What is an employment agreement?

An employment agreement is a formal document that outlines the terms and conditions of employment between an employer and an employee. It spells out the specifics of the working relationship—everything from job duties and compensation to benefits, termination policies, confidentiality rules, and more.

While some businesses rely on verbal agreements or informal onboarding, having a written employment agreement adds clarity, protects both parties, and sets the tone for a transparent working relationship. For small business owners, it’s a smart way to minimize legal risks, manage expectations, and build trust from day one.

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How is an employment agreement different from an offer letter?

Although these documents can overlap, they serve different purposes:

• An offer letter is usually a simple, non-binding document that outlines the basic details of a job offer—like position, pay rate, and start date.
  
  
• An employment agreement is more detailed and typically includes legally binding terms related to employment, responsibilities, confidentiality, and termination.
  
  

Some businesses use both: an offer letter to get things rolling, followed by a full employment agreement for long-term hires.

What should an employment agreement include?

Every business is different, but here are the key elements most agreements should cover:

• Job title and duties – A detailed breakdown of the role and responsibilities
  
  
• Compensation – Hourly rate or salary, overtime policies, and how often pay is issued
  
  
• Work schedule – Expected hours, shifts, and days of the week
  
  
• Benefits – Health insurance, PTO, sick leave, retirement plans, and any other perks
  
  
• Probationary period – If applicable, this section defines the length and expectations of the trial period
  
  
• Termination policies – Grounds for termination, notice periods, and any severance arrangements
  
  
• Confidentiality and non-compete clauses – Guidelines for protecting sensitive business information
  
  
• Employment classification – Whether the employee is full-time, part-time, seasonal, or temporary
  
  
• Work location – Whether the job is in-person, remote, or hybrid
  
  

The more clearly you lay things out, the fewer misunderstandings you’ll face later.

Are employment agreements legally required?

In most states, employers aren’t required to provide a written employment agreement—especially in at-will employment states, where either party can terminate the relationship at any time, with or without cause. That said, putting your expectations in writing can still protect your business if disputes arise.

For certain positions, such as executive roles or jobs involving proprietary information, employment agreements are much more common—and sometimes necessary.

Benefits of using employment agreements

A well-written agreement doesn’t just protect you legally. It also:

• Clarifies responsibilities and avoids role confusion
  
  
• Improves onboarding by clearly defining what’s expected
  
  
• Demonstrates professionalism, which builds employee confidence
  
  
• Serves as a reference if performance or conduct becomes an issue later on
  
  
• Provides structure for outlining terms like PTO, sick leave, or policies
  
  

A good employment agreement is more than just paperwork—it’s a foundation for long-term success. By outlining expectations clearly and addressing potential issues up front, you set your business and your team up for a more productive working relationship.

Whether you're hiring your first employee or scaling your staff, employment agreements are a simple step that delivers big peace of mind.

Sign up for Homebase to streamline your hiring, manage paperwork, and build stronger teams from the very start.

What to avoid when writing an employment agreement

• Vague language – Terms like "as needed" or "subject to change" can lead to confusion
  
  
• Inconsistencies with your employee handbook or policies – Everything should align
  
  
• Overly broad non-compete clauses – These are often unenforceable and could create legal headaches
  
  
• Failure to comply with labor laws – Make sure wage, schedule, and termination language comply with local, state, and federal regulations
  
  

Consider having a legal professional review your employment agreement—especially if you're hiring for specialized roles or dealing with sensitive business information.

How to introduce and manage employment agreements 

1. Present it during hiring – Ideally after the offer has been accepted but before the employee’s first day
   
   
2. Review it together – Walk through the key sections and answer any questions
   
   
3. Collect digital signatures – Make it easy to sign and store online
   
   
4. Revisit periodically – Update agreements as roles evolve or laws change

How Homebase helps with employment agreements

Digital tools can make managing agreements easier. With Homebase, you can upload documents, track onboarding progress, and store signed contracts securely.

Try Homebase Hiring & Onboarding to keep employment agreements organized, consistent, and easy to manage.

Related articles

• At-Will Employment: What Does it Mean?
• Minor Employment Laws: What To Consider When Employing Minors
• Employment Contracts: What Small Businesses Need To Know

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