Episode 158 | Should Your Employees Get an Offer Letter or Contract?

Hey, everyone, welcome back. I’m so glad to have you here. Today we’re gonna be talking about offer letters and contracts and handbooks. One of the questions that we get really often, and questions I see in our Facebook quite often, is around the idea of whether they should be offering a contract or an offer letter to their employees. I want to start by saying if you have independent contractors, you’re always going to provide them with a contract. Offer letters are an option for practices that hire employees. But if you are contracting with an IC, you’ll always want to make sure that you have a contract. 

I do want to start this by saying you should always seek counsel from an employment attorney to see what’s best for you, given the type of practice that you have in the state that you’re in and the laws in your area. But I’m going to talk generally about the differences between the two. And some things to consider when making a decision around providing an offer letter or a contract to a potential employee. 

One of the most important things that you’re going to want to look at is around your state’s laws. If your state is an at will state, you have more options. And you can offer an offer letter or contract. If you are a for cause state, you’re more likely going to need a contract and not an offer letter. 

Now most states are at will states at this point. And I think there’s only a handful of states that are for cause states. But the reason behind that is if you are for cause you have to outline what the causes are that could allow you to terminate a relationship with that employee; similar to having contractors you list out in the contract, what things would constitute you being able to fire that potential employee? And so in at will states, you don’t have to have a reason you can fire at will, essentially, and don’t need to list out a set of criteria for terminating a relationship with an employee and vice versa, which is what makes it possible to offer an offer letter versus a contract. 

Now you might be thinking, what’s the difference between them? Why would I choose one over the other? And that’s a really good question. And I’ll again say it’s really important to talk to an employment attorney in your state when making a decision between these two. But generally speaking, contracts are a little bit more limiting to the employee and the business owner. So with a contract, as a business owner, you have more difficulty making changes to that contract. So each contract has kind of its limits. Either the contract goes a year, there’s a timeframe for how long the contract lasts, and then the contractor would have to or employee would have to re sign that contract once that time comes up. And that means that you generally speaking can’t add things or remove things from the contract until the period comes where it’s usually around 30 days before the contract ends where you can make edits. Have them re sign a new contract. So it limits you in your ability to make changes in what you’re offering, or things that you want to potentially take out of the contract. 

Whereas with offer letters, you’re essentially providing them a letter that is offering them a position that is contingent on what their job description is that you’d give them and the employee manual that you have. And so that means that you have the flexibility throughout the term of their employment to be able to adjust and make changes to the employee manual, because they don’t have a contract, they essentially are referring back to the employee manual that you have for policies and procedures and ways of navigating themselves in your workspace. And so, as an example, if you wanted to five months later, add a benefit, or remove a benefit, you have that option. When you have an offer letter with a manual as your documents for employment versus a contract. The employee manuals are signed by your employees. But they are a signature of acknowledgement versus, you know, contract that is an agreement that they’re agreeing to an employee manual, they sign saying that they’ve received it. And so you have the ability then to make edits and shift things in there or add things to it or remove things from it as time goes without necessarily needing the approval of that employee. Whereas with your contract, that’s what you’re going to need. 

And so a lot of group practice owners who are employing people and are in at will states will sometimes opt to, or most of the times opt to have an offer letter with an employee manual as their documents for the new hire versus having a contract, just because it allows for that flexibility that a contract generally doesn’t allow for. And so that’s mainly the reason why someone would choose that those are the main differences. 

Now, what’s important to note is that the offer letter is so if you have a contract, you’re just offering a contract, and you’re outlining every thing inside of that contract of what you’re expecting from them. Because they’re then needing to make to agree to it. Essentially, when they sign that contract, when you have an offer letter, you will be providing that offer letter, along with their job description, because that essentially, is their agreement of sorts, right? That they know, okay, this is what my job title is, this is what my duties are, these are my expectations. But then they’re going to be getting an employee manual with that offer letter that they sign in acknowledgement of receiving it. And in that manual will be all of your policies for employment, their rights as as an employee in the workplace, how to, you know, navigate the different aspects of working in your group practice. 

I do want to say that many group practice owners are starting to opt to separate their employee manual from their operations manual. I starting off had them combined, but throughout the years as our business has gotten bigger, and as we’ve added more procedures, more robust procedures, it was easier for us to separate our employee manual, which has more legal things inside of them and more employee rights related things in there, if there is more policies versus procedures, separating out the that from our operations manual, which has all of our procedures, there’s not really any legal things inside of there, or employee rights related things, but more processes and procedures for how to do the work that they’re doing, which, as you might know, tends to shift, often as we grow and expand or as time evolves, and new technologies are available and programs are available to simplify things. Or as we bring on new admin, we might be shifting our policy or our procedures. And so it’s easier to just change the operations manual, we tend to change that more often. 

Then we do the employee manual. So the what we do is every January, we look at our employee manual that has all of our policies, our legal things, benefits, you know, our expectations for them as an employee, HR related things, you know, expectations around notes and what notes look like, any legal sort of things, any documents or trainings that they are required to do as an employee. So as an example, here in the state of Illinois, all employees have any kind of business or cry or to take a sexual harassment training. And so that information would be in the employee manual. We tend to look that over every year at the beginning of the year, just to see if there are any new laws that are in place, or for wanting to offer any new benefits or remove any benefits for whatever reason, we tend to do that once a year. 

Whereas the operations manual, you might be going in there, especially during a point of growth or where you’re adding administrative staff, you might be going in there every couple of weeks and adjusting a process or procedure on how to do an intake, or how to do billing or the process for clinicians putting client information into your EHR, that stuff might shift more frequently, and is easier than to separate that out from the employee manual, because the employee manual, obviously needs to be signed by each employee that they’ve received it. Now if you make edits to it all the time, you have to have them re sent to the employees, they have to reassign it each time acknowledging that they’ve received it. Whereas with an operations manual, there doesn’t need to be any signature of receipt, because it’s not a legal document. It’s just your processes for your practice. And so you can edit it often without needing them to resign it and acknowledge that they’ve received it. 

Alright, so to recap, because this can be confusing, especially for newer group practice owners. When you want to hire an employee, you have the option between providing them with an offer letter that includes a job description and an employee manual that they sign, or you can offer them a contract, similar to what you would give to a contractor that you’re bringing on. States that are at will have the choice between having offer letters or contracts and states that are for cause states typically only provide contracts to their employees. Most businesses that are in at will states will do offer letters with an employee manual over a contract, because it provides more flexibility for the business owner to make adjustments throughout the year without waiting for a contract renewal period. Those are that’s pretty much the basics of it. So hopefully, I was able to answer that question. This was a question that was inside of our Exchange membership Facebook group. And hopefully that’s a clear enough succinct answer. But again, I recommend you talk to an employment attorney about what’s best for you and your group practice. See you next week.