What is in a contract of employment? 15 key terms

A contract of employment is the agreement that defines the working relationship between an employer and an employee. Some of its terms are there because the law requires them in writing, others because they protect the business. Here is what belongs in one, and what is mandatory where.

Contract of employment

A legally binding agreement under which an employee works for an employer in return for pay. It can be written, oral or implied by conduct, and it includes terms implied by law (such as minimum wage and paid holiday) even where the document says nothing about them. “Employment contract” and “employment agreement” mean the same thing.

Employment contract

An employment contract, also called an employment agreement, is the legally binding agreement that sets out the terms of a job: duties, place of work, hours, pay, leave, confidentiality, IP and how the employment ends.

This template works for permanent and fixed-term employees in the US, UK and Europe. You choose the governing law, whether the job is permanent or fixed-term, remote work, overtime and bonus rules, and whether US at-will employment applies. It includes a probation period, notice periods, protected reporting rights and optional post-employment restrictions.

contract Use template

Checklist: what is on an employment contract

The “Required?” column refers to the UK written statement and the German Nachweisgesetz. In the US, almost all of these terms are optional at federal level, though some states require written pay notices.

1. Parties and start date

Name the employer by its full legal entity name, not its brand, and the employee by their full name. State the commencement date. If the contract is signed on one day and takes effect on another, say so explicitly.

2. Contract type and duration

Say in the title and the first clause what kind of contract it is: permanent, fixed-term, part-time, or an executive employment contract. A freelancer or contractor relationship belongs in a separate independent contractor agreement, because labelling a worker wrongly has tax and employment-law consequences. The broader overview of types of contracts explains the differences.

In Germany, a fixed term is only valid if it is agreed in writing before the job starts (§ 14(4) TzBfG). Without that, the contract is treated as permanent.

3. Job title and duties

Give the job title and a summary of the main responsibilities. Keep it broad enough that you do not need a new contract every time the role shifts, and put a detailed job description in an appendix. Name the role the employee reports to.

4. Place of work

State the address, or whether the job is remote or hybrid. For hybrid roles, say how many days are in the office. For remote roles, state who provides and maintains the equipment, and whether the employee may work from another country (in the UK, work abroad for more than a month has to be covered in the written statement).

5. Pay

State the gross salary or hourly rate, the pay interval (monthly, biweekly), the payment method, and how overtime is paid. The amount must match the offer letter. In Germany, each pay component (base pay, overtime, bonuses, allowances) has to be listed separately with its due date.

6. Working hours

Normal weekly hours, the days of the week, whether hours can vary and how, overtime rules, breaks and any shift pattern. Stay within the legal limits, such as the 48-hour average week under the UK Working Time Regulations 1998 (employees can opt out) or the 8 to 10-hour day under the German Working Hours Act (ArbZG). See the working hours clause for sample wording.

7. Benefits and bonuses

List any bonus scheme, commission, pension, health insurance or equity, and the expense policy. Be precise about whether a bonus is guaranteed or discretionary, because vague bonus wording is a frequent source of claims. Common structures include the performance bonus, AIP bonus and EBITDA bonus.

8. Holidays and leave

The number of paid holidays, how public holidays are handled, and the rules for booking leave and carrying it over. The legal minimum is 5.6 weeks a year in the UK (28 days for a five-day week, which may include bank holidays) and 24 working days on a six-day week in Germany (§ 3 BUrlG), which equals 20 days on a five-day week. The US has no federal minimum.

9. Sick leave and sick pay

How to report sickness, when a doctor’s note is needed, and any company sick pay above the statutory minimum. See the sick leave clause.

10. Probation period

The length of the probation period and what happens at the end. In Germany, probation can last up to six months, with a two-week notice period during it (§ 622(3) BGB). See the probationary period clause.

11. Notice and termination

Notice periods for both sides, grounds for summary dismissal, and any payment in lieu of notice or garden leave. Statutory minimums apply in the UK and Germany; contractual notice can be longer but not shorter. In the US, at-will employment means either side can usually end the relationship at any time without notice, and an at-will employment clause says so explicitly. See also termination of employment.

12. Training

Mandatory training, whether it is paid and done in working hours, and whether the employee must repay training costs if they leave early. Repayment clauses need to be reasonable and usually scale down over time.

13. Confidentiality and intellectual property

A confidentiality clause protects business information during and after employment, and an intellectual property clause confirms that work created on the job belongs to the employer. In many countries the employer owns most work created in the course of employment by law, but a clear clause avoids disputes over inventions and side projects. For more sensitive roles, add a separate NDA.

14. Restrictive covenants

Non-compete, non-solicitation and non-dealing clauses restrict what an employee can do after leaving. They are heavily regulated:

• US: enforceability depends on the state. California bans most employee non-competes.
• UK: courts only enforce them if they protect a legitimate business interest and go no further than necessary.
• Germany: a post-employment non-compete is only binding if it is in writing, lasts no more than two years and the employer pays at least half of the employee’s last pay for its duration (§§ 74, 74a HGB).

A non-competition agreement template is a good starting point, but check the rules where the employee works.

15. Policies, governing law and signatures

Reference the employee handbook, the disciplinary and grievance procedures, and policies such as anti-discrimination, data protection and IT use, without copying them into the contract. Add a governing law clause, a severability clause and a signature block. Electronic signatures are valid for employment contracts in most countries, and a counterparts and electronic signatures clause removes any doubt.

What the law requires: UK, US and Germany

UK: the written statement of particulars

Under section 1 of the Employment Rights Act 1996, as amended from 6 April 2020, every employee and worker is entitled to a written statement of the main terms on or before their first day. Before that change, employers had two months and workers were not covered.

The day-one statement must include, among other things: the names of the parties, the start date, job title or description, pay and pay intervals, hours and the days of the week, whether hours can vary, holiday entitlement, sick pay and other paid leave, other benefits, probation, place of work, notice periods, the end date of a fixed-term contract, and training requirements. Information on pensions, collective agreements, other training and disciplinary and grievance procedures can follow within two months.

The written statement is not the contract itself, but in practice most employers give one document that does both jobs.

US: at-will employment and offer letters

No federal law requires a written employment contract. Most US jobs are at will: either side can end the relationship at any time, for any lawful reason, with or without notice. Montana is the exception, where the Wrongful Discharge from Employment Act requires good cause once the probation period is over.

Instead of a full contract, most US employers send an offer letter covering the job, the pay and the start date, plus a statement that employment is at will. Full employment agreements are common for executives, sales roles with commission, and employees bound by non-competes or IP assignments.

Some states require written information at hire anyway. California (Labor Code § 2810.5) and New York (Labor Law § 195) require a written notice of the pay rate and payday.

Germany: the Nachweisgesetz

The Nachweisgesetz was tightened on 1 August 2022 to implement the EU Directive on transparent and predictable working conditions (2019/1152). Employers must document the essential terms in a staged sequence:

• By the first working day: names and addresses of the parties, pay and its components, working hours, breaks and shift arrangements
• By the seventh calendar day: start date, end date of a fixed term, place of work, job description, probation period, overtime and on-call arrangements
• Within one month: holidays, training entitlement, company pension, the termination procedure (including the three-week deadline to challenge a dismissal in court), and applicable collective agreements

Since 1 January 2025, the employer can provide this in text form, for example as a PDF by email, provided the employee can store and print it and the employer asks for confirmation of receipt. Paper with a handwritten signature is still required in the sectors listed in § 2a of the Act to Combat Undeclared Work (SchwarzArbG), such as construction and hospitality, and whenever the employee asks for it. Breaches can be fined up to EUR 2,000 each.

Contract vs. offer letter vs. employee handbook

Two practical rules follow from that. Keep the offer letter consistent with the contract, because a court may read the two together. And add a line to the handbook that it is not part of the contract, otherwise some courts treat promises in it as contractual. A job offer letter template and an employment contract template that use the same values avoid the first problem.

Common mistakes in employment contracts

• Wrong employer entity. Naming a brand or the parent company instead of the company that actually pays the salary.
• Contradicting the offer letter on pay, start date or bonus.
• Discretionary vs. guaranteed bonus left unclear.
• Restrictive covenants copied from another country where they are enforceable into one where they are not.
• Fixed terms agreed too late. In Germany, a fixed term signed after the first working day turns the contract into a permanent one.
• No signature before the start date, so the employee starts work on terms that were never agreed.

Create employment contracts from one approved template

Most of these mistakes come from duplicating a Word document from last year and editing it by hand. In fynk, HR or Legal sets up the employment contract once as a template, and dynamic fields fill the name, salary, start date and location into every place they appear. The contract then goes out for e-signature, and the signed copy is stored with its dates for reminders such as the end of probation or a fixed term.

FAQ

• What is a contract of employment?

  A legally binding agreement under which an employee works for an employer in return for pay. It sets out the job, pay, hours, leave and termination terms, and it includes terms implied by law even where the document does not mention them.

• What must be included in an employment contract by law?

  It depends on the country. In the UK, the written statement must cover the parties, start date, job title, pay, hours, holiday, sick pay, other leave, benefits, probation, place of work, notice and training. In Germany, the Nachweisgesetz requires a similar list. US federal law requires no written contract.

• Do I need a written employment contract?

  An employment contract can exist without being written down. But in the UK every employee and worker must receive a written statement of the main terms by their first day, and in Germany the employer must document the essential terms under the Nachweisgesetz. In the US, a written contract is optional.

• Is an offer letter the same as an employment contract?

  No. An offer letter offers the job and states the headline terms such as title, pay and start date. Once accepted it can be binding, but it is usually shorter and often states that employment is at will. A full employment contract covers all the terms of the relationship.

• Do employment contracts hold up in court?

  Yes, if they meet the requirements of a valid contract and their terms comply with employment law. Courts will not enforce terms that undercut statutory rights, such as pay below minimum wage, and they often narrow or strike out overly broad non-compete clauses.

• Can an employer change an employment contract?

  Only with the employee's agreement, or where the contract contains a valid variation clause for reasonable changes. A unilateral change to a key term such as pay can amount to a breach of contract.

• What are the main types of employment contracts?

  Permanent (indefinite), fixed-term, part-time, and casual or zero-hours contracts. Executives often have their own contract with additional terms. Freelancers and contractors are not employees and sign an independent contractor agreement instead.

• Can an employment contract be signed electronically?

  In most cases, yes. Electronic signatures are valid for employment contracts in the US, the UK and the EU. In Germany, two documents still need a handwritten signature or a qualified electronic signature: a fixed-term agreement, and a post-employment non-compete. Terminating an employment contract in Germany requires a wet-ink signature.