Employment Contracts Series: Compensation, Benefits and Policies

This post is part of a series on employment contracts which delves into that a comprehensive employment contract should address.  This part of the series discusses compensation terms, how benefits should be addressed and the incorporation of employment policies.

Offer letters almost always address starting salary, but are often vague regarding other employment benefits such as bonus earnings, stock options and other forms of incentive pay.  It is important to establish that compensation above base salary is  variable each year, at the discretion of the employer, or else to very clearly establish how the compensation will be calculated.  The employment contract should also deal with the effects of the termination of the employment relationship on variable forms of compensation (see a further discussion on that point in my blog post on termination clauses).

Commission calculations, bonus guidelines and expectations and stock option grants should likely be set out as schedules to the Agreement and should be updated each year.

Non-management employees are entitled to overtime pay, regardless of whether they are on salary or paid hourly, once they work more than 44 hours per week.  The employer and the employee can agree in writing that the employee will be given time and a half in paid time off so a contract should stipulate if pay or time off will be taken.  The contract should address hours of work expectations.

Vacation and other paid time off, as well as entitlements to unpaid time off, if any, should be spelled out in the employment contract.  Rules surrounding the use of those entitlements can be set out in employment policies, as discussed below.  There is an employer movement towards all encompassing Paid Time Off policies (“PTO Policies”) which I have discussed in another blog post.

Incorporation of Employment Policies:

Many companies have some form of employment policies which they expect employees to comply with.  It is important to incorporate the compliance with those policies into the employment agreement, along with a statement that the policies are updated from time to time.  Employment policies may include statements and rules regarding certain work behaviour that will be subject to discipline or dismissal (i.e. chronic culpable absenteeism, harassment).  It is particularly important to incorporate these types of policies specifically into the employment agreement and at times some of these policies may need to be specifically referred to in the employment contract.

Other policies may address procedures for employee time off of work, internet use and social media policies, demeanour and personal conduct issues and any other policy relevant to a particular workplace.

Also, all workplaces are required to have policies addressing violence and harassment in the workplace.  If the workplace has 6 or more regularly employed workers the policies must be in writing The policy must be reviewed each year and signed by the person highest in the management structure.