What Is an Employment Contract?

By Indeed Editorial Team

Updated 24 October 2022

Published 12 June 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When you accept a job offer, you may be required to sign an employment contract before you start. This contract will lay out any prior agreements between you and the employer in order to avoid any confusion or miscommunication in the future. An employment contract usually consists of your salary, your job descriptions and any other special arrangements that are to be made between the two parties. In this article, we discuss what an employment contract is, what does it include, how does it work and how to navigate your employment contract.

Related: 5 Common Types of Employment and How They're Different

What is an employment contract?

An employment contract is a written document that establishes the terms of your work relationship as a new employee at an organisation. Typically, both you and your employer have to sign a contract to signify your agreement. An employment contract usually includes all the details that both the employee and the employer need to know prior to the employment period. These details usually consist of both parties' rights and responsibilities. Written contracts are specific documents drafted by legal professionals to outline the particulars of your employment arrangement.

In many cases, an employer does not issue a formal employment contract, and this is normal too. However, you may probably still be given written documentation regarding your employment. Although it seems more casual or informal, these kinds of documentation can still serve as your contract in the case that no formal contract is issued.

Related: Breaking Into Full-Time Work With A Contract Background

What does an employment contract include?

Contract of employment includes your responsibilities at work and your employer's responsibility to you. Here are the common components that are included in an employment contract:

  • Duration of employment: Contracts usually state the duration of your employment, and how long you will be working for the company. This could be a fixed length of time with a possibility for renewal at the end of the contract duration.

  • Working schedule: A contract also states your working schedule, including how many hours you are expected to work and which days you are needed to be present in the office.

  • Compensation or salary: Your contract should also include your pay, whether it is hourly, weekly, monthly or even annually. Your salary must be clearly stated in the contract along with information about salary schedules and potential for a pay raise.

  • Your job descriptions: A contract usually also includes your duties as an employee to help you understand what you are expected to do.

  • Employee benefits: A contract also usually includes employee benefits, such as health insurance, telecommunication budget, transport budget, annual leave and bonuses.

  • Limitations: Aside from benefits, a contract will also include any employment limitations, including whether you will be allowed to work in another concurrent role.

  • Early conclusion details: Contracts often include information about resignation, early contract termination and termination procedures.

Also read:

  • What Is A Notice Period?

  • How To Write a Contract Termination Letter (With Examples)

How does a contract of employment work?

Employment contracts usually follow a standard format prepared by the employer's legal department or the Human Resources (HR) department. In fact, the Ministry of Manpower (MOM) also provides a dedicated guide for the contract of employment along with a modifiable sample contract for companies and future employees to review. They include clauses that are fair to the employees and employers and then modified to suit any specific needs and intent.

As a new employee, it's important that you take time to look over your employment contract and review them carefully before signing them. Some might even take employment contracts to their own lawyers for review before signing them. In the case that you disagree with any of the terms stated in the contract of employment, you can negotiate this with your employer. When negotiating, it's best that you prepare a reasonable justification for your negotiation. You can negotiate your contract of employment by sending a formal email or by arranging a face-to-face meeting.

Related: What Is a Contract Employee vs. a Regular Employee?

What are the benefits of an employment contract?

Employment contracts can be incredibly useful and beneficial for both employees and employers. The contract of employment protects both employers and employees during the duration of employment, and at the same time, documents all employment processes and expectations. This means you can always refer to your employment contract as a reference or to clarify information. Here are some specific advantages of using a contract of employment:

  • Clear expectations. One of the most prominent benefits of an employment contract is that it defines the expectations of your employment. It usually has a written agreement of your salary, benefits, any policies and also a list of your duties as an employee. This document can be helpful as a reference should there be any discrepancies in your day-to-day responsibilities.

  • Guaranteed term of employment. Contracts often specify your employment duration, and so you have a good idea of how long your position is guaranteed for, as long as you meet your role's expectations. This gives you reassurance and stability so that you can better plan for the future.

  • Increased job security. Contracts also protect you from challenges such as wrongful termination. This means that your employer must adhere to your contract's terms when ending your employment. Thus, this increases your job security with the position.

Related: Permanent Employee vs. Contract Employees: Main Differences

How to navigate a contract of employment?

When you accept a new position and your employer presents you with a contract of employment to sign, try to first navigate the contract and make negotiation processes as effectively as possible. When you are reviewing your contract, you want to be careful and attentive and make sure the contract protects you and your interests as an employee. If there are things that you are unsure of or if any points seem ambiguous, it's best that you raise the question before signing the contract. Here are a few tips for you to expertly navigate your contract of employment:

Related: Temporary Employees: Definition, Benefits, Terms and FAQs

1. Review the law

This is the first and most important step that you may want to do. You may want to consider meeting with a lawyer prior to signing an employment contract or reviewing the law before signing a contract. You can do this by referring to MOM's website on the employment contract.

2. Understand renewal process

Your contract should explain when your employment term ends and what renewal procedures are available to you. Some contracts have a one-way renewal, meaning only one party needs to agree to renewal for it to occur, and others have joint renewal, meaning both parties would need to agree. Further, some contracts have no renewal or automatic renewal. It's a good idea to review this part of your contract, especially if your agreement has automatic renewal. This is because any renegotiation of terms should occur prior to a contract's expiration and renewal.

3. Research salary average

It's always a good idea to research industry-specific salary averages, so you can feel confident you're being compensated accordingly. Look up average salaries for similar positions in your area to get a feel for common compensation structures in your field. You can use these numbers as evidence for negotiation if you see fit. You can check out the salary average across your industry at sg.indeed.com. Also, you'll want to understand exactly what type of bonuses or commissions your contract entitles you to in addition to your base salary.


  • What Is a Signing-on Bonus? With Steps To Negotiate One

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4. Look for outside work restriction

If you're a freelancer or often work part-time, you should review your contract for any outside work restrictions. Some companies limit or even disallow any amount of side work their employees can do during their term of employment. If your side hustle is important to you, make sure you can continue doing it while being employed in your role by reviewing your contract for any conflicting regulations. You can also negotiate on this term before signing your contract.

Related: How To Find Remote Work Jobs On Indeed

5. Negotiate before you sign

If your contract doesn't address some of the needs you have as an employee, or you're unsure about a specific component of your contract, you can try to negotiate terms before you sign. Remember that negotiation of terms is a common practice, and you're well within your rights to do so. It's important for you to be as comfortable as possible with the terms of your employment, so you can excel in your new role. You can propose your negotiation via email, a formal letter or even arrange a meeting with your employer to ease communication.

Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed.

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