Hi, are you a business owner wondering whether you actually need a written employment contract or not for an employee?
I'm going to give you three situations where you should have a written employment contract.
In general, you don't need a written employment contract to create an employer-employee relationship under the law; that relationship is created as soon as you hire someone. There are, of course, implied promises in that relationship, such as that you will pay the person if they work for you. Another point to remember is that in many states, employment is at will, which means that an employer can fire somebody for any reason so long as it is not illegal. With those things in mind, you don't need to have a written employment agreement.
However, there are certain circumstances in which I strongly advise my clients to make sure that there is a written agreement. The first of these is when you're hiring a key employee or an executive. Typically, these situations have a much more complicated compensation structure, and often a term required for that employee to stay with the company; you really want to get these in writing. (Unique compensation could be something like a bonus structure or severance payouts.)
Secondly, there are some types of jobs that require that the employees stay on for a certain period of time, such as teachers or lifeguards. Those kinds of provisions, where you really want the employee to be committed to a certain period of time, should be in writing. Additionally, if the payment is not a typical pay structure — if it's not straight hourly or not straight salary, if it's a commission-based or a piecemeal type of payment, that kind of provision really does need to be in writing.
In sum, you don't have to have an employment contract written, but in many circumstances, it is a good idea to have a written agreement.
If you have any questions, please contact us, and please make sure that if you do decide to have a written employment contract, you have a lawyer prepare, or at least review the contract before you provide it to the employee.
KATHERINE L. TAYLOR, ATTORNEY AND CPA
5850 Waterloo Rd