7 Types of Employment Contracts You Need to Know

The relationship between employees and employers is crucial for any business, as it provides the basis for any work arrangement.

For this relationship to work and be productive, both parties must be aware of their rights and obligations — and this is often done through an employment contract.

Employment contracts are a bridge between employers and employees that aims to organize the employment relationship.

In this article, we’ll go over the 7 most important types of employment contracts everyone needs to know. Moreover, we’ll provide expert insights on which type of employment contract is right for you and how to choose the best one.

• Employment contracts outline the rights and responsibilities of employers and employees.
• Employment contracts can be presented as written, verbal, or implied contracts.
• Full-time employment contracts are for employees who work more than 30 hours a week, while part-time contracts are for those who work fewer than 30 hours.
• Permanent employment contracts don’t have a specified end date, while fixed-term contracts do have such a date.

What is an employment contract?

An employment contract specifies the employment relationship between an employer and an employee. It outlines the rights and obligations of both parties, providing a framework that ensures safety and stability for both sides throughout the course of employment.

In general, individual employment contracts cover information such as:

• Salary details,
• Work schedule,
• Medical and dental insurance,
• Leave policies, 
• PTO (paid time off) leave,
• Exempt or nonexempt employee status,
• Length of employment, and
• Retirement plans.

In addition, work contracts can also include information such as NDAs (non-disclosure agreements), non-compete clauses, and contract termination grounds. 

Understanding employment contracts is crucial, as these are important legal documents that are drafted by professionals and are legally binding for both parties. This understanding helps individuals make informed decisions about employment.

How are employment contracts offered?

When the term “contract” is mentioned, people often think this refers to a written agreement between two sides. However, job contracts can be offered in other ways as well, including:

• Written contracts are the most common type, as they’re written agreements between two parties. For a written contract to become valid, both parties must sign it.
• Verbal agreements are also legally binding for parties, although no written document exists. Nonetheless, it’s harder to enforce them, and they usually require the presence of a third party.
• Implied contracts are based on specific actions that can be considered an agreement (e.g., handshake). An example of this can be an employer who starts working for the employer without a verbal or written contract. Although there’s no contract, the two have a work relationship.
• Contracts in electronic form are just digital versions of written contracts. They can be sent to employees working in another country or state. Once signed electronically, parties must respect these contracts.

No matter in which manner the employment contract is presented, it must comply with all federal and state labor laws, including timekeeping regulations.

Watch the video below to see how Clockify can help you comply with timekeeping and labor requirements:

7 types of employment contracts

Now, let’s look at the 7 most important types of employment contracts.

1. Full-time contracts

Full-time employment contracts are used for employees with a standard workweek who usually work 30 to 40 hours per week. The IRS defines full-time employees as employees who work more than 30 hours per week or more than 130 hours per month.

Work contracts for full-time employees usually include salary information, benefit details, retirement plans, holidays, sick leave policies, career development opportunities, and more. They’re usually presented in a written form, and can be permanent without an end date — or they can have a set end date and be fixed-term.

This type of employment contract is ideal for companies that seek stability and continuity in essential roles such as managers, customer support, and administration.

Full-time employment contracts come with a host of legal responsibilities. To provide precise and detailed answers, we’ve consulted Oliver Morrisey, a lawyer with over a decade of experience in business contracts, wills, and estate laws. 

Here are his thoughts:

2. Permanent contracts

Permanent employment contracts are open-ended contracts with no end date for the work relationship, providing employees with extra stability. These contracts include all the necessary information, such as salary, benefits, sick leave policies, and holidays, and are often in written form.

Although permanent and full-time contracts are similar, the main difference lies in what they regulate. Full-time contracts regulate the total number of work hours per week, while permanent contracts regulate the employment duration. Therefore, permanent employees can work full-time (30 to 40 work hours) or part-time (fewer than 30).

These contracts suit businesses that want long-lasting employment relationships with predictable schedules. With extra stability for employers and employees, permanent contracts are perfect for reducing turnover and retaining talented employees.

When it comes to legal responsibilities, they’re similar to those required for full-time contracts.

3. Part-time contracts

Employees with part-time contracts work fewer hours per week than full-time employees. In general, part-time employees work fewer than 30 hours per week and tend to have more flexible schedules. 

However, this flexibility has certain drawbacks regarding employee benefits and job security. The types of benefits a part-time employee will receive depend on state labor laws, but they tend not to qualify for benefits such as health insurance, vacation leave, and workplace bonuses.

Part-time contracts are best for businesses that need a consistent workforce without full-time commitment, which is common in retail, healthcare, and hospitality industries.

Here’s what expert Oliver Morrisey had to say on legal responsibilities for part-time contracts, with an emphasis on record-keeping:

🎓 See how you can track employee work hours in your industry — Time tracking for every business

4. Fixed-term contracts

Fixed-term contracts are used for employment agreements with a fixed end date. These employment contracts can include the same benefits as permanent contracts, but the benefits are limited to the duration of the contract.

Employers can choose fixed-term contracts if they need temporary employees. Situations like added work during the summer season, maternity leave, or other temporary workload increases are all reasons to go for fixed-term contracts.

Expert Oliver Morrissey gave us a few examples of businesses that should use fixed-term contracts:

As for legal responsibilities, employers and HR must ensure that everything is clear and documented to prevent misunderstandings, particularly around notice periods and accrued leave.

5. Freelance employment contract

Freelance employment contracts, or 1099 contracts, are work arrangements between an employer and a self-employed freelancer for a given project or task. These contracts usually include payment information, deadlines, and project details.

With the number of freelancers increasing each year, this type of job contract benefits employers and employees. Employers can get professional workers without the burden of paying long-term benefits, and employees can work with multiple employers. 

Also, freelance contracts can be considered remote work contracts, as employees often tend to work away from the company’s offices, which gives them additional flexibility.

However, there are a few drawbacks with this type of contract. For example, employers can’t rely on freelancers to know their company culture like regular employees. On the other hand, employees must look for clients constantly, which can lead to inconsistency.

Oliver Morrisey gave us his thoughts about situations where freelance contracts can be useful, emphasizing certain skill sets:

As for legal responsibilities, HR and employers should keep these contracts separate from traditional ones to avoid unintended entitlements, especially around workplace injury coverage and unfair dismissal claims.

🎓 As a freelancer, tracking your work hours is essential when you want to invoice your clients, so check out Clockify — Free Time Tracking App for Freelancers

6. Contractual employee contract

Another type of work contract is a contractual employment contract. Although not commonly used, this type of employment is a legally binding agreement between two parties for a certain arrangement or work.

Contractual contracts can be short-term, long-term, or ongoing, depending on the type of arrangement. An example of this can be an IT company that needs to hire a software engineer to work on a new website. 

The difference between contractual and fixed-term contracts lies in their duration: 

• Fixed-term contracts have a limited duration, and 
• Contractual contracts don’t necessarily need a set end date.

Contractual employment contracts are excellent for companies that want to increase their workforce without committing to long-term contracts.

As for legal responsibilities, employers must outline all the necessary entitlements, such as paid leave, overtime, and other required employment benefits. HR must keep track of all the essential documentation to avoid misclassification issues.

7. Casual employment contract

Casual (zero-hour) employment contracts create an employment relationship where employees work when needed without guaranteed work hours. These contracts are great for retail, hospitality, or businesses with increased seasonal work.

The casual nature of this type of contract provides flexibility for both employers and employees and allows businesses to meet increased work demands. Although employees don’t have regular work hours, they can receive an additional casual loading rate as they don’t receive benefits such as paid leave.

Employers who hire casual employees must pay this additional loading rate on top of their employee’s base pay rate and avoid any assumptions of permanency. The HR department is legally required to inform employees of their work’s “casual” nature to prevent any misunderstanding and additional terms and conditions. 

Tracking work hours is crucial for casual employment contracts, and using a work hours tracker can help you tremendously. 

Here’s a video of how you can use Clockify’s kiosk feature to track employee work hours:

How do you choose the best employment contract?

Now that you know the different types of employment contracts, you might wonder which one is ideal for your situation. 

To help you with this, our expert contributor Oliver Morrisey gave us his insights. 

According to him, if you’re an employer, you should consider the core responsibilities the job role entails:

On the other hand, if you’re an employee, Morrisey thinks you should take into account what suits your way of living:

Frequently asked questions about employment contracts

To make this article as comprehensive as possible, we’ve included an FAQ section where we’ll answer some common questions on this topic.

What is the most common type of employment contract?

The most common type of employment contract is a permanent employment contract. This contract is open-ended and has no set end date for the work relationship, therefore providing stability and safety for both parties.

What is a “100 series” contract?

The “100 series” fixed-term employment contracts are offered for job positions in the United Nations, which lasts at least 1 year.

What are the three 3 of work?

According to Yale professor Amy Wrzesniewski, there are 3 types of work:

• Work-to-live — the basic approach where individuals work to earn money and satisfy existential needs,
• Career — includes individuals who want to climb the professional ladder and achieve higher levels in their field, and
• Calling — includes individuals who find work an integral part of their identity and find deep purpose in their professions.

Manage your team efficiently with Clockify

Whether you manage a small team of 5 people or a large one with more than 200 employees, you’ll have to take care of many things.

So, it’s helpful to have software that will keep track of all the necessary employee information — to make this process less time-consuming and frustrating.

With its plethora of features, Clockify is your go-to partner for managing both small and large teams, as the app lets you:

• Track work hours, 
• Edit billable hours, 
• Assign roles, and much more.

Moreover, you can add detailed information for each employee, such as:

• Employee ID,
• Type of work contract (part-time/full-time),
• Department
• Shifts, and
• Profile link.

Clockify is not just a time tracking tool but a comprehensive software that helps you manage your team and boost productivity. 

To learn more about how Clockify can help you manage your team, please watch the video below.

So, what are you waiting for?

Start managing your team with Clockify!

Conclusion/Disclaimer

We hope this employment contracts guide will be helpful. Please pay attention to the links provided, which will lead you to the official government websites and other relevant information.

Please note that this guide was written in November of 2024, so any changes in the labor laws that were included later than that may not be in this guide.

We strongly advise you to consult with the appropriate institutions or certified representatives before acting on legal matters.

Clockify is not responsible for any losses or risks incurred should this guide be used without further guidance from legal or tax advisors.