Writing an employment offer letter seems straightforward, but a small misstep in the offer stage can cause costly consequences for a company. Once you find a quality employee to hire for your small business, it is important to present a verbal offer (like giving them a call) to let the candidate know they have been selected and follow up any verbal offers with a clear and comprehensive written offer letter for the position to outline the basic terms of employment. Offer letters are used for “at-will employees” which are employees that can be terminated/or quit at any time (see our June 2021 blog post for more details!). The offer letter outlines the basic terms of employment without the implication of creating a letter indicative of any contractual agreement for your new hire.
Once a written offer letter is presented, it is important to ensure the candidate’s signature on the offer letter to confirm the candidate understands the terms of employment being offered for the position. Employers should be mindful of the language used to avoid it being interpreted by law as an employment contract vs an offer letter for an at-will employee, as well as to make sure not to bind the employer to any terms they can’t keep. To avoid making a contractual employee instead of an at-will employee, and create a consistent and comprehensive basic offer letter, here are some important topics to consider.
First, the letter should make clear that the employment being offered is “at-will” and explain that the relationship may be terminated by the employer or employee at any time for any reason or no reason at all, unless a circumstance of violation in law may be implicated. The employer can request, but not require, that an employee seeking to quit provide 2-weeks notice and should include such in the offer letter if that is the case.
The offer letter should be created in a standard consistent format that can be used for any position for the company. The standard form should include Fair Labor Standards Act (“FLSA”) requirements for applicable positions. The FLSA identifies and differentiates the different exemption or classification of employee status, full-time or part-time status, and associated rate of pay. Also each state has its own labor laws governing these aspects and it is important you review those as well. PA’s Minimum Wage Act information can be found: HERE. An employer should also include language that the company has discretion to alter or rescind information contained in the offer letter during the course of the employee’s employment with the company. Keeping your offer letter format consistent is important to avoid potential discrimination claims in the future.
This said, every offer letter should include the following appropriate terms:
Position or Title/Role
Direct Report Name/Title
Full-Time/Part-Time Schedule
Exempt/Non-Exempt classifications in your offer letter are critical to properly classify your employees as exempt or nonexempt pursuant to classification requirements as it relates to FLSA and overtime requirements to avoid penalties or claims for unpaid wages. An “exempt employee” refers to being exempt from certain FLSA requirements, so offer letters for exempt employees should reference the exempt classification as being not eligible for overtime pay. Check out these fact sheets from the department of labor discussing overtime: HERE. Also remember that states can regulate overtime as well. PA’s rules can be found: HERE. Determining if an employee is exempt may be a good question to speak to an attorney about as misclassification can have major penalties. For exempt employees, quoting the monthly/per pay period amount showing the equivalent of the annual salary rate is the best practice.
If the employee is classified as a nonexempt employee, quote the hourly pay basis in the offer letter. Offer letters to nonexempt employees should also instruct a timekeeping format in how they must record their hours worked and that they will be paid overtime (as pre-approved by designated authority) and describe the available meal and rest period expectation in compliance with local laws, rules and regulations.
Work schedule expectations should be set forth in the offer letter detailing the expected work schedule.
With respect to benefits being offered, best business practice would be to only briefly describe the categories of benefits for which an employee will be eligible for, such as medical insurance, vacation, sick leave, holiday pay, etc. Alternatively, it is appropriate to indicate the employee would be eligible for standard company benefits available pursuant to the employee’s classification. The offer letter may include the employee benefit plan details available for review and provide a separate attachment of the summary of benefit plan details; however, you want to state that the company retains sole discretion to modify benefits from time to time. More details on different benefit and leave packages are usually detailed in the employee handbook or policy book, so it is important to have that ready to provide. Remember, you can’t have different policies for different employees, only different classes of employees. The employee handbook or policies is important to reference in the offer letter, best practice would be to state the employment is subject to the company’s policies, procedures and employee handbook which may be revised from time to time. This clearly establishes that the employee will be bound by these, without spelling everything out and giving the company flexibility to adjust policies as time goes on.
Confidentiality/Non-Disclosure Agreement (“NDA”) and/or Invention Assignment Agreement Clause (“AAC”) involves intellectual property considerations which may seem complicated, but if addressed correctly from the onset with new employee(s) can make a tremendous difference in the event a conflict arises. First, confidentiality is essential and should be expected in any business environment, but that is in a perfect world. Given perfection is unattainable, the small business growth in today’s “information age” NDAs and/or AACs are critical to maintain confidentiality and certain ownership rights over any inventions created, even if pending any patent/trademarking processes. NDA and/or AACs must be signed at the time of employment and so it is good to state in the offer letter that the prospective employee must sign an NDA/AAC as a condition of employment and attach such document to the offer letter. This type of document may not be important to all employees.
For example: if you hire a store clerk, you may not need an NDA, but if you are hiring a sales and marketing manager who will be working with your client lists, intellectual property, product release plans, etc. it is important to protect that information and own any processes they develop. Employers should also include language in the offer letter that prohibits any unauthorized use of confidential information acquired from prior employers or any other third parties and also that an employee must disclose any previous employment restrictions, such as non-competition or non-solicitation agreements with former employers.
Additionally, any contingencies to employment should be included in any offer letter where an offer of employment is contingent based upon a background check clearance, reference check, and satisfactory proof of the employee’s right to work in the U.S. as required by law.
Finally, each offer letter presented should have an expiration time/date referenced in the letter for the candidate to accept or decline. Importantly, you want to avoid any risk of a candidate utilizing the offer letter to leverage a position at another company or with your own company or waiting weeks or months later to respond after you have already moved on, then expect the offer be honored. Set a reasonable timeframe which 72 hours, but not longer than one week after the initial offer is presented is standard.
Protecting your small business is crucial and employment law is not something to mess around with. So when considering these tips it can be extremely helpful to discuss with a lawyer to make sure you’re covering all the bases under compliance requirements. This helps to develop template offer letters tailored to your small business and processes with confidence. Good offer letters mean less headaches for you and better employee relationships!
DISCLAIMER: This blog post is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation with an attorney.