The Ultimate Guide to HR Contracts & Compliance

Every employee at your company has multiple contracts tied to them. Human resource teams manage employer-employee relationships, each bound by contracts. Rogue and repetitive contract admin work slows employee onboarding, HR processes, and business momentum. Disjointed HR systems further siloes the HR contract management process. The stakes: The ideal candidate is missed, contract terms are unclear, you risk non-compliance, and HR professionals are riddled with paperwork.

Contract management software helps you automate the entire HR contract management journey from creation to renewal to compliance with automations and AI-extracted metadata. You can also create and update terms of employment individually or in batches seamlessly with pre-approved legal parameters. Learn how to reduce administrative overhead, ensure seamless hiring and onboarding experiences.

What are HR contracts?

Human resources contracts are legally binding agreements between employer and employee detailing the working relationship between the two. They define:

• Obligations required of both parties
• Workplace policies
• Compensation and benefits
• Include details like job title and description, start date, duration of engagement, non-compete and confidentiality clauses, etc.

They vary across organizations, industries, departmental functions, and jurisdictions. But they include a few common types.

Top 8 types of HR contracts

HR contracts are the bedrock of an organized workforce. Understanding the nature of HR contracts in your organization can help streamline the hiring, onboarding, and human resource management processes. Each of the following contracts serves specific purposes. Learn when to use which ones and standardize the high-volume contracts in your organization to reduce legal risks. Here’s a glimpse into the top 8 types of HR contracts.

Now, let’s dive into each of the above contract types, their purpose, and key features. Let’s get started.

1. Full-time employment contract

Also known as permanent employee contracts, full-time employment agreements are one of the most common HR contracts. It is issued to employees working in full-time roles, providing details about their role, duration of employment, compensation, benefits, conditions, and so on.

Key features of full-time agreements are:

• Standard employee working hours (typically 35-40 hours per week)
• Includes the job details, description, salary, benefits, and workplace policies
• Compliance with regulations and labor laws
• Compensation, benefits, and job security

2. Part-time employment contract

These agreements are for part-time employees who work fewer hours than the full-time staff. They define the work hours and job responsibilities of these employees.

Key features of part-time agreements are:

• Specifies the number of working hours per week
• Defines the eligibility and extent of company benefits
• Provides mutual flexibility for both employers and employees

3. Fixed-term or temporary employment contract

Fixed-term contracts are used when the employee is specifically hired for a certain project or period with a definite end date. These contracts are best for seasonal work and project-based roles.

Key features of fixed-term or temporary contracts are:

• Outlines the scope of work and project deliverables
• Specifies the contract duration, end date, renewal terms, and conditions for extension or renewal
• May often include similar rights as permanent employees

4. Freelance or independent contractor contract

These contracts are legally binding documents between freelance hires or independent contractors and employers. This segment of the workforce is typically not classified as employees and is not the recipient of traditional employment benefits.

Key features of freelance contracts are:

• Outlines the scope of work and project deliverables, payment terms, and schedules
• Includes boilerplate clauses around confidentiality and IP rights

5. Option agreement

Option agreements are HR contracts used for executives, leadership hires, or new employees offered company shares as part of their compensation package.

Key features of option agreements are:

• Specifies the number of stock options granted
• Details the vesting schedules and the terms of exercising stock options
• Protects the employer-employee shares

6. Non-disclosure agreements

An NDA is an HR agreement that protects the company’s intellectual property, classified information, trade secrets, and assets. They are key documents tied to new hires, freelancers, employees handling privileged information, and so on.

Key features of NDAs are:

• It protects confidential information and proprietary data
• It prevents employees and the workforce at large from unauthorized sharing of confidential information and proprietary data
• It can apply both during and after employment for a specific duration

7. Appraisal letter

Appraisals are HR contracts that detail performance reviews, set goals, and grounds for potential promotions. They are usually done periodically on an annual basis.

Key features of appraisals are:

• They provide official documentation of employee performance
• They outline improvement and course correction plans
• They impact performance-based incentives, promotions, or compensation increments

The significance of HR contracts

The human resource department plays a pivotal role in establishing standard operating frameworks for organizational relationships, compliance with HR contracts, and workforce management. Well-drafted agreements clarify terms, mitigate risks, prevent room for ambiguities, and help parties know what they are getting into from the get-go. Let’s go over the importance of good HR contract management practices.

1. HR contracts protect the legal rights of both parties

HR contracts ensure mutual consent between employers and employees, defining terms explicitly, to help avoid misinterpretation around job responsibilities, performance expectations, compensation benefits, and termination grounds. Without the protection of a contract, parties run the risk of incurring liabilities.

2. HR contracts ensure compliance

HR contracts make sure the organization complies with labor laws, wage laws, anti-discrimination policies, employee rights, and company policies. Staying within the frameworks of these laws helps make organizations great places to work.

3. HR contracts clarify terms for the parties involved

HR agreements are documents of mutual consent and consideration, preventing ambiguity. They make job responsibilities, performance expectations, and grounds for termination crystal clear for both employers and employees.

Who manages HR contracts?

While the primary responsibility of HR contract management falls to the HR department, it is in the nature of contracts to influence other stakeholders, their decisions, and operations. The following are other stakeholders of HR contracts.

• People and Talent Teams: They work closely with the HR team to identify, attract, and retain talent that is aligned with the organizational culture.

• In-house Counsel: The legal team reviews, approves, and sets the bar for all HR contracts to make sure they are compliant with governing and labor laws and organizational policies.

• Executive Leadership: HR contracts influence the organization’s human capital and the business’s broader objectives. They can lend specific insights into workforce management, employee engagement, retention, productivity, and budget allocations.

• Internal Stakeholders: Collaborations with departments like finance, operations, and compliance on HR contracts foster the transparent flow of key contract data and more efficient approval workflows.

Challenges with manual HR contracting processes

Manual contract processes present significant challenges across the contract lifecycle and to general legal and administrative efficiency. Rogue HR contracting becomes problematic in two key areas:

1. Prolonged contract negotiations

Without a streamlined HR contract management process, the papers may go back and forth leading to unintentional delays in finalizing agreements and the hiring process. You may run the risk of losing top talent to competitors with more efficient hiring processes.

2. Update terms at scale

Contract clause language or company policies may be updated from time to time, which needs to reflect on the contracts you sign or have signed with your talent pool. Doing this manually for every new change is tedious.

3. Stay compliant through shifts in laws and policies

It is often challenging to maintain compliance across the organization and disjointed systems without streamlined and automated contract processes.

With a CLM, HR contracts can be managed centrally and standardized across departments and the entire contract portfolio. Automating HR contracts with CLM software can cut unintentional delays in hiring and allow you to bulk-process contracts. It reduces the risk of human error and saves your HR team time for work that’s more meaningful.

Best practices while managing HR contracts

Managing HR contracts can be complex and time-consuming, but with the right contract management software, you can streamline the process and significantly benefit from it. Here’s what you can do:

1. Automate drafting and approval processes:

A CLM allows you to automate the contract creation process and their approvals with pre-approved workflow contract templates and an intake form that fits your organization’s needs. You can efficiently create error-free, legally approved HR contracts at scale without grunt work. Internal stakeholders can collaborate on these contracts, significantly speeding up the onboarding of a new hire.

2. Process contracts in batches in a click, no more manual work

Another key benefit is the bulk processing feature that allows you to mass-generate compliant employment contracts, upload them, and get them seamlessly approved and safely signed. Weeks of work can get done in a day.

3. Negotiate and collaborate on HR contracts in real time

Contract management solutions can streamline contract negotiations. A browser-based editor with AI redlining capabilities can help you negotiate terms with candidates in real time, making the process 75% faster.

4. Get HR contracts signed faster with one-click signatures

You can sign agreements anywhere and on any device safely and compliantly with eSign integrations or native eSigning options. The flexibility allows HR teams and candidates to sign contracts promptly.

5. Never miss an obligation–Auto-track HR contract terms & compliance

With contract management software, there’s no need to manually track key metadata around compliance. You can automate the tracking of non-standard rights and obligations clauses. Automated dashboards help HR professionals stay proactive, manage contract terms effectively, and provide actionable business insights to the executive team on demand. This helps you answer the most important questions quickly without having to manually review each contract’s terms.

Summing up

With HyperStart CLM software, HR teams can improve contract accuracy, streamline negotiations, ensure legal compliance, and accelerate hiring and onboarding. Stay ahead of regulatory changes, prevent bottlenecks, and focus on what truly matters—building a great workplace.