Employment contract Basics: What Every Small Business Owner Must Know

The Employment Contract Reality Check

Hiring your first employee is exciting, but it's also legally complex. 43% of small businesses face employment-related legal issues, and many stem from unclear or missing employment agreements. Whether you're hiring full-time employees, part-time workers, or contractors, understanding employment contracts is crucial for protecting your business.

Here's everything small business owners need to know about employment contracts, including what to include, what to avoid, and when to get professional help.

Employee vs. Independent Contractor: The Critical Distinction

Before diving into contracts, you need to understand the difference between employees and independent contractors. This isn't just semantics - it affects taxes, benefits, liability, and legal obligations.

Employees:
• You control how, when, and where they work
• You provide tools and equipment
• They work primarily for your business
• You withhold taxes and provide benefits
• You're liable for their actions during work

Independent Contractors:
• They control their own work methods
• They use their own tools and equipment
• They work for multiple clients
• They handle their own taxes
• Limited liability for their actions

Misclassifying workers can result in significant penalties, back taxes, and legal issues.

Essential Elements of Employment Contracts

Job Title and Description

Be specific about the role, responsibilities, and reporting structure. This prevents confusion and scope creep.

"Position: Marketing Coordinator reporting to Marketing Director. Responsibilities include social media management, content creation, and campaign coordination."

Compensation and Benefits

Clearly outline all compensation including:

• Base salary or hourly wage
• Overtime policies
• Bonus structures
• Benefits (health insurance, retirement, vacation)
• Expense reimbursement policies

Work Schedule and Location

Define expected work hours, remote work policies, and flexibility arrangements.

"Standard work hours: 9 AM - 5 PM, Monday through Friday. Remote work permitted up to 2 days per week with supervisor approval."

Probationary Period

Many employers include a probationary period during which employment can be terminated more easily.

"Employment is subject to a 90-day probationary period during which either party may terminate employment with one week's notice."

Confidentiality and Non-Disclosure

Protect your business information with clear confidentiality clauses.

"Employee agrees to maintain confidentiality of all proprietary business information including customer lists, pricing strategies, and business plans."

Non-Compete and Non-Solicitation

These clauses prevent employees from competing with you or stealing customers/employees after they leave. However, enforceability varies significantly by state.

Intellectual Property

Clarify who owns work created during employment.

"All work products, inventions, and intellectual property created during employment belong to the company."

Termination Procedures

Define how employment can end, including notice requirements and final pay procedures.

State-Specific Employment Law Considerations

Employment law varies significantly by state. Key areas of variation include:

Minimum Wage: Federal minimum wage is $7.25/hour, but many states have higher requirements.

Overtime Rules: Most states follow federal overtime rules, but some have additional requirements.

Break and Meal Periods: Requirements vary by state.

Final Pay Requirements: How quickly you must pay terminated employees varies by state.

Non-Compete Enforceability: Some states don't enforce non-compete agreements at all.

The SureThing Solution for Employment Agreements

Creating compliant employment agreements doesn't require expensive legal fees for most small business situations. SureThing offers:

• State-specific employment agreement templates
• Guidance on essential clauses and legal requirements
• Electronic signature capabilities for quick onboarding
• Secure storage of employment documents
• Updates when employment laws change

For straightforward employment situations, SureThing provides legally compliant agreements that protect both employer and employee.

Common Employment Contract Mistakes

Using Generic Templates: Employment law varies by state. A template that works in California might not be legal in Texas.

Overly Broad Non-Compete Clauses: Courts increasingly refuse to enforce unreasonable non-compete agreements.

Forgetting About Overtime: Make sure your salary employees actually qualify for overtime exemptions.

Unclear Job Descriptions: Vague job descriptions lead to disputes about responsibilities and performance.

Ignoring Probationary Periods: If you include a probationary period, make sure you understand its legal implications in your state.

When to Get Professional Legal Help

While many employment situations can be handled with templates and platforms like SureThing, some scenarios require professional legal advice:

• Executive-level positions with complex compensation
• Employees with access to significant trade secrets
• Multi-state operations
• Highly regulated industries
• When employees present their own contract terms
• Union-related employment issues

The Bottom Line

Employment contracts are essential tools for protecting your business and creating clear expectations with workers. They don't have to be complex or expensive, but they do need to be legally compliant and appropriate for your specific situation.

The key is understanding the basics of employment law, using appropriate templates for your state, and knowing when to seek professional help for complex situations.

Ready to create professional employment agreements? Start with SureThing for state-compliant employment contracts that protect your business and clarify expectations with your team.