6 Employee Contract Tips for New Businesses

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6 Employee Contract Tips for New Businesses

Most startups begin with just an idea. Founders spend considerable time perfecting their product before releasing it for commercial production into the market. When the business grows, they hire a team of people to help them with the vision.

When the company begins to take off, employees are hired from friends or family. After a point, even that won’t be sufficient. At that juncture, hiring staff means hiring smartly. For that, the founders are supposed to be well-versed with sound HR practices. If the founders don’t have a lot of experience with hiring and selection, they can make a lot of mistakes when selecting employees.

With our bundle of agreement templates, the hassle of drafting Employee Agreements is removed. You can be sure that you won’t make mistakes in agreements.

So, here are six tips that you need to keep in mind when hiring employees

Identify Job Description

In a startup, it is difficult to identify the exact nature of job role for two main reasons

  • No one has an idea of where the business will go and what activities will be required to take the company there.
  • There isn’t enough funding to hire a professional for every demarcation of job roles

This means that roles can overlap sometimes. If you don’t convey that his job description could be dynamic when you hire an employee, disputes will arise later regarding the job that individuals are supposed to perform. So, make sure that you have identified the job role. This requires understanding what an employee hired for this role is supposed to do.

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Compensation and Benefits

Setting a concise compensation package for every role is essential. This includes annual pay, benefits, bonuses, or any other remuneration that the employees could get. When deciding compensation, you need to remember that this will have to go for as long as the employee stays with you.

Even though the average lifespan of an employee is three years, startups assume that they’ll stay with them for a long time. You need to have enough budget to accommodate this. You can’t commit to huge pays and then run out of budget. It would help if you remembered that the compensation structure should vary by the job role and not by the individual. There could a slight variation based on the negotiations and experience but, otherwise, the structure should remain the same(1).

Time Offs, Leave, Sick Days, and Vacation Policy

Every business must provide employees with a certain number of leaves. These can be of five major types.

  • Statutory Leaves
  • Paid Leaves
  • Sick Leaves
  • Compensatory Leaves
  • Week-offs

Apart from this, there could also be other leaves such as unpaid leave, maternity leave, sabbatical, or things as the startup might determine. There are no standard policies regarding how many leaves should be granted in each plan. Startups are free to choose the number of days they’ll give as time off. The critical thing to remember is the leaves that companies generally provide for the Christmas and new year week in December.

If startups don’t accommodate for that, they’ll end up giving more leaves than is healthy for them. The leave policy, eligibility for leaves, leave encashment policy, and the policies regarding taking leaves should be mentioned clearly. This helps in staying on the same page regarding the leaves that employees can take.

Confidentiality Agreement

Confidentiality Agreement is a necessary clause that you need to remember because it protects the privacy of your proprietary information. This clause helps in protecting sensitive business information and trade secrets. If the non-disclosure and non-compete clauses are not drafted clearly, it could cause significant damage to your business. Your confidentiality agreement should include what information is considered proprietary and how such information should be approached. It also provides what information an employee would have access to and how such information would be processed. It also discusses the non-compete agreement.

The clause should provide what business or activities would constitute direct competition and the duration for which such activities should be avoided. An important part of such non-compete clauses is identifying whether any compensation would be paid to the employee for the period that he is not allowed to work (the dark period).

Termination and Severance

Even though it could be too early to draft these agreements, they are an important part of every employment contract because you can’t rely on an employee to stay for as long as you want him to. Anything could go wrong, which could result in their termination.

The policies and grounds for which you would terminate the employment should be mentioned. In addition to this, the notice period that the employee should serve is an important clause in this. This termination would include the notice that the startup would give the employee and the notice expected from the employee. It will include the mechanism through which such termination would be conveyed, including any severance paid to the employee.