Nov 4, 2009
What is an offer letter and how is it different from an employment contract?
An offer letter is ordinarily a brief statement of the salary and benefits being offered to a prospective employee. An offer letter will customarily set forth base salary, commission rate (if applicable), a provision for equity compensation such as options or restricted stock, if any (although the actual terms of those grants will be contained in a separate agreement), and the benefits the employer will offer to the employee (such as health and dental, 401(k), etc.). Offer letters will customarily disclaim that they create any binding employment relationship - that it is intended merely to be a summary of terms and that employment remains "at-will" (i.e., the employer or the employee may terminate the employment relationship for any reason and at any time without any further obligation).
An employment agreement is a binding agreement that sets forth the terms of an employment relationship. In addition to setting forth salary, other compensation, and benefits, employment agreements may include terms governing severance payments, non-competition and non-solicitation provisions, assignments of intellectual property and others. These agreements can be heavily negotiated, and you typically will only want to use them to hire employees of especially high importance to the success of your venture
