What is the Difference between an Offer Letter and a Contract?

Offer letters and employment contracts are given to employees as the acknowledgement to their selection for a job and list the terms and conditions that they need to adhere to while being a part of the organisation. Although, both the documents share similar characteristics, there are a few differences that all job-seekers and working professionals should know.

Offer letters: A job offer letter is an official document indicating the terms of agreement between the employer and an employee. It is issued by the company and gives all the information regarding the course of employment for the individual being hired. The person accepting the position signs the offer letter as an acceptance to the details shared in it and then returned to the employer. Some of the details included in the offer letter include salary and pay schedule, date of beginning of tenure, designation, description of work, employee benefits, basic job requirements, general expectations, and what may lead to termination. Most offer letters do not contain restrictive covenants such as confidentiality clauses or bonds and include basic terms of employment only. It is to be noted that these are given to lower to middle level employees.

Also Read: 7 Ingredients you must check and cross-check in your offer letter

Employee Contract:

As compared to offer letters, employment contracts are detailed in terms of employer's expectations. These are issued to employees at the higher level, which include executives and C-level employees among others. Since employees at the management level have access to sensitive information such as business strategies and finances, a contract ensures that these employees understand the importance of keeping the information confidential. Another feature of a contract is consideration. Adreen Redsteer on chron.smallbusiness.com advises that “these agreements are contracts; hence consideration is a requisite for validity. In other words, consideration – which is defined as some type of benefit – must be present, and it typically takes the form of an offer of employment or a promotion.”

Related Article: Why your offer letter is more important than your appointment letter?

Inclusions in an employment contracts are often non-compete clauses i.e. a clause according to which one party agrees to not enter a business relationship with a competitor or trade as a competitor against the other party, employer in this case. This clause is valid during the tenure of employment and for a specified period after it gets over. Similarly, clause on confidentiality restricts a former employee from sharing proprietary information such as trade secrets with competitor(s) for a defined time-frame. Other points included in a contract are similar to those in an offer letter and include salary that has been agreed upon, schedule and duration of employment, regulations on how you should or should not project the organisation on social media, benefits and cap, ownership agreement i.e. employer’s claim to all the work produced by the employee, and information on settlement of disputes. The employment contract has to be signed by both the employer and the employee and both get to the keep a copy of the same.

Whether it is an offer letter or an employment contract, make sure you get a physical copy of the same latest within a month of joining. For example, hard copies of contracts or offer letters by Sapient and similar reputed companies from IT and other industries are issued before soon after the employee has joined.