What Information Should an Offer Letter Contain?

Every business has different needs when it hires a new employee. But regardless of company size or type of industry, it’s a good idea to present new hires with an offer letter that outlines some of the critical terms of the employment relationship to set initial expectations, introduce your culture, and minimize future legal risk. To achieve a tone that does not become “too legal,” it’s a good idea to include information about some of your company’s policies that reflect your employment philosophies and employee programs that the person may find beneficial. You may need to customize the letters for different people and positions, but it is worth the effort in the long run because if done properly, it will help minimize legal risk while communicating about standards and expectations in the workplace.

Some smaller businesses do not like to use offer letters because they are inexperienced with crafting the wording and may view them as overly legal and officious. But keep in mind that, in this day and age, most people have come to expect offer letters will contain some amount of legalese and “cover your back” terms. So don’t let this dissuade you.

Below are some of the items you may want to consider addressing. Remember that your letter does not need to have the same tone as this list. There are ways to write the terms so that they are more “friendly” but still protect you against certain risks.

A few of the items to consider including in an offer letter are:

  • An opening paragraph with a welcome to the potential new hire, specifying the title of the position offered and the anticipated start date, should they accept
  • A paragraph that includes:
    • the name of the person to whom the position reports
    • a statement that the reporting relationship may be changed, based on business needs
    • whether the position is exempt or non-exempt
    • the compensation (specified as salary or hourly wage), and that compensation is paid X times monthly in accordance with the regular payroll process
    • the bonus opportunities for the position (including whether bonuses are discretionary) and that the company has written bonus plans that apply
    • an explanation that the company reviews employee performance annually and may change the compensation based on a variety of business factors
    • whether the position is eligible for overtime and, if so, how that is calculated
    • that advance approval is needed for working overtime
    • the anticipated work schedule and that it may be changed to meet business needs
  • A paragraph that includes a summary of:
    • The employee benefits plans (group insurance, 401(k), etc.) the position is eligible to participate in and a summary of any waiting periods for enrollment
    • An explanation that eligibility and participation is handled consistent with the plan documents
  • A paragraph summarizing which type of paid time off, such as vacation and sick time, will accrue, along with the rate at which it accrues and the timing of accruals
  • A paragraph that gives a high-level summary of some of the company’s other beneficial employee plans or programs such as matching contributions for charitable donations, sabbatical programs after X years of service, tuition reimbursement programs, reimbursement for gym memberships, and/or transportation reimbursement
  • A paragraph explaining that the company has various HR, compliance, information security, and other policies and procedures that all employees need to comply with
    • explain that as a condition of employment, employees must sign an acknowledgement that they’ve received and read the policies included with the offer letter and will comply with them
    • explain that policies may change over time and employees need to comply with any policy changes
  • A paragraph explaining that employment relationships with the company are “at will” and what that means
    • explain that even though company policies may change over time, nothing will change the at-will employment relationship or the at-will employment policy
  • A paragraph explaining that the company requires all employees, as a condition of employment and continued employment, to sign a confidentiality agreement
    • tell them the agreement is attached to the letter
    • explain that they are free to consult with their own counsel about the agreement but they need to return the signed document by the date specified (give them at least five business days to consult with counsel)
  • If your company conducts post-offer drug testing, explain that it is a condition of employment and continued employment that they pass (provide the details about the program that are required by law)
  • A paragraph explaining that your company complies with federal immigration laws, that the person must be legally authorized to work in the U.S. and must complete the I9 process as a condition of employment. Include that any fraud or misrepresentation on the I9 is grounds for discipline, up to and including termination.
  • A paragraph explaining that your company strives to provide a rewarding work environment, supports the goals of the laws that prohibit employment discrimination and harassment, and complies with all applicable discrimination and harassment laws
    • tell them that a copy of your sexual harassment policy is attached to the offer letter and that the person needs to sign an acknowledgment that they’ve received and read the policy and will comply with it
  • A paragraph that lists any other documents you are attaching to the offer letter (such as confidentiality agreement, Form I9, HR policy handbook, acknowledgement of receipt of HR handbook, etc.) and gives them the date by which they need to return any documents that require their signature
  • A final paragraph letting them know how long they have to accept the offer and providing a contact name in case they have any questions
  • Below your signature on the letter, include an acknowledgment that the person has to sign to show their acceptance of the offer. Consider including these statements in the acknowledgment:
    • that they have read and understand the letter and have had a chance to speak with their own counsel about the contents
    • that they understand that employment with the company is at-will and nothing will change the at-will relationship
    • that the letter supersedes any other statements or promises from any representative of the company, and any such statements or promises do not have force or effect

Of course, you may not need all of these items or you may need additional terms, depending on the circumstances. It’s a good idea to coordinate with human resources or legal counsel to make sure that your letter is accurate and complete.

When you enter into a new relationship with an employee, it is not done with anticipation that the relationship may sour down the road. But if you’ve used an offer letter properly, you’ve set off on the right professional footing with the person and you’ve gone a long way toward protecting yourself from some kinds of liability that could arise later. Take advantage of the opportunity and use it to benefit your company and the potential new hire.

Barrie Gross is former Vice President and Senior Corporate Counsel (Employment Law) for an international Fortune 1000 company and is a regular contributor to AllBusiness.com. She is the founder of Barrie Gross Consulting, a human resources training and consulting firm dedicated to assisting companies to manage and develop their human capital. Visit www.barriegrossconsulting.com to learn more about Barrie and the services BGC provides.

Note: The information here does not constitute legal advice and should not be relied upon as legal advice. If you have a legal issue or wish to obtain legal advice, you should consult an attorney in your area concerning your particular situation and facts. Nothing presented on this site or in this article establishes or should be construed as establishing an attorney-client or confidential relationship between you and Barrie Gross. This article is provided only as general information, which may or may not reflect the most current legal developments or be complete.