Do you want to know the steps to hire someone? The first step is to know the types of employment contracts. Understanding them and their implications safeguards organizations from potential risks. In this guide, I will dissect the nuances of employment contracts so you can make informed decisions.
Types of Employment Contracts
What is the most formal form of work agreement? Written contracts. Oral or implied contracts do not hold enough significance.
Employment contracts are divided depending on their legal status, duration, and nature of work. Each type has a unique legal standing and purpose and is a set of guidelines for when and how work happens.
The prevalence of remote work has significantly increased over recent years. A survey by FlexJobs and Global Workplace Analytics found that remote work has grown by 173% since 2005, with 4.3 million employees (3.2% of the workforce) working remotely before the pandemic.
Permanent Employment Contract
The most common type of employment contract in the U.S. is a permanent contract. It is used for continuous and ongoing employment unless one (employee or employer) chooses to end the relationship. Since it is an at-will contract, either party can end the employment without notice for any reason.
Permanent employment contracts are for all – salaried, full-time, part-time, or hourly employees and include Job Information, Terms and Conditions of Employment, Compensation, Benefits and Perks, Leave Policies, Agreements and Clauses, and Termination.
Fixed-Term Employment Contract
It has a fixed end date or an end date aligned with the completion of a project. So, it may include the duration of employment. Generally, this contract has seasonal business requirements covering specific project work or parental leave.
An employee with a fixed-term contract typically has similar conditions, policies, and wages as permanent employees. Additionally, an organization can extend, renew, or end the contract upon its expiry.
Part-Time Employment Contract
It is a permanent or fixed-term contract for employees working fewer hours a week than a full-time employee. Usually, for an employee to be considered part-time, most companies assign less than 30 work hours per week.
Temporary Employment Contract
This contract type is flexible and perfect for filling a role. A short-term contract is about a year long in the U.S. with a specific end date.
It differs from fixed-term contracts because of its short-term nature. While both have a duration limit, a fixed-term contract can be long-term.
Temporary employment contracts need no notice on either side to end the relationship. An employee bound by this contract is a temporary employee who does not get benefits as part of the work agreement.
When you create this contract, you must include the following:
- It is a temporary contract
- The length of the employment period
- The expected work
Additionally, an organization may add a temp-to-hire statement in case they want to change the temporary worker to a permanent employee.
According to the Freelancers Union, freelancers contribute $1.2 trillion annually to the U.S. economy, representing about 5.8% of the GDP.
1099 Employment Contract
This contract is a signed legal agreement between the company and the independent contractor hired for work in the company. This individual is not an employee. You may know the contract by other names, such as:
- Independent Contractor Agreement
- 1099 Agreement
- Freelance Employment Contract (applies specifically to freelancers)
This contract is different from other employment contracts; it is only a work agreement because the contractor is not the company’s employee. Hence, the contractor controls how they work and has no hour limits within the agreement. 1099 workers include:
- Self-Employed Workers
- Sole Proprietors
- Consultants
- Freelancers
- Gig Workers
When creating the 1099 contract, ensure describing Ownership and Scope of Work, Payment, Timelines, Confidentiality, Conditions and Terms of Agreement, Liability and Insurance, Termination Notice, and the Non-Employee Relationship.
Upwork’s Freelancing in America study found that 59 million Americans freelanced in 2020, representing 36% of the total U.S. workforce.
Internship Contract
It is a mutually beneficial relationship between an employer and an intern where the intern (generally a student) works to get training, skills, and exposure. An internship is short-term, paid or unpaid, and provides learning experiences.
While an internship contract has a specific duration (start and end dates), it conceptually differs from other short-term employment contracts, such as fixed-term or temporary agreements, because it is designed to help the intern gain skills and knowledge during the engagement period.
It is also different from fixed-term contracts because an intern can not earn benefits if they work for no more than 120 days.
Casual Employment Contract
In the U.S., it is perhaps one of the least common forms of employment contract because few people work as casual workers, an as-needed labor. You may also call this work arrangement flexible work.
This contract is an employment contract that does not guarantee the intention or hours of full-time employment. Also, the employee is not compelled to accept the assigned work.
However, the casual employment contract is unlike a part-time employment contract because employees are not regular employees and are not entitled to associated benefits. The employer hires and pays casual employees directly.
Remote Work Agreement
Remote work became increasingly popular during the COVID-19 pandemic. With it, remote work agreements became a common employment contract.
It is a form of flexible work agreement documenting an employee’s right to work outside an employer’s workplace. The employee need not live locally and is not expected to work onsite.
- Job Details
- Expense Policies
- Compensation or Benefit Changes
- Expected Working Hours
- Internet or Connectivity Provisions
- Technology and Equipment Information
- Stipulations: Traveling or Out of Country
Add these above-mentioned details to the work agreement. If you have any questions, please contact a law firm in Los Angeles to understand the legalities.
Apprentice Agreement
Apprenticeship merges classroom learning with on-the-job training and is designed to help an employee develop their skills in a specific profession with hands-on learning.
The U.S. Department of Labor (DOL) regulates apprenticeship agreements. It is another written contract between the employer/sponsor and apprentice outlining the T&Cs of the program, and it typically has a duration of 1-6 years.
Unlike internships, an apprenticeship agreement has specific regulations and is formally registered with the DOL. Since it is regulated, compliance is necessary in apprenticeship programs.
Your company’s HR must add the program’s details, wage/salary and criteria for increases, T&Cs, contact information, working hours, and the trade specific to the apprenticeship.
Signing-Off
The best option for you to understand the types of contracts is to consult with an employment lawyer in Los Angeles. While you or your HR may be able to do most of the work, legalities are a different thing. You can avoid potential legal risks in the future by understanding every angle and building contracts without any loopholes.
