Employment Contract / Joining Letter / Offer Letter

What is the difference between the documents?

People are frequently confused between these three documents relating to the recruitment of employees. What is the difference between these 3 documents? Simply put, an offer letter is a letter from the employer offering the job to the candidate. A joining letter is a letter from the candidate to the employer accepting the job offer. An employment contract or employment agreement is an agreement between the employer and the candidate setting out the terms of employment. The employment contract is usually signed after the acceptance of the offer. Although sometimes it is enclosed by the employer with the offer letter, then signed and returned by the employee with a joining letter. There are joining letter formats and employment contract templates that you can download from DocPro.

A. What is an offer letter?

 An offer letter is a document sent by the employer to the candidate setting out details of the job to confirm the recruitment. An offer letter is not an employment contract, it merely summarises the opportunities that the employer is offering to the candidate, leaving the detailed terms of employment to the contract. It is a written confirmation of the nature job so that both employers and the candidate understand and agree on the conditions and expectations of the job.

An offer letter can be formal or informal, legally binding or non-binding. The offer letter would contain basic job details such as job descriptions, wages, benefits, paid leave, and reporting structure. It is of fundamental importance for the employer to establish its intention for the offer letter. The offer letter constitutes an offer under contract law, and once accepted by the candidate, would inadvertently form a legally binding contract.

Unless the offer letter is properly structured, the employer may be required to comply with all the terms as if it is an employment contract, even though the employer's intention is simply to send an offer letter. This may be very expensive for the employer if the candidate is later found not to be suitable (e.g. failing a background test).

As such, it is important for the offer letter to be subject to certain conditions before it is made legally binding. For example, the offer may depend on the candidate completing additional steps, such as passing a background check or an exam, obtaining certain qualifications, or undergoing a pre-employment health test.

Things to include in an offer letter:

The offer letter confirms the details of the recruitment, such as:

• job description
• job title
• reporting structure
• starting date
• wage
• key benefits
• condition of the offer 
• confirmation of acceptance

B. What is a Joining Letter

Candidates can choose to accept the job offer and sign and return the offer letter as formally accepting the position. Alternately, the candidate may provide a joining letter to the employer stating his / her acceptance of the job and confirming the appointment. If the job does not meet the expected salary, the candidate may wish to include a counter-offer in the joining letter.

The joining letter format can vary. A joining letter can also mean the standard letter provided by the employer for the employee on the first day of employment for the purpose of induction, containing all the details of the job profile, including treatment and company terms and conditions.

C. What is an employment contract? 

An employment contract or employment agreement is a signed document that clearly sets out the terms and conditions of employment. It is usually executed after the candidate has indicated his / her acceptance of the job offer. The purpose of an employment contract is to establish a binding commitment and an employment relationship between the employee and the employer, who are the contracting parties.

Unlike an offer letter, instead of simply providing a summary covering the basic terms of employment, a contract of employment would include more specific and detailed terms of employment and is intended to be legally binding. The provision of employment terms in writing to the employee by the employer may also be required by law.

Who will need to sign an employment contract?

Most employers would require all permanent full-time employees, including administrative, professional, and executive employees to sign employment contracts. Even in jurisdictions where employment contracts are not mandated by law, they are recommended as they can protect both the employer and the employee.

Part-time or hourly workers may not have written employment contracts, but terms of employment might be spelt out in an employee handbook or other company policies and procedures. In particular, it is important to set out the duties of the worker and clarify the employment relationship with the employer (i.e. whether the worker constitutes an “employee” and is entitled to certain employee benefits).

In relation to a contract with an independent contractor, it is important to state in the terms and conditions that the contractor does not constitute an employee of the company. However, it may still contain many of the same items as per an employment contract. You can refer to DocPro's employment contract templates as a starting point.

Things to include in an employment contract:

• Identification of the employer and employee with addresses and IDs.
• Effective Date of the agreement and the Start Date.
• Type of employment. An employee may be a full-time employee or a part-time employee.
• Probationary period, if necessary.
• Services to be provided by the employee.
• Duties of the employee.
• Working hours and days of work.
• Period of employment.
• Wages to be paid on an hourly, daily, weekly or monthly basis. Compensation details, such as compensation paid on a commission basis with minimum wage, can also be included. If the employee is expected to work additional hours, calculation of overtime wages should also be included.
• Benefits that are provided to the employee. These include leaves, holidays, medical benefits, insurance (e.g. health insurance and life insurance), pensions, bonus payments (e.g. annual bonuses), additional benefits (e.g. discretionary benefits), etc.
• Termination of employment. It describes the circumstances under which either party may terminate the relationship (i.e. the grounds for termination), and the notice period.
• Other policies. Incorporation of other terms into the employment contract such as employee handbooks, employment manual or internal policies affecting employees, privacy policy, and claim of reasonable expenses made for the company.
• Restrictive Covenants. Some employment contracts may include restrictive covenants to protect the employer. Depending on how they are worded, may or may not be enforceable:
• Non-compete clause - restricting the employee's competition with the employer during or after termination.
• Non-solicitation clause - the employee agrees not to solicit the employer's customers or other employees.
• Confidentiality clause - the employee agrees to keep trade secrets, and any proprietary information confidential.
• Applicable law and dispute resolution. The applicable law is usually the law of the place of employment. Disputes could be resolved in court, by arbitration, mediation, or a certain statutory body such as the Labour Tribunal.