Employment Contracts Importance Benefits and 3 Types of Employment Contracts

Employment Contract

Employment Contract, starting a business and hiring an employee is necessary for the growth of your business. And having an employment contract provides job security to the employee and covers the employer against any risk that may take place because of the employee. This does not mean that every employee may impose risk to your company; it simply means that the employer and the employee are aware of their roles and responsibilities. By entering into this contract, the employee is required to comply with the rules and regulations as set by the company. 

Handing over an employment contract to the employee gives security to them as they believe your company to be valid and professional, thereby making them invest their time and true skills.

What are the 3 types of employment contracts?

There are 3 types of contracts there generally employers go through with.

Types of Employment Contracts

  1. Full-time contract
  2. Part-time contract
  3. Zero Hour Contract
Employment Contract
Employment Contract

1. Full-time contract:

This contract is entered into with an employee who will work as a full-time employee and get all the benefits that a permanent employee gets. They receive bonuses and benefits from the company. 

2. Part-time contract:

This contract is made between employees who work half-days and have fewer working hours in the company than full-time employees. They do not receive benefits like full-time employees.

3. Zero Hour Contract:

In such employment, the employee agrees to only work when there is work available. The employee agrees to work only during the hours necessary to complete the assigned work. They are paid only when they fulfil the work that is allotted to them.

These days, a zero-hour contract is chosen by various companies to select those employees that minimize the costs incurred by investing in full-time/ permanent employees. Such a contract is helpful when there is an overflow of any work which is unpredictable to the company and seems unmanageable for them to complete it within the required duration. In these circumstances, the employer of the company decides to engage with freelancers. The employees under zero-hour contracts are given the liberty to work for different employers.

Employment Agreement Format

Why is an Employment Contract beneficial for the employer?

 The employment contract clearly defines duties and benefits towards both the employer and the employee. Being an employee, if you wish to enter into an employment contract, it is necessary for you to understand why an employment contract is necessary for running a business smoothly. Not following the right regulations to govern employment can take you to court for any risk which is not covered by you in the employment contract. We have listed the reasons why an employment contract is required below –

1.The employer and the employee’s rights are protected:

The Employer may add clauses in the contract which help him mitigate any risk that may arise later. This involves non-compete clauses, confidentiality clauses, and other relevant clauses to prevent the employee from disclosing.

2. Retaining top employees

Employees are often confused when it comes to changing the present working space to seek more exposure as they may get multiple offers based on their skills. By getting into an employment contract, you retain employees with good talent as it avoids the employees resigning from the company, making your company stand out from competitors.

3. Legally Binding

An employment contract becomes legally binding between the employer and the employee, and this compels both parties to fulfil the responsibilities set forth in the contract.

4. Reduces the risk of the employer’s investment for the employee

Every organization has to train its employees in the beginning, but this training is not just about time investment but monetary investment as well. The employment contract compels the employee to stay in the company as long as possible, thereby increasing the capacity of the employer’s investment for the employee.

5. Keeping confidentiality in the Company

Every Company has secretive documents which involve customer listings, pricing details, and other necessary data which no employer would want it to be disclosed to any third party outside the Company. The confidentiality clause in the contract, prevents the employee from disclosing any confidential information to a third party, as this would attract legal implications since it would be a breach of contract.  If no appropriate steps are taken by you, then all the relevant data which makes you stand out in the market will be handed over to your competitor.

6. Protection of the invention created by the Employee

An Employee working in your company may create products which are unique and creative. The ownership of this invention can only be transferred to the company when it is mutually agreed between both parties regarding this in the Employment contract. This means that whatever invention the employee makes during the course of his employment with the company, the ownership of such invention will be transferred to the Company.

7. Non-Compete

To avoid the employer joining your competitor’s company after the period of termination from your company, the employment contract includes a non-compete clause. This clause limits the place of employment of the employees once they end up leaving your company.


Using a normal template which you may come across online is not the right template to be proceed with. As, such templates do not necessarily involve all the essential clauses which must be present since all the clauses in the contract must be drafted based on the company and work allotment which will be provided by you the Employee. Hence, it is better legally to approach a Contract/Corporate Lawyer who would look into every necessary aspect before drafting an employment contract. We at VSK & CO Advocates and Legal Consultants draft commercial, corporate, IPR contracts from scratch to make sure that you do not face any legal consequence later.

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