A Guide to the Employee Offer Letter
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The document is a guide that explains the key components of an employee offer letter, including: - Details of the position being offered and work location. - Intellectual property created by the employee belongs to the company. - Compensation details like salary, bonus, gratuity, provident fund, insurance, and sometimes stock/equity. - Notice period requirements if the employee or company decides to end the employment. - Confidentiality and legal clauses to protect company information and assets, including non-disclosure, non-solicitation, non-compete, and intellectual property ownership terms.
A Guide to the Employee Offer Letter
- 1. GUIDE TO THE EMPLOYEE OFFER LETTER SV.CO Financial Documents Repository
- 2. The Guide to Employee Offer Letter In this guide, we’ll tell you what the offer letter includes and explain each of the sections so that you can easily understand the document. When a person works for someone else or company, he / she is called an employee and the person / company he works for is called employer. Money paid to the employee is called salary or wages or income (to the employee) The offer letter is a legal contract between the employee and the employer that spells out the various aspects of the employee’s work details with the employer. It talks about the Position / designation that is being offered The location (s) where the employee will be working after joining All intellectual property or work that the employee does belongs to the company The details of the compensation offered, this is usually called the Cost to Company or CTC
- 3. Companies have various components in the CTC but a standard CTC will include the employee fixed salary or gross salary, bonus, gratuity, provident fund, and insurance. Stock / equity is also offeredto employees inmany cases The Cost to Company (CTC) Let’s first define some of the various components of salary so that you are clear - Salary – separate sectioncoming! Performance Bonus Bonus is the amount payable to the employee based on performance objectives determined by the employee and the employer. The amount is mentioned in the offer letter but the actual objectives are usually agreed after the employee joins the organization. Bonus is usually paid once a year, at the end of calendar year (December 31) or financial year (March 31). Some companies pay bonus at the anniversary of the employee joining date. Gratuity Gratuity is a legal requirement of the company to pay employee a certain lump sum amount if they leave after 5 years of working with the same company.
- 4. It is a retirement benefitand also called a defined benefit. However, the company should also pay gratuity if the employee passes away or is disabled due to an accident or any illness. Gratuity is also payable when an employee retires; the current retirement age in India is 60! Currently gratuity payment is tax free up to a total of INR 10 lakhs. Gratuity Calculation = Last Drawn Salary × 15/26 × No. of Years The ratio 15/26 represents 15 days out of 26 working days in a month Offer letters will have a notice period based on the company policy – this is the time the company and / or employee have to give when they decide to close the employment. This notice is usually 1 month but can range up to 3 months. All offerletters will have confidentiality and other legal clauses. This is because the employee is dealing with information, products, software etc. that belong to the company so companies will ask employees to agree that they will not tell persons outside the company about these information, products or software.
- 5. We all know of many cases where people have copied, stolen or leaked company information that hurts the company big time. Hence a company will ask employees to sign and confirm that they will do no such thing. For e.g. Apple, Google and many companies have offer letters that run into tons of pages, most of the letter relates to confidentiality and related clauses! Some clauses are explained for you below Confidentiality and Non Disclosure – this can just mean not discussing internal goings-on with co-workers. In most cases, it refers to not sharing trade secrets and other company information with competitors,the press or anyone outside of your company. Non Solicitation – this means that the employee cannot request, meet or ask a company's clients or customers, for his or her own benefit or for the benefit of a competitor of the company, after leaving the company. Usually this will be for a certain period depending on the agreement between the employee and the company. Non Compete – this means that the employee cannot start a competing business with the employer after leaving the company. Usually this is also for a certain period depending on the agreementbetween the employee and the company.
- 6. Intellectual Property (IP) – the easiest way to know this is that it’s stuff that cannot be touched / felt, and is usually a creation of the mind, such as a patent. This includes ideas, software, code that is written by programmers,presentations,documents etc. Almost all companies and products, including ecommerce, software and mobile products have IP. Most companies will mention that all IP created by the employee while working for the company belongs to the company and not to the employee. For e.g. most musicians now have IP on their songs / music so that no one can copy their stuff! Indemnity – this simply means that there is a repayment if one person suffers a loss because of what the other person did. Companies will include this offer letters because they can sometimes suffer losses because of employees who do things against the interest of the company – like not following the clauses above, or destroying company property, or leaking company information. Employees have done such things when they are upset about leaving or upset about something that they don’t like in the company. This has becomecommonin offerletters over the last few years
- 7. We hope that this guide has helped you understand the offer letter much more clearly. Please feel free to provide feedback on what we can do to improve the contents of this guide.