Essential Elements of Employment Contract in India


Essential Elements of Employment Contract in India

This section discusses the essential elements of an employment contract in India. This compilation will be helpful for a company setting up a business in India or a start-up amid hiring employees and will act as a checklist if the employment contract is fully compliant or not.

Read here to know about the routine clauses / essential elements of an employment contract in India where we have discussed all the essentials elements of an employment contract in India including salary, a period of service, leave, bonus, confidentiality clause, termination, grievance resolution, etc.

Essential Elements of Employment Contract in India FAQ's

The following clauses routinely are incorporated into the Employment or Service contract:

  • Salary - The salary to be paid to the employee should be clearly stated. If the employee is entitled to any allowances (e.g., dearness (regional cost of living) allowance, city allowance, housing rental allowance) in addition to salary, those allowances should be clearly mentioned.
  • Period of service - The period of employment should be specified. If the parties contemplate renewal of the service contract extending the period of service, the terms and conditions on which the contract will be renewed should be mentioned.
  • Leave, bonus, etc. – If the employee is entitled to leave with full pay or half pay, bonus, or commission, the same should be clearly mentioned in the contract.
  • Scope of work - The duties of the employee should be clearly defined in the contract. It should be provided that the employee will not be engaged in any other service or business during the tenure of this contract.
  • Hours of work, rest, and holidays - The hours of work of an employee, the rest periods, and the number of holidays should be clearly stated.
  • Secrecy/confidentiality clause - If the employee’s position is such that he or she comes to know about trade secrets or any information relating to the employer’s business, it should be provided that the employee must not divulge that information to a third party. The covenant that the employee will not divulge any confidential information acquired during employment may not extend beyond employment.
  • Incentives - Any incentive that may be given to the employee in the course of employment (e.g., retention bonus to keep key employees) should be stated in the contract.
  • Termination of contract - The grounds on which the contract may be terminated before its expiration should be given.
  • Procedures for resolution of grievances - These may be specified in the contract or in the employer’s employment rules or policies.
  • Miscellaneous provisions - Depending on the nature of the business of the employer or upon the nature of the employment, other miscellaneous provisions may be incorporated into the contract.

With respect to employees who are subject to the Industrial Employment (Standing Order) Act, 1946, the employer has a mandatory obligation to formally define specified terms and conditions of employment.

In India, service contracts specify the period of service. Employers do not use contracts for an indefinite period. In addition, an age bar for service contracts may be prescribed by the employer.

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