Running a Shop Human Resources

The Ins and Outs of Offer Letters

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offer letter

When the recruiting phase has been completed and you’ve made a decision on your ideal candidate, typically a verbal offer is made, followed by an employment offer letter. This letter is not just a random piece of paper stating, “You got the job!” It’s technically a contract. 

The candidate's signature on the offer letter confirms that they have accepted and committed to the position and its terms. For this reason, an owner should be mindful of the language used in the offer letter, or it may be construed as an employment contract or agreement.

“An offer letter outlines the rules of employment, share critical information to the employee, and can be used as a summary of the employee handbook,” says Tony Lee, VP at the Society for Human Resource Management.

Lee has worked for more than 20 years in the field. Over his time, he’s seen a surge of what he calls “ghosting”—someone verbally accepts the position and then never shows up—which is at a rate of over 40 percent, he says. 

To avoid employee “ghosting” in the first place, an offer letter is the way to go. Chris Knuth, owner of Star Motors in San Juan Capistrano, Calif., always provides an offer letter whether they are full-time or part-time, exempt or non-exempt. When Knuth recently hired a technician, he says providing a formal offer letter is what made the technician decide to work for him. The tech said the other places he applied made it verbal, whereas this was a concrete offer he could take home to his family, show them the details, and from that, they were then able to make a better decision for their family with it in writing.

Step 1: Highlight basic information.

According to Lee, the offer letter should begin with a statement that includes information such as the position title, start date, orientation date, full or part-time status and applicable shift. Employers should avoid using phrases that imply an indefinite future of employment, such as "job security," "we're a family company" or "in the future." Including these types of phrases in the basic information section could hold the company liable if they were to let someone go and then took legal action. In reality, it’s like a promise the company isn’t sure it can keep.

In the offer letter, Knuth also includes information like hours of the shop and the shop’s address and phone number.

Step 2: Detail job-specific information.

The offer letter should provide details on the salary and pay periods. Employee compensation should be stated in an hourly, weekly or per-pay-period salary amount to avoid the expectation of receiving the full annual salary if the employee is terminated midyear, Lee says. An annualized equivalent may be mentioned, but only after payment is clearly stated in one of these increments. It is practical to include the supervisor or manager to whom the employee will report, as well as the performance development or evaluation periods for company employees, Lee says.

“If someone has not worked in a certain area, we let them know what the job entails,” Knuth says. “By the time we actually hire someone, everyone is pretty much on the same page—we just put it into writing, so that there is a clear expectation.”

Step 3: State benefits.

Lee says employers should add a summary of the applicable benefits and eligibility requirements for health care insurance, 401(K) plans, life insurance, educational assistance, flexible spending accounts, short- and long-term disability and accidental death and dismemberment coverage—just what every employee likes to hear.

Step 4: Talk about paid leave.

The amount of leave that the employee is entitled to should be described next, Lee says. This should include holidays, paid time off or vacation, sick and personal time.

Step 5: Indicate terms of employment.

Another paragraph should include the conditions of employment. This section typically covers items such as successful completion of drug testing and background checks, signing of confidentiality agreements, compliance with immigration law and completion of a Form I-9, according to Lee. The conditions should never include statements about job security, promises of future employment or contractual agreements. The individual can attest via signature that he or she is not bound by any non-compete agreements or other restrictive covenants with former employers.

Step 6: Include at-will statement.

A statement that the employment relationship is at-will should be added at this point. It allows the employer the right to terminate the employee at any time, with or without cause, and gives the employee the same right to resign from the position, Lee says. A contract binds both the employer and the employee; an at-will statement may alleviate that commitment. If statements were made by the employer during the interview process, either orally or in writing (e.g., in an offer letter), that implies an employment agreement, Lee says. Then, the employer may have an obligation to uphold it as a contract. The employers should seek legal guidance in those matters.

Step 7: Close with contact information.

The offer letter should close with information regarding a point of contact for questions or concerns. An employer can include sentiments that express the organization's excitement in bringing the employee on board, Lee says. The letter may also contain a few words about the company culture. Finally, the letter should end with a line for the employee's signature and date. Organizations may want to include a sentence that the offer letter is for informational purposes only and is not a binding contract, he says.

Step 8: Send for legal review.

As with any document that an employer presents to its employees, it is imperative that the offer letter template is reviewed by legal counsel prior to implementation, Lee says.

Step 9: Send ASAP.

Whether its in person or in an email, that’s not the most important thing. No matter what, Lee says you need to get the offer letter to the candidate as soon as possible; that candidate is probably has other job offers on the table.

Step 10: Weigh out the timeframe.

Once you’ve sent the letter, it’s now a waiting game. Lee says there’s no hard-rule on how long to give a candidate to accept; it all depends on the quality of the candidate and how much you want them as an employee. If you want them, give them more time; and if you don’t want them as much, give them a little less.

*Information provided by the Society of Human Resource Management

 

Test Your Knowledge

Read these scenarios and highlight the answer section below it to reveal the correct one.


Scenario 1:

After an extensive interview process, an employer has decided on a candidate. The employer verbally offered the position to the candidate and followed up with an offer letter. The offer letter stated that the company was financially sound and that the candidate "would have job security with the company even during these tough economic times." The candidate accepted the position and signed the offer letter. About two months after hiring, the employee was told that the company would need to lay him off as part of a reduction in force.

Can the employee sue?

Answer: Yes

The offer letter stated that there would be job security and did not include an at-will statement. Although the suit was a financial burden to the company, it taught the employer a lesson on how to prepare an offer letter using appropriate language that does not constitute an implied contract.


Scenario 2:

An offer letter was drafted after a candidate accepted an oral offer of employment. The letter confirmed an annual salary amount that was agreeable to the candidate, who then signed and returned this letter to the employer. Six months into the job, the employer felt the employee was not a good fit and decided to terminate the employee. The employment was at will; however, there was no statement of such in the offer letter. In addition, only the annual salary was quoted in the letter, which implied that the employment was guaranteed for a year. 

Can the employee be terminated?

Answer: No

The employer could not terminate the employee due to the implied duration of employment unless the employer decided to pay out the remainder of the annual salary. This employer no longer adds annual salary amounts to its offer letters, but quotes the pay on an hourly, weekly or monthly basis.


*Scenarios provided by the Society of Human Resource Management (SHRM)

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