The first exchange of formal documents that takes place between the employer and employee is an offer letter. Let's discuss the importance of such a crucial document and what components should be included.
What is an offer letter?
An offer letter is proof of confirmation for a job. The document is shared with the selected candidate, stating the offers of employment. It contains basic details such as the candidate’s designation, total compensation, benefits, and employment start date.
The candidate must sign the letter to confirm their acceptance of the offer.
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 avoid 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 like 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 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.
Mention any promises of promotions or appraisal
Use technical and legal jargon. This can lead to misinterpretation and might cause unnecessary trouble.
Getting a new employee on board can be very exciting but ensure that you are clearly communicating the terms with your employee. 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.
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 deep dive into the components of the offer letter.
How is an offer letter different from an employment agreement?
Offer letters are concise documents in comparison to the employment agreement. 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 letters are concise. They contain basic information like job title, salary, benefits, employment start date, name and title of the reporting manager
Employment agreements are extensive documents that contain detailed information about the terms and conditions of the employment
Offer letters are not legally binding. It is rather a proof of confirmation
An employment agreement creates a contract between the employer and the employee
The employer just lists down the expectations, there are no promises made to the employee
The agreement document clearly states the contractual obligations of both the parties
Offer letter include the ‘at-will’ clause
The ‘at-will’ clause is not mentioned in the employment agreement.
The bottom line difference between offer letters and employment agreements is that - Offer letters are a written confirmation of a verbal agreement that took place between the candidate and the employer. Whereas the 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
There are 10 different components that are put together 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 question 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 for cases where an employee is relocating or taking a break before joining the company.
3. Team and reporting structure
Informing the employee 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 then you can mention who their manager will be with the title of the manager along with a possible reporting structure.
Whereas a management level hire should be informed of the team he is expected to manage such as the no. of people in the team and how the hierarchy in the reporting structure will be applicable for 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 can prepare themselves for the job accordingly. This information will also help the employer in ensuring a smooth onboarding process for the employee.
5. Salary, benefits, and perks
One of the most critical information that an offer letter entails is the salary, benefits and perks that come along with the job.
Outline how much will the employee be making, will they be getting a bonus - if yes then are there any specific conditions attached to it, what is 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 on a monthly basis. What helps is to mention the total amount that they will receive and split it as per the payment schedule.
E.g. An employee earns $12,000 per year and the organization he works for pays on a monthly basis. The employee will be earning $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
Clearly defined key responsibility areas (KRAs) and key performance indicators (KPIs) of the employees should be included in the offer letter. Identifying KRAs and KPIs brings clarity to the role, lets the employee focus on the task to get the desired result, and helps make decisions that add value to the organizational growth.
KRAs vs. KPIs and how they differ
There's still some confusion about these terms and are constantly used interchangeably.
KRAs list down the activities, goals and tasks that are critical for the employee and the organization to achieve.
KPIs list down metrics that are used to measure how well a defined objective is achieved
Nature and measure
A strategic factor that is qualitative in nature
A metric that is quantitative in nature
Defines the expectations of a job or a particular task
Analyzes and measure the metrics of how well a task is performed
Here's an example of KRAs and KPIs drafted for a marketing executive.
Creating a social media campaign, devising ideas and strategies
Research and analysis of target audience
Marketable content distribution
Expertise in promotional activities
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
You can be more extensive when listing the KRAs and KPIs for your new hires to give them more clarity of their role and your expectations from 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 like non-compete, non-disclosure agreements or ask for some document to conduct background checks. Sometimes the employee may also have to go through a drug test in order 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 employee 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 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 the 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 that you can send the offer letter to the candidate for acceptance and signature.
Once the offer letter is shared with the candidate, your job is done, or is it? 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 where you can track the user activity, i.e. whether the sent document has been opened by the candidate, have they signed the document, 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 and convey to the employee that you are pleased for them to be part and look forward to onboard them as soon as they accept the offer.
Offer letter cover page
To stand out and grab the attention of your candidate, you should 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 is the document prepared for. Here's what a cover page might look like:
Offer letter template
[Candidate’s full name]
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.
Job description summary
[Insert annual salary breakdown]
[Define the KRAs and KPIs]
[Provide a reporting structure]
[Name and title of the reporting manager]
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 keep in mind to keep the language simple. Don’t use legal and technical jargon which might confuse the candidate. Keep the letter simple and to the point with enough information to convey your offer to the candidate.
Diksha Singh is a Product Expert at Revv. She works with the creative marketing team to come up with new and exciting content for her readers. When not working, she can be found engrossed in the world of fiction novels while tapping her foot to Coldplay.