Do you give an offer letter or an employment contract or both, when you hire someone in your company? Do you use different templates based on the position you are hiring? Do you issue a conditional offer letter? The practice of using offer letters and employment contracts is different in each country. Please make sure to know what is binding in your country so you are compliant. This is an important document employers refer to from time to time. Misunderstandings or ambiguity can be costly for an  employers.

In some cases, we say offer letters and employment contracts interchangeably. In some companies, one combined document is used to make it easier administratively. However, these are two distinct documents. Offer letters are less detailed than an employment contract.

An offer letter is a communication to extend a job offer to a new hire candidate. If accepted, then the candidate joins the organization in the new role. In some companies, offers are extended verbally and then followed by an employment contract.

Offer letters will consist of many different details about the position. These details are vital for the candidate to know and decide whether to accept the job offer. For example, it is common to include the person’s job title, schedule, job duties, reporting manager, salary, vacation time, and other benefits.

Of course, employers can also include other information as well. In some offer letters, employers mention various compliance policies. It depends on the position or the industry. The primary purpose of the offer letter is to give candidates a basic understanding of the position.

Many employers issue a conditional offer. The job offer is contingent upon clearing a drug & alcohol test or a successful criminal record check.

It is important to remember that an offer letter can be a binding employment agreement in certain circumstances. If you are giving the candidate only an offer letter to sign or the offer letter is given before the employment contract, then the offer letter can be a binding document. 

An employment contract describes the terms and conditions of a person’s employment in detail. It lists down the conditions of employment.

Some employers use these contracts for specific roles only. Such as in some companies these might be used for salaried positions or for leadership or people manager or key roles. In such cases, an employment contract may specify conditions of employment termination.

Understanding the difference between offer letters and employment contracts is important. It is best to have one document instead of two and to include all relevant employment clauses in one document. However, if you prefer to keep the two separate, it is recommended to send both documents at the same time to the offered candidate to sign. 

If you need help with your recruitment process, please contact us for a free consultation.