Offer Letter vs. Employment Contract: Which Should Your Nonprofit Use?

Many nonprofits question whether they should use an offer letter or employment agreement for new employees. Understanding the general use of each type of contract and considering the nonprofit’s specific needs will help you decide whether an offer letter or employment agreement is best for your situation.

An offer letter is a formal job offer that lays out the terms of employment so that the potential employee knows the position and certain expectations. Offer letters are usually very brief and typically confirm the verbal discussion between the potential employee and the employer regarding the job.

Inclusions in an Offer Letter

  • Job title
  • Start date
  • Salary
  • Manager’s name
  • Employee benefits
  • Conditions to employment (background check, etc.)
  • Employment relationship (at-will)

Offer letters are standard for at-will employment. At-will employment means that the employer and the employee have the right to terminate the working relationship for any or no reason without advance notice. Avoid using statements regarding the time period of employment (term) and words that may be misconstrued as a promise of employment in offer letters as it can create an argument that the relationship is no longer at will.

An employment contract lays out the details of a role and includes much of the same information as an offer letter. However, unlike an offer letter, employment contracts include a certain time period (term). Thus, the employment is intentionally not at will but for a certain period of time. Other information an employment agreement may contain includes:

  • Termination/severance
  • Additional benefits (bonus, moving expenses, professional training)
  • Restrictive covenants (confidentiality, non-compete, non-disclosure)

Once signed the employer and employee are bound to the terms of the agreement. Employment contracts are usually negotiated and have historically been reserved for executives. However, employment agreements can also be used to recruit and retain specialized professional and technical employees. You should be careful to not create an employment contract when the intent was to create an at-will employment relationship.

As stated above, an offer letter and employment contract contain similar information, however, there are important distinctions. When creating an employment contract, it’s critical that you know what sort of terms of employment make sense for what you seek to accomplish.

Will the employment be for a set period of time or at will? Decide these ahead of time and you’ll know which form of contract works for your organizational needs.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.

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