8 types of employment contracts HR professionals should know

Primary categories of employment contracts

These are some of the most common types of employment contracts.

Permanent contracts

A permanent or full-time contract is meant for employees who work full-time hours (more than 30 hours per week), are paid a W-2 salary, and receive benefits. This is the most common type of employment contract and is used when you want to hire an employee for an indefinite amount of time.

Part-time contracts

Part-time contracts are for employees who work fewer than 30 hours per week or 130 hours per month. Often used as temporary employment contracts, part-time contracts allow employers to pay an employee on an hourly basis and choose whether or not to offer them benefits. These contracts usually have open dates, as neither party knows when it is expected to end. However,  each reserves the right to terminate it when they’d like.

Fixed-term contracts

As the name implies, a fixed-term contract specifies a set duration for the employment relationship. These are often used for temporary positions or projects with a clear timeline. For instance, a construction company that has a particularly challenging new project may hire an experienced consultant for the duration of the project. While this may be a bit more open-ended, it’s still a fixed term, as when the project is completed,  the contract will end.

Casual contracts

Casual employment contracts provide some sense of security for both the employee and employer by laying out basic expectations, but they do not guarantee fixed hours or time of employment. These employment agreements are less common in the corporate world. You may find them in small towns, especially in businesses that hire friends or family to participate in family-run businesses.

At-will agreements

An at-will agreement states that an employee’s time with the company is indefinite and may be terminated by either party at any time. This is the least secure type of contract. These contracts may be used for events and other types of temporary employment in which flexibility may benefit both parties.

Unique types of employment contracts

Once upon a time, the above contract types accounted for almost all employment arrangements. Today there are a few more employment contracts that you may encounter.

Internship contracts

Internships have become increasingly common for college students to gain working experience. Internship contracts constitute a legal agreement between an employer and an intern that outlines the duties of both parties during the internship. It clarifies expectations regarding compensation (if any), credit, hours, and responsibilities.

Apprenticeship contracts

In skilled trades, masters often take on apprentices. While these arrangements may sometimes be informal, an apprenticeship contract protects both parties. This legally binding agreement outlines the terms and conditions of the apprenticeship, including the duties, hours, and compensation. It also defines how long an apprentice can expect to work before receiving additional responsibilities or any necessary certifications to continue in the field.

Independent contractor agreements

The gig economy is bigger than ever, making independent contractor agreements increasingly common. Contractors are not formal employees of an organization. Rather, they’re hired with a specific contract that defines them as freelancers or contributors to an organization with a very specific purpose. For instance, a freelance writer may sign an independent contractor agreement to contribute to a tech company’s blog.

Key elements of employment contracts

While specifics vary, employment contracts tend to do very similar things. They stipulate the terms of employment. Some of the most important components of an employment contract include:

• Job duties and responsibilities: What an employee is expected to do on a daily basis, including any benchmarks they’re expected to reach and what they can expect from managers and leadership
• Compensation and benefits: A breakdown of an employee’s compensation package, including salary, bonuses, commissions, and benefits like health care, retirement contribution match, and perks. A total rewards package should also be communicated clearly during employee onboarding or employee orientation
• Termination policies: What the employer constitutes as grounds for termination of the contract. While this may not necessarily be in at-will contracts or independent contractor agreements, it should be included in other types of employment contracts
• Confidentiality clauses: Particularly common in independent contractor agreements, confidentiality clauses inform employees about which information they may not share with outside parties. These are often included as an addendum to a contract in the form of a nondisclosure agreement (NDA).
• Noncompete clauses: In competitive industries, many employers restrict employees from going to work with a competitor immediately after working with them. There’s some question about the legality of many noncompete clauses, but they are increasingly common in contracts, especially in independent contractor agreements.

Factors to consider when choosing an employment contract

When figuring out the right type of employment contract for a certain role, there are a number of factors that are wise to consider:

• Type of role: Do you want this employee to come in every day, or will they deliver their best value by only working a few days each week?
• Location: Do you want this employee to be in the office every day or can it be a remote role?
• Compensation: What do you have to pay for this position in order to stay competitive? Do you plan to include equity, bonuses, expense accounts, or other compensation in the offer?
• Termination: How essential is this position for the long term? Do you want the flexibility of being able to end the relationship if things don’t go as planned?
• Project: Is this position project-based or will you need the employee on a repeat or permanent basis?
• Confidentiality: Is it important that whoever is in this role does not share trade secrets or any information learned while in your employ? Noncompetes and NDAs are fairly standard in independent contractor agreements, but some experienced executives will not accept them in their contracts

Generally speaking, if you know you want to keep a position around for a long time, such as a senior leadership position, it’s probably best to go with a typical permanent employment agreement. If you’re only looking for part-time or project-based help, then a different type of contract may better suit your needs.