Employment Contract – Do’s and Don’ts for Startups

By Team YS|1st Nov 2011
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Lawyers at VakilSearch show you the way

An employment contract is great news for a Startup – It means you have finally broken the shackles of startup-dom and moved into that place where you are bringing people onboard to help you run your business.

But before you hire, you must be sure that the agreement you are entering into is safe and will protect you and also be fair to your employee.

Every employment contract must be specially made for the specific employee – most businesses fall into the trap of having a single agreement, slightly modified for each new employee. While this is alright for a Company like Microsoft which decides the terms of the employment unilaterally, it is not good for a young company with less than 50 employees to have standard format agreements.

Why? Because every employee in the initial stages has to be integrated into the company perfectly – if not, you will find your business being torn asunder by employees who cannot work together or work to achieve your organization’s goals.

How do you do this? Start by making your agreement comprehensive – Include details about the period of employment, the probation period, the salary (including how often it will be paid), the do’s and don’ts for the employee and for you as the employer and anything else that you feel should be brought into that specific agreement.

Let’s very quickly discuss each of these elements:

  1. Period of employment: An employment contract can be for a specific period or you can enter into an agreement with no specific end period. Normally, businesses don’t put an end date to an employment. People hope that an employee will work with the company forever and grow with the Company. Having said that, there may well be instances when you and the employee agree that he will be with your Company for a period of [for example] only three years, after which he will leave or return to his previous company. In the case of employees on a sabbatical, this is a common clause which they ask to be included in their employment contract. So you can add an end date to the employment contract if you want to bring an employee in for a limited period and if he is agreeable to such an arrangement. You can always extend the agreement beyond that period if the work is unfinished or if you mutually decide that the employee must stay.
  2. Probation: Usually in the case of start-ups and small businesses, a probation is a must. A small business cannot afford acrimony and friction, and a probation period is the best way to see if you can work together. Include a probation period of six weeks. Although businesses also have a one month probation at times, choose a one month period only if you already know the person coming in and are fairly confident that things are going to work out. Else take the luxury of a longer probation period to decide. It is understood that at the end of the probation period, if things do not work out ok, you and the employee can part ways with no obligations on either side – but this should be used as a shield and not as a sword.
  3. Salary: The trickiest part: You can either pay salary every month or every week, although at higher positions, paying the salary every month is more common. Once the negotiations on the salary are over, specify the salary component very clearly in the agreement. Most agreements will also include a component on other benefits, such as insurance, non-monetary benefits like lunch, dinner, pick-up and drop, a holiday allowance etc. Make sure that your agreement covers all these components, and at the cost of repetition, this has to be specially dealt with for each employee, since every employee may want to work in different circumstances (some may not want a pick-up and drop, and may want that amount to be given to them as a holiday allowance instead)

Although these three points cover some of the key issues relating to employment contracts, there are many issues that we have not covered and that you must look at while preparing your employment contract. These include the working hours for the employee, whether they will be fixed or flexible and also how many holidays the employee can take.

About VakilSearch

VakilSearch is India’s leading online legal services provider for businesses and individuals. As the official partner of the Confederation of Indian Industry (CII) and knowledge contributor to Sulekha.com, the Hindu Business Line, Entrepreneur Magazine and the All India Rubber Association, VakilSearch reaches out to thousands of businesses, entrepreneurs and individuals on a regular basis. So when you visit vakilsearch.com, you can be assured of quality legal guidance and comprehensive documentation for your business and personal needs, at affordable prices.

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