How to Clearly Word Compensation Agreements in a Contract

How to Clearly Word Compensation Agreements in a Contract

When drawing up a business-to-business partnership, vendor agreement or employment contract, one of the areas of focus for both parties is the compensation agreement. In many cases, when employees work in positions involving performance bonuses or when they work on commission, it is very important to word the compensation agreement clearly so that there are no ambiguities about how the employee or vendor will be paid.

Compensation Agreements

Of course, this applies to written agreements. In many cases, employers don’t use a traditional written format for employee agreements. Instead, the agreements are implied, either based on handbooks, policies or memoranda. It is highly recommended that businesses or employees avoid complications in collecting payments by requesting written agreements. There are resources available regarding your legal rights as a business in collecting payments from delinquent debtors, and these are best enforced early on to avoid having to take the case to court.

How to Write Unambiguous Compensation Agreements

Contracts that are written in a language that is specific and clear work best. When writing up a compensation agreement with your employer, ensure that this is kept in mind. You can never be too detailed in your compensation agreement. The more definitions there are the better. Make sure that your employer clearly spells out the terms as best as they can. Make sure the payment calculations are clear, so that there are likely to be fewer problems in the future. If there is any area of doubt, do not hesitate to bring this to the employer’s notice before the agreement has been signed on.

There are standard templates that are available for drawing up clear and unambiguous compensation plans. These are based on plans that businesses have been using successfully for decades. Your state’s workforce commission will have advice on how best to word the document so that your rights can be protected. One of the valuable pieces of advice that the Texas Workforce Commission provides is the necessity of stressing the “at will’ nature of the relationship between the employer and employee or the businesses in a relationship.

Special Provisions to Clarify

There are certain elements of the agreement that your lawyer will advise you to pay special attention to.

This includes the term of the compensation agreement, including the start and end dates as well as how the compensation agreement will be set at the end of the term. The last may be decided on the basis of the employer’s business policies or on the basis of other clauses in the compensation agreement.

The type of compensation must be mentioned, whether it is an hourly wage, yearly salary, commission or other form of compensation. The value of the hourly rate or other type of compensation must be mentioned, including how often or when your business is to be paid.

When writing an employment agreement, it is also necessary to mention the terms of overtime, vacation times and any additional bonuses. As an employee, be very clear about what you are owed by your employer.

In order to avoid an expensive and stressful lawsuit, do the due diligence with the help of a lawyer and draw up a compensation agreement that protects your rights as a service provider.

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