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Do you need a contract for every employee you hire?

On Behalf of | Mar 10, 2022 | business law

As a small business owner, you want to protect all the work and time you invested in your venture, and contracts help you accomplish that goal. Must you draw up a contract for every employee you hire?

Chron explores the definition, pros, cons and alternatives to business agreements. Before drawing a document you and your business may not need, understand how and when to draft contracts.

Understanding contracts

Rather than traditional employment contracts, small business owners may enter verbal agreements or provide offer letters for new hires. Small business owners need not make legal promises to their staff, which means they may not always need an employment contract. It makes sense to draft a contract when hiring someone with access to company secrets or someone with access to rare industry knowledge.

Pros and cons

One great thing about standard employment contracts is they help small business owners keep their top staff while giving employees job security. Entrepreneurs who do not want to risk expensive legal fees triggered by disputes may use employment contracts to put their terms in writing.

One downside of contracts is entities must give employees a reason before terminating them. If a small company wants to change an agreement and the employee refuses, the company may need to offer more compensation before the employee signs the new agreement.

Options

Small business owners who hire friends or family may enter a verbal agreement rather than use a traditional employment agreement. Growing or changing companies that want to leave room for shifting hiring terms may provide new employees with offer letters that clarify the company’s option to change terms when they see fit.

As a small business grows, so too does its staff performance expectations. Knowing what kind of agreement to make with employees keeps everyone on the same page.