The employment agreement, W-2 relationship, compensation structure, benefits, IP assignment, and confidentiality obligations — what to have right before day one.
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What's happening here
Hiring a W-2 employee is a fundamentally different legal relationship than hiring a contractor. The obligations, protections, and documents required are different — and getting them wrong from the start creates liability that compounds over time.
You've found the right person. They're coming on full-time — salary or hourly, with benefits. You need to formalize the relationship with the right paperwork: offer letter, employment agreement, and the embedded provisions that protect your business as the relationship begins.
An employment agreement defines the terms of a legally complex relationship governed by federal and state employment law. It clarifies compensation, at-will status, IP ownership, confidentiality, non-solicitation, and what happens at termination. Without it, every one of these areas becomes a potential dispute.
An employee who leaves and takes your customer list. An employee who builds a key product on your time and claims personal IP ownership. Compensation disputes about what was promised and what was delivered. A termination that becomes a wrongful termination claim because the at-will status wasn't clearly established. All preventable at hire.
The right agreement for this situation
The employment agreement is the foundation. The offer letter documents the terms at acceptance. The IP and confidentiality provisions — embedded or standalone — protect what the employee will create and learn during their time with you.
Core document
Defines the employment relationship: role and responsibilities, compensation (salary or hourly), benefits summary, work location, at-will status (in most states), hours expectations, PTO policy, equity if applicable, and termination terms. The governing document for the employment relationship.
IP and confidentiality
A standalone or embedded document assigning all work product created by the employee during employment to the company, establishing confidentiality obligations for business and client information, and defining post-departure obligations. The most important protective document in a first hire.
Offer documentation
A shorter, less formal document confirming the role, start date, compensation, and contingencies (background check, references). Often sent before the employment agreement — the offer letter confirms intent, the employment agreement is the binding contract.
What BizDraft asks you
Job title, department, salary or hourly rate, overtime eligibility (FLSA exempt vs. non-exempt), pay frequency, and any variable compensation — commission, bonus, or equity. These form the compensation clause.
Health insurance, dental/vision, 401(k), PTO, sick leave, parental leave, remote work policy. BizDraft includes a benefits summary clause and notes that benefits are subject to the plan documents — not the employment agreement itself.
In most US states, employment is at-will — either party can end it at any time for any lawful reason. If there's a fixed term or a specific termination procedure (notice period, cause required), BizDraft adjusts the termination clause accordingly.
Does the company own everything the employee creates during employment? Are there carve-outs for personal projects? BizDraft defaults to full work-product assignment to the company with a carve-out for pre-existing IP and personal projects developed outside work hours.
Non-solicitation of clients and employees, non-compete (where enforceable). BizDraft adjusts based on the state — California prohibits non-competes; Texas and Florida allow them with conditions. Non-solicitation is the default protective provision.
Employment law is heavily state-specific — minimum wage, overtime rules, paid leave requirements, non-compete enforceability, final pay timing. BizDraft adjusts the entire agreement based on the state you select.
What to watch out for
FLSA overtime exemptions have specific salary and duties tests. Calling someone "salaried" or "exempt" in a contract doesn't make it so. Misclassifying a non-exempt employee as exempt exposes you to back overtime pay, penalties, and potential class action liability.
Work-for-hire doctrine covers some employee-created work, but it has gaps — especially for software, creative works, and inventions. An explicit IP assignment in the employment agreement removes ambiguity about who owns what was built on company time.
Many states require paid sick leave, paid family leave, or other mandatory leave — and the minimums change frequently. An employment agreement that doesn't reflect state minimums may be unenforceable in the areas where it conflicts. BizDraft flags known state requirements for your state.
In at-will states, an employment agreement that describes performance review procedures, documentation requirements before termination, or "for cause" language without explicitly preserving at-will status may inadvertently create an implied contract limiting your termination rights.
Example
What you tell BizDraft
"Hiring a full-time operations manager. $72,000/year, exempt. Health insurance. 15 days PTO. At-will. Company owns all work product. Non-solicitation of clients and employees for 12 months post-departure. No non-compete. Massachusetts."
What BizDraft generates
An employment agreement with $72,000 salary, FLSA exempt designation, health insurance benefit reference, 15-day PTO policy, at-will clause, full IP assignment, confidentiality obligation, 12-month non-solicitation (clients and employees), Massachusetts governing law including MA paid sick leave notice.
Download options
Word and PDF. Review and adjust compensation, benefits, and IP terms inline before download. Send alongside the offer letter and have it signed before the start date.
Frequently asked questions
For a first employee, both. The offer letter confirms the role and compensation at acceptance — before the employment agreement is signed. The employment agreement is the binding contract that covers IP, confidentiality, and all the protections an offer letter doesn't include.
At-will means you can terminate for any reason except an unlawful one — discrimination based on protected class, retaliation for protected activity, violation of public policy. At-will does not mean unlimited termination authority; it means no contractual requirement for cause. Employment counsel is worth consulting before any termination.
Yes. Equity grants (stock options, RSUs) should be referenced in the employment agreement but governed by a separate equity plan document. Bonus structures can be embedded directly. BizDraft includes equity and bonus provisions and flags that equity details are governed by the separate plan documents.
Federal requirements: W-4 (tax withholding), I-9 (work authorization verification). State requirements vary — some require new hire reporting within a defined period. You'll also need to register for payroll taxes in your state. The employment agreement is the contractual foundation; HR and tax paperwork are separate compliance requirements.
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