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The importance of employment contracts to attracting good people

On Behalf of | Aug 21, 2019 | Business Formation & Planning |

If you’re starting a business and recruiting highly-skilled, experienced people to help you run it, they’ll likely expect to have a written employment contract. They probably aren’t going to leave a secure, lucrative position with a more-established company to start on this new venture with you with only the promise of a paycheck every two weeks, health insurance and a 401(k).

Each person’s employment contract may look somewhat different. However, many upper-level employees may ask for things like a minimum employment term, bonuses and incentive pay in addition to their base salary, a guaranteed severance and a nice benefits package.

Typically, an employment contract will designate a “base compensation” rate. It may state that the employee’s salary is to be “no less than” a specific amount. It may also designate that the employee is to receive an annual raise — perhaps for a specified minimum rate or amount.

For many executives, incentive or bonus compensation is a key part of their overall income. Paying incentive compensation to employees based on the achievement of individual or overall company goals can be beneficial to employers and employees alike. Upper-level employees often seek to have this incentive pay quantified rather than to leave it at the discretion of the employer.

It should be specified whether an employee can receive part of their bonus if they leave the company during the year or if they have to be employed at year-end (or at the end of the period for which the bonuses are calculated). Another issue to address may be whether an employee is still eligible for any bonuses or incentive pay if they’re terminated.

Of course, as an employer, you’ll likely require many of your employees (and certainly those in managerial and executive positions) to sign nondisclosure and noncompete agreements. You need to protect your company and your ideas.

However, it’s essential to understand the importance of a solid employment contract to your ability to attract the best people to your new business. An experienced attorney can help you draft these documents so that they coincide with your goals and needs.