Key Takeaways

A letter of agreement between an employer and an employee defines the work arrangement t between the two parties. The employee letter of agreement explains all the terms and conditions of the employment and includes details like the contact information of the involved parties, the agreed-upon payments and the timeline.

It is essential due to the following reasons:

• A letter of agreement offers clarity regarding employment, job responsibilities, work hours, perks and benefits, termination of employment, etc., and eliminates ambiguity in case of conflict

• It offers legal protection to both the parties involved. In case of a dispute, a letter of agreement can be referred to resolve the dispute.

• It guardrails intellectual property rights and confidentiality, thus protecting the interest of the employer.

What is a Letter of Agreement?

A letter of agreement is a formal document that outlines the terms and conditions of employment between an employer and an employee. This vital document clarifies the work arrangement, ensuring both parties understand their responsibilities and expectations. By defining job roles, work hours, compensation, benefits, and other crucial details, a letter of agreement eliminates ambiguity and provides a reference point in case of disputes.

Some common reasons to write a letter of agreement include:

• Customer contracts
• Non-compete agreements
• Leases
• Employment agreements
• Deposit agreements

Different types of agreement letters

While the essence of the agreement letter is the same, different types can be used depending on the business's needs.

1. Permanent employment contract

A permanent employment contract is a letter of agreement between an employer and an employee valid until you or the employee terminates the contract. The employee can work full-time or part-time and is either salaried or paid hourly.

2. Fixed-term employment contract

This type of employment contract is used in cases of fixed-term employment. The contract must clarify the dates when the employment begins and ends.

3. Independent contractor employment contract

An independent contractor employment contract is used when an employer hires an independent contractor for a specific project. Remember:

• Independent contractors manage their taxes and set their rates and work hours.

• Independent contractors are not on the company payrolls and do not receive any statutory benefits.

• Independent contractors must classify employees correctly. Determine the nature of their employment in the agreements more carefully, as misclassifying employees can be a serious offense, leading to penalties and lawsuits.

How to Write a Letter of Agreement

Writing a letter of agreement is a crucial step in formalizing the employment relationship between an employer and an employee. This document ensures clarity and legal protection for both parties by outlining the terms and conditions of employment. Here’s a detailed guide to help you craft a comprehensive letter of agreement:

1. Start with Basic Information:

• Employer and Employee Details: Include the full names, addresses, and contact information of both the employer and the employee. This ensures clear identification and communication.
• Position and Responsibilities: Clearly state the job title and provide a detailed description of the job responsibilities. This helps the employee understand their role and what is expected of them.

2. Define Employment Terms:

• Start Date: Specify the exact date when the employee is expected to begin work.
• Employment Type: Indicate whether the employment is permanent, fixed-term, or as an independent contractor. For example:
  • Permanent Employment Contract: Valid until either party terminates it.
  • Fixed-Term Employment Contract: Specify the start and end dates of the employment period.
  • Independent Contractor Agreement: Clearly state that the contractor is responsible for their taxes and setting their work hours.

  3. Outline Compensation and Benefits:

  • Salary and Payment Details: Detail the salary structure, including the amount, frequency (e.g., monthly, bi-weekly), and payment method. Include information about bonuses, commissions, and overtime pay if applicable.
  • Benefits: List all benefits the employee will receive, such as health insurance, retirement plans, paid time off, and any other perks. Be specific about the coverage and eligibility.

  4. Include Non-Disclosure and Non-Compete Clauses:

  • Non-Disclosure Agreement (NDA): Protect the company’s confidential information by specifying that the employee cannot share proprietary data outside their scope of work.
  • Non-Compete Clause: Prevent the employee from competing against the company during and for a specified period after their employment.

  5. Address the Probationary Period (if applicable):

  • Duration and Conditions: Specify the length of the probationary period and any conditions that apply during this time, such as performance reviews or assessments.

  6. Set the Code of Conduct and Policies:

  • Workplace Policies: Include the company’s code of conduct, dress code, attendance policies, and other relevant workplace rules. Clearly outline the expectations for behavior and performance.

  7. Explain Termination Conditions:

  • Notice Period: Define the notice period required for either party to terminate the employment. Explain the consequences if the notice period is not adhered to, such as forfeiting severance pay.
  • Termination Conditions: List the various conditions under which the employment can be terminated, such as misconduct, poor performance, or redundancy.

  8. Detail Severance Terms:

  • Severance Pay: Include information about severance pay, the amount, and the conditions under which it will be provided. Specify any conditions for eligibility.

  9. Specify the Applicable Law and Jurisdiction:

  • Legal Framework: Mention the employment laws and jurisdiction that will govern the agreement. This ensures both parties know the legal context of the contract.

  10. Outline Dispute Resolution Procedures:

  • Resolution Process: Describe the process for resolving any disputes that may arise between the employer and the employee. This could include mediation, arbitration, or legal proceedings.

  11. Provide Space for Signatures:

  • Signatures: Ensure there is a section for both parties to sign and date the agreement, making it legally binding.

  Sample Letter of Agreement Template

  [Employer’s Name]
  [Employer’s Address]
  [City, State, ZIP Code]

  [Employee’s Name]
  [Employee’s Address]
  [City, State, ZIP Code]

  Dear [Employee’s Name],

  Subject: Letter of Agreement

  We are pleased to offer you the position of [Job Title] at [Company Name]. This letter outlines the terms and conditions of your employment.

  Position and Responsibilities:
  You will be employed as [Job Title] and will report to [Supervisor’s Name]. Your responsibilities will include [list of key responsibilities].

  Start Date:
  Your employment will commence on [Start Date].

  Compensation and Benefits:

  • Salary: Your starting salary will be [Salary Amount], paid [monthly/bi-weekly] on [payment dates].
  • Benefits: You will be eligible for [list of benefits, e.g., health insurance, retirement plans, paid time off].

  Non-Disclosure Agreement:
  You agree to maintain the confidentiality of all proprietary information, including [examples of proprietary information].

  Non-Compete Clause:
  You agree not to compete with [Company Name] during your employment and for [specified time] after your employment ends.

  Probationary Period:
  Your employment is subject to a probationary period of [duration]. During this time, your performance will be assessed.

  Code of Conduct:
  You are expected to adhere to the company’s code of conduct, including [briefly outline key policies such as dress code, attendance].

  Termination Conditions:
  Either party may terminate this agreement by giving [notice period] notice. Immediate termination may occur under circumstances such as [examples of misconduct or poor performance].

  Severance Terms:
  In case of termination, you will receive severance pay of [amount] under the following conditions [specify conditions].

  Applicable Law and Jurisdiction:
  This agreement is governed by the laws of [State/Country] and falls under the jurisdiction of [specific court or region].

  Dispute Resolution:
  Any disputes arising from this agreement will be resolved through [mediation/arbitration/legal proceedings].

  Signatures:
  By signing below, both parties agree to the terms and conditions outlined in this letter.

  [Employer’s Signature]
  [Employer’s Name]
  [Date]

  [Employee’s Signature]
  [Employee’s Name]
  [Date]

  Employment contract when hiring overseas

  Companies face many compliance challenges when hiring across borders. While onboarding employees from a foreign country and managing their payroll is just one of the challenges, the biggest challenge is creating a compliant letter of employment.

  So how does one hire international employees, then?

  Here’s how Gloroots Can Help

  Creating a letter of agreement is crucial and requires a thorough understanding of labor laws and policies. This is where our expertise can help.

  Gloroots is a SaaS-based Employer of Record solution that enables employers to hire talent beyond their base country. Regarding employment agreements, employers can use our SaaS platform to generate employment contracts and onboard employees in over 170+ countries in a matter of few clicks.

  We ensure that all hiring processes and onboarding are 100% compliant with local labor laws. Employers can also manage global payrolls without partnering with multiple local payroll vendors and pay employees in multiple currencies.

  Want to learn more about it?