What Is a Contract Employee?

What is a Contractual Employee Contract?

(Last Updated On: April 19, 2021)

The contractual employee has now been popular with short or long term contract according to the need. In fact, contractual employee contract has been handy both for the workforce or the employers.

In today’s changing workforce, the use of contractual employees, also known as independent contractors, freelancers, or hiring staff, is becoming more prevalent.

Companies often hire such staff in place of part-time or full-time staff for a variety of reasons, including budgetary concerns and special skills requirements.

A contract employee’s details

A contract employee is continued by a company for a predetermined period of time, at a fixed price. Following this approach, a company is not responsible for the benefit of various traditional recruiters according to the contractual employee contract:

  • Of taxes
  • Social Security
  • Compensation of employees
  • Unemployment benefits
  • Health benefits
  • Sick leave
  • Vacation time
  • Retirement or profit-sharing

Employers are only responsible for filing a 1099 tax form to the contract employee within the deadline to meet the IRS tax.


At least in terms of the Internal Revenue Service, there may be a fine line between separating contractual employees from regular employees.

Check with an employment law attorney or the IRS directly, if you have any questions about how you are classifying employees to avoid potential legal issues.

Benefits going with a contractual employee contract

Going with a contractual employee contract can be a smart business move for any company, as there are many benefits:

  • Ability to recruit workers for short-term projects on an as-needed basis
  • Low overhead operating expenses, due to low employer-paid benefits
  • There are opportunities for hiring highly skilled people for projects in which no one is eligible to work at home

Many contract workers work remotely from a home office, so extra savings can be made without having to provide office space or equipment.

contractual employee contract

The downside of a contractual employee contract

The use of contractual employee contract may save some money from a company, yet there is a trade-off that contractors do not have the same loyalty to a company that may have permanent employees. Other possible downsides:

  • Contract employees often work for multiple companies at the same time, so there is no guarantee that they will be available when you need or need them.
  • Group work can be complicated, as contract workers may not be familiar with in-house staff, especially if they work from a distance.
  • Household workers will not be able to build relationships with customers in the same way that customers are able to.

When someone joins a new company, new arrivals learn the ropes and there is a short productivity deadline as they follow the on-boarding process.

By their very nature, workers under a contractual employee contract should be able to jump in and work out right away, but there is always the possibility of some downtime because of the time it takes to get acquainted with a new company and its requirements.

Hiring contract workers makes sense when you have a particular need. For example, maybe your social media engagement needs someone skilled, but your staff doesn’t need a full-time person.

It may also make sense if you need seasonal support. For example, in this case, hiring temporary or contractual employees can be a useful step for retailers to hire additional workers on holidays to meet increased service demand.

What should I include in a Contractual Employee Contract template?

  • Terms of employment.
  • Benefits.
  • Responsibilities.
  • Non-compete clause.
  • Compensation information.

Employee Contract Template (Contractual/ Part Time/ Permanent):

Employment Contract

This contract, dated on the ____ day of ______________ in the year 20____, is made between [company name] and [employee name] of [city, state]. This document constitutes an employment agreement between these two parties and is governed by the laws of [state or district].

WHEREAS the Employer desires to retain the services of the Employee, and the Employee desires to render such services, these terms and conditions are set forth.

IN CONSIDERATION of this mutual understanding, the parties agree to the following terms and conditions:

  1. EmploymentThe Employee agrees that he or she will faithfully and to the best of their ability to carry out the duties and responsibilities communicated to them by the Employer. The Employee shall comply with all company policies, rules, and procedures at all times.
  2. PositionAs a [job title], it is the duty of the Employee to perform all essential job functions and duties. From time to time, the Employer may also add other duties within the reasonable scope of the Employee’s work.
  3. CompensationAs compensation for the services provided, the Employee shall be paid a wage of $___________ [per hour/per annum] and will be subject to a(n) [quarterly/annual] performance review. All payments shall be subject to mandatory employment deductions (State & Federal Taxes, Social Security, Medicare).
  4. BenefitsThe Employee has the right to participate in any benefits plans offered by the Employer. The employer currently offers [list benefits, if any]. Access to these benefits will only be possible after the probationary period has passed.
  5. Probationary Period/ Period of Contract
    It is understood that the first [time frame] of employment constitutes a [probationary/ contract period]. During this time, the Employee is not eligible for paid time off or other benefits. During this time, the Employer also exercises the right to terminate employment at any time without advanced notice.
  6. Paid Time OffFollowing the [probationary/ contract] period, the Employee shall be eligible for the following paid time off • [length of time for vacation] • [length of time for sick/personal days] • Bereavement leave may be granted if necessary.The employer reserves the right to modify any paid time off policies.
  7. TerminationIt is the intention of both parties to form a long and mutually profitable relationship. However, this relationship may be terminated by either party at any time provided [length of time] written notice is delivered to the other party.The Employee agrees to return any Employer property upon termination.
  8. Non-Competition and ConfidentialityAs an Employee, you will have access to confidential information that is the property of the Employer. You are not permitted to disclose this information outside of the Company.During your time of Employment with the Employer, you may not engage in any work for another Employer that is related to or in competition with the Company. You will fully disclose to your Employer any other Employment relationships that you have and you will be permitted to seek other employment provided that (a.) it does not detract from your ability to fulfill your duties, and (b.) you are not assisting another organization in competing with the employer.

    It is further acknowledged that upon the termination of your employment, you will not solicit business from any of the Employer’s clients for a period of at least [time frame].

  9. EntiretyThis contract represents the entire agreement between the two parties and supersedes any previous written or oral agreement. This agreement may be modified at any time, provided the written consent of both the Employer and the Employee.
  10. Legal AuthorizationThe Employee agrees that he or she is fully authorized to work in [country name] and can provide proof of this with legal documentation. This documentation will be obtained by the Employer for legal records.
  11. SeverabilityThe parties agree that if any portion of this contract is found to be void or unenforceable, it shall be struck from the record and the remaining provisions will retain their full force and effect.
  12. JurisdictionThis contract shall be governed, interpreted, and construed in accordance with the laws of [state, province or territory].In witness and agreement whereof, the Employer has executed this contract with the due process through the authorization of official company agents and with the consent of the Employee, given here in writing.

Employee Signature


Company Official Signature


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