking reports from sub-ordinates. Position signifies the essence of being a part of a team in the organization.

Employment Period

This clause is mainly for the job security of an employee working in your startup. An employment contract must mention the employment period for an employee. It should mention the period for probation as well. This needs to be in writing so that an employee knows when he / she will become a permanent member of the startup.

Effective performance of Duties clause

Yes, one needs to know his/her job profile for sure. An employee needs to be sure about his duties and responsibilities; this in turn helps in effective performance as each employee knows what is expected out of his association with the startup and is accountable for the work he/she performs.

Compensation / Remuneration

The compensation for the services needs to be mentioned in the employment agreement. The compensation is normally provided as a Cost to company (CTC), it has components like Basic salary, House Rent Allowance, medical allowance, transport allowance etc. It could be on an annual basis or sometimes can also be on monthly basis.

Allowable Leaves

Each startup needs to mention the number of paid holidays that an employee is allowed to take during the year. Some make provision for sick leaves while others may include it in the lump sum leaves. These are generally over and above the Government holidays. The leaves that remain unused can either be encashed or just lapse depending upon the organisation’s will. Further, in certain cases the startup can put a limit on unpaid leaves as well.

Competing Business

Ever imagined an employee comes into your organization, understands the concept, understands the working, understands the LOOPHOLES and finally leaves to start on his own or join a competitor. What a pity! Painful, isnt’t it? All the effort in training the employee goes in vain. Plus your company’s secrets ☹

This is a reservation clause which bars an employee for a certain period of time to start on his own or from joining a competing business.

Confidentiality

I slightly touched upon the topic of secrecy in the point above. Every company has nurtured its own method of working. Systems that are goal oriented to achieve targets, Theme or concept, Customer Databases, Vendor Databases, Employee Databases and what not. Confidentiality clause is a very important clause for any startup in India and needs to be added to an employment agreement.

Remedies

Now that you have taken precautions while drafting the employment agreement, what if an employee does not abide to the terms and intentionally or unintentionally breaks rules. This clause is for remedies for you. This also includes an employee’s remedies in case he/she is aggrieved.

Amendment & Termination

Over time you may notice that the job description, period of employment, compensation, leaves or any other clause may need amendment. An amendment clause allows you to do so. Termination of the services of an employee can also form part of this clause. You may have a separate clause for termination as well.

Non-assignment

There could be circumstances where an employee’s creditor asks for settlement of his dues against his salary from you. This clause is to avoid such circumstances.

I hope you have liked this article; I always like listening from you so please post your comments in the comment box below. If you have a query let me know. Till then take good care!

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

Author

Ricky

Community

Ricky is the founder of online portal www.registrationsindia.com that helps companies and startups in their Business Registrations, Taxation & Compliance needs. The portal offers services like private limited company registration, limited liability partnership registration, trademark registration etc.

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