How to Write an Offer Letter: Components and Template

Getting the right hire is key for any business. 

An offer letter is the first formal document exchange between an employer and an employee. It not only serves as a formal invitation to join a company but also outlines the terms of employment, helping to set clear expectations from the outset. The candidate must sign the letter to confirm their acceptance of the offer.

Integrating the offer letter process with onboarding software can facilitate transitions for new hires, ensuring they feel welcomed and informed from day one.

Understanding the essential components of an effective offer letter is crucial for employers who want to attract and retain top talent. Let's discuss the importance of this crucial document and what components should be included.  

Dos and don'ts of writing an offer letter

The entire process of hiring and sending out offer letters to employees is a time-bound activity that needs you to churn out required documents quickly and with minimal or no errors. 

Getting a new employee on board can be very exciting, but ensure that you clearly communicate the terms to your employees. Don’t leave room for any ambiguity. What to include and what not to include might differ depending on where your company is operating from (which country or region). A carefully worded offer letter can meet any or all necessary provisions of the law.

Here are the dos and don’ts to consider before you send the offer letter to your employee. 

Dos: 

• Use your company letterhead to share your offer letters. This will clearly specify the name of your company.
• Make sure to update the employee’s name and complete address correctly.
• Clearly specify the designation, term of employment, remuneration, and benefits 
• Mention the ‘at will’ clause to prevent the candidate from assuming the offer letter as a legally binding contract. This clause allows the employer or the employee to terminate the employment term at any time without cause or notice
• Specify other contingencies that govern the agreement and the employment relationship, such as requirements to sign the non-disclosure agreement, non-compete agreement, undergoing any specific training or tests, etc.
• Use simple language that the employee can understand. Try to keep the language simple so as not to confuse the employee.
• Welcome the employee to your organization. Mention that you are happy for the employee to be a part of your organization and look forward to working with them.

Don'ts: 

• Mention any promises of promotions or appraisal 
• Use technical and legal jargon. This can lead to misinterpretation and might cause unnecessary trouble.

There are still high chances of hiccups like missing out on any particular clause or term, incorrect legal jargon, or spelling mistakes. To tackle such situations, you can use vetted offer letter templates that can be customized as per your organization’s requirements and guidelines. This simplifies the document creation process and gives you a headstart.

Be very mindful of what document you are preparing. People often get confused between the use and purpose of an offer letter and an employment letter. Let’s clear that air of confusion before we dive deep into the components of the offer letter.

How is an offer letter different from an employment agreement?

Offer letters are concise documents compared to employment agreements. Offer letters contain the basic terms and conditions. Employment agreements, on the other hand, are lengthy documents that include more complicated terms and conditions governing the employment term.

So here are some points that put your confusion to rest:

The bottom line difference between offer letters and employment agreements is that Offer letters are a written confirmation of a verbal agreement between the candidate and the employer, whereas an employment agreement is a binding contract that both parties must adhere to throughout the entire employment duration.

10 components to include in your job offer letter

Ten different components are combined to create an offer letter. It is critical that you include these components in a well-structured format for better communication and understanding. Here are some basic components that you must include when creating an offer letter.

1. Job title and description

Mention the title of the role for which the candidate is selected. Follow it up with a brief description of what’s expected out of the role and mention any specific requirements that this job demands. This can be a good reference point if any questions about the role and its responsibilities arise in the future.

2. Starting date of employment

Specify the joining date in bold in your offer letter. This will ensure that both you and the employee are on the same page. A clear joining date provides the employee with time to manage and wrap up earlier obligations and join your organization with no previous work hangover. This is especially applicable to cases where an employee is relocating or taking a break before joining the company.

3. Team and reporting structure

Informing the employees about the team they will be working with and the managers they will report to brings in a sense of confidence and comfort. The information pertaining to the teams and reporting structure will vary depending on the role for which the employee is hired.

If an employee is hired for an entry-level or executive-level position, you can mention who their manager will be, along with the title of the manager and a possible reporting structure.

A management-level hire should be informed of the team he is expected to manage, such as the number of people on the team and how the hierarchy in the reporting structure will apply to his role.

4. What candidates should expect on day one

It will be helpful for both the employer and employee to be prepared in advance. Listing down some basic expectations will give the employee a sense of what to look forward to and allow them to prepare for the job accordingly. This information will also help the employer ensure a smooth onboarding process for the employee.

5. Salary, benefits, and perks

One of the most critical pieces of information an offer letter entails is the salary, benefits, and perks associated with the job. 

Outline the employee's salary, whether they will be getting a bonus (if yes, are there any specific conditions attached to it), the commission structure, and any other compensation structure that they should know about.

Explain how the payment schedule works. Whether the employees will be paid daily, weekly, or monthly, it helps to mention the total amount that they will receive and split it according to the payment schedule.

For example, an employee who earns $12,000 per year and is paid monthly by the organization he works for will earn $1,000 per month.

Lastly, you must mention the benefits that your organization offers. Benefits are given over and above the fixed compensation that the employees can enjoy, such as health insurance, 401k plan, etc. Some employers also offer small benefits like vouchers, lunch coupons, phone bill payments, and much more.

6. Anticipated KPIs and KRAs for the role

The offer letter should include clearly defined key responsibility areas (KRAs) and key performance indicators (KPIs) of the employees. Identifying KRAs and KPIs clarifies the role, lets the employee focus on the task to achieve the desired result, and helps make decisions that add value to organizational growth.

KRAs vs. KPIs and how they differ

There's still some confusion about these terms, and they are constantly used interchangeably.

Here's an example of KRAs and KPIs drafted for a marketing executive.

KRAs:

• Creating a social media campaign, devising ideas and strategies
• Research and analysis of the target audience
• Marketable content distribution
• Expertise in promotional activities

KPIs:

• Number of follows, profile visits, engagement with the posts per day/week/month from the newly launched social media campaign
• Reach of promotional activities
• No. of leads coming in through the social media campaign
• No. of signups from website blogs
• Backlinks generated per week from guest posts

You can list the KRAs and KPIs more comprehensively for your new hires to give them a clearer understanding of their role and your expectations of them.

7. Any probationary rules or contingency for hiring

A good number of employers require new hires to work on probation for a fixed no. of days or months. The duration may vary from one organization to another. If your company has a defined probation period, then the employee should be informed about it in the offer letter along with added conditions, if any.

The offer letter should also specify details about other contingencies pertaining to this agreement. The employer can ask them to sign a few more agreements, such as non-compete and non-disclosure agreements, or request a document to conduct background checks. Sometimes, the employee may also have to undergo a drug test to ensure that the offer remains valid.

There should be no element of surprise when it comes down to something as critical as job offers. It is of utmost importance that the employee is made aware of such contingencies before joining the organization.

8. Acquainting with the company culture

Ensuring that all the technicalities are explained in the offer letter is a must, but this should not restrict you from giving your new hire a peek into the organization’s culture. Welcome the employees with a cheerful tone that makes them feel a part of your organization. Mention your company’s overall mission and vision. Make the new employee feel wanted and an important addition to the team.

9. Address the legal technicalities

Lastly, ensure that all the necessary information required in an offer letter is included to keep the expectations straight from both ends, like the at-will clause.

10. Acknowledgement of offer acceptance by the candidate

Only when all the required components are included and packaged completely can you send the offer letter to the candidate for acceptance and signature?

Once the offer letter is shared with the candidate, is your job done? There are a few more things that you can do to be on top of your hiring game.

Create your offer letter within a document management tool. This tool allows you to track user activity, such as whether the candidate opened the sent document, signed it, and so on. 

You can also ensure a smooth signature process by connecting your offer letter with the e-sign feature. The candidate can do away with the hassles of downloading, printing, signing, and then sending the document via email. A simple click with the e-sign tool, and the offer letter is signed.

11. Closing statement and thank-you

End your offer letter with a casual thank you on behalf of the company. Convey to the employee that you are pleased for them to be part of the company and look forward to onboarding them as soon as they accept the offer.

Offer letter cover page  

To stand out and grab the attention of your candidate, you should do something different from what the other companies are doing. For that, you don’t need to work hard, but work smart with vetted, ready-to-use templates; you can draft a creative offer letter that holds the candidate’s attention and helps you work faster.

Add a cover page to your offer letter that contains standard information like your company logo and who the document is prepared for. Here's what a cover page might look like: 

Offer letter template

[COMPANY LETTERHEAD]

[Date]

[Candidate’s full name]

[Candidate’s address]

Dear [Candidate Name],

We are pleased to offer you the full-time position of [Designation or Title] at [Company Name]. Your tentative date of joining will be [Date], contingent upon the successful completion of background verification.

You will be expected to work for [No. of hours per week] from Monday to Friday. We do offer remote working up to [no. of day per week or per month]. A summary of your job description is attached to familiarize you with the roles and responsibilities and the reporting structure.

Your annual salary will be $ [Amount] and will be paid on a monthly basis, subject to applicable taxes. A breakdown of the annual salary is provided in Appendix-A.

This offer is valid until [Date]. Please confirm your acceptance of this offer by signing and returning this letter within such a date. If you do not confirm your acceptance, we have the right to withdraw the offer.

Please note that [Company Name] is offering you this employment opportunity on an at-will basis. This offer letter does not constitute a contract of employment and you shall receive your contract of employment upon joining.

We look forward to having you on our team. If you have any questions, please feel free to reach out to us.

Sincerely,
[Your name] 

Attachments:

• Appendix A
• Job description summary

[Insert annual salary breakdown]

[Define the KRAs and KPIs]

[Provide a reporting structure]

[Name and title of the reporting manager]

Common mistakes to avoid when writing an offer letter

When crafting an offer letter, it's essential to be meticulous and intentional. Here are some common mistakes employers often make and tips on how to avoid them:

1. Vague language

Using ambiguous terms or phrases can lead to misunderstandings about job responsibilities, compensation, or employment terms.

Be as specific as possible. Clearly define the job title, responsibilities, salary, benefits, and other key details. This clarity helps prevent confusion and sets clear expectations for the candidate.

2. Omitting key components

Failing to include essential elements, such as the start date, compensation details, or the at-will clause, can result in legal complications or misunderstandings later on.

Before finalizing the letter, refer to a checklist of essential components. Ensure that you cover all critical aspects of the employment agreement, including any contingencies.

3. Lack of personalization

Sending a generic offer letter without personal touches can make the candidate feel undervalued or unimportant.

Personalize the letter by addressing the candidate by name and referencing specific discussions from the interview process. A warm welcome and acknowledgment of their strengths can enhance their excitement about joining the team.

4. Failure to proofread

Typos, grammatical errors, or incorrect information can create an unprofessional impression and may lead to misunderstandings. Always proofread the offer letter multiple times and, if possible, have another team member review it as well. A fresh set of eyes can catch errors you might have missed.

5. Neglecting compliance and legal aspects

Not adhering to local labor laws or regulations can result in serious legal consequences. Familiarize yourself with the relevant employment laws in your region. Consider consulting with an HR professional or legal expert to ensure your offer letter complies with all necessary regulations.

6. Not specifying the deadline for acceptance

Failing to indicate a deadline for the candidate to accept the offer can lead to prolonged indecision or uncertainty. Clearly state the acceptance deadline in the offer letter. This will encourage timely responses and help your organization plan accordingly.

Time to seal the deal

Getting resources that are the right fit for a role can create wonders for your organization. As mentioned at the beginning of the blog, hiring is a very time-bound job. If you don’t hire the best people for your job, then someone else will.

To achieve that, you need to nail the first formal or, say, semi-formal interaction in terms of documentation through an offer letter. Make sure all your i’s are dotted and t’s are cut before you send it out to the candidate to sign.

The most important thing to remember is to keep the language simple. Don’t use legal and technical jargon that might confuse the candidate. Keep the letter simple and to the point with enough information to convey your offer to the candidate.

Discover how recruiting automation can save you time, reduce errors, and ensure a seamless experience for new hires.

This article was originally published in 2020. It has been updated with new information.