Knowing what to look for in a job offer letter could mean the difference between having a comfortable working relationship with your employer and having a difficult one. Although most employers do not consider job offer letters contractual agreements, these documents contain critical details you should carefully consider before you accept the offer. Signing a job offer letter that does not include necessary information about the job can end quite badly.
This article lists and discusses the crucial elements of job offer letters. You will learn how to critically examine a job offer and make your decision based on appropriate parameters. In this way, you can sign with the assurance that you are fully aware of the position’s compensation, benefits, and responsibilities.
Key Terms to Look for in a Job Offer Letter
- Position title. Be sure the job title is the title for which you interviewed.
- Position responsibilities. Be sure you understand the job responsibilities. Thinking you can learn some aspects of the position’s duties after you accept the job could lead to bad working relationships based on misunderstandings.
- Reporting structure. The letter should clearly define the authority relationships within the organization.
- Start date. If you are financially struggling and the start date is a month or more away, you may need to consider continuing your job search.
- The initial salary you can expect if you accept the position and the policy regarding raises and sales compensation. Remember that your starting salary is negotiable. In fact, most companies expect you to negotiate your starting salary.
- Some organizations use lockstep compensation programs, in which compensation is based on rank, without consideration for merit or performance. If the company uses a lockstep pay structure, you must get a promotion to get a raise.
- If you are a sales professional, be sure to consider the sales compensation program. Many companies do not offer this information to the public for privacy reasons. Ask for general information before you sign the job offer letter. Find out if the organization compensates for sales based on revenue or profit, if they pay performance-based bonuses, and how frequently they run promotions.
- Guaranteed Bonuses. Information about guaranteed bonuses, including a signing bonus, should include details such as the date you can expect it and the bonus amount. Know whether the offer states the maximum, minimum, or exact bonus amount. If you are guaranteed a bonus, and you do not receive it, you can make bring a claim for breach of contract.
- Discretionary Bonuses. You should know if the organization pays discretionary bonuses and when the company pays them. Organizations frequently pay these based on performance. Find out if these bonuses are paid based on company performance, team performance, or individual performance.
Deferred Compensation Programs
- Common deferred compensation programs are stock options, retirement plans, and pension plans. These plans can offer tax benefits because taxes are deferred on these earnings. Retirement and pension plans are taxed when the employee receives the funds, generally after the employee retires or leaves the company. Deferred compensation plans take two forms, qualified and non-qualifying.
- Qualified Deferred Compensation plans. These plans are regulated by the Employee Retirement Income Security Act and include 401(k), 403(b), and 457 plans. Employers who offer these plans must offer them to each employee, and the funds are safeguarded. Find out if the employer matches the funds you pay into the 401(k) plan.
- Non-Qualifying Deferred Compensation plans (NQDCs). These are 409(a) plans commonly used to attract and keep high-value employees. Organizations are not required to offer these to all employees, and they do not have a contribution limit. On the other hand, contributions to these plans are not safeguarded, so if the company files bankruptcy, employees can lose the money they paid into the 409(a). Besides, these may have a non-compete or non-solicit clause attached to them.
- Benefits, unlike salary requirements, are generally non-negotiable.
- Health Insurance. The job offer letter or an attachment to the letter should tell you the name of the health insurance company and what the insurance costs for yourself and your family. Find out if your physician is covered by the plan and your out-of-pocket expense for physician visits, hospital stays, and prescription drugs you currently take.
- Short- and long-term disability. Learn what these cover and what you will pay for the coverage.
- Life Insurance. Many organizations offer life insurance coverage for their employees. You need to know the cost and the coverage amount of this policy.
- Waiting period for insurance coverage. Often insurance coverage is offered after a 30, 60, or 90 day period after the start date. You may need to consider COBRA if the waiting period is too long.
- Non-complete. The purpose of a non-compete clause is to prevent employees from competing with the organization after their position ends. The restrictions should be only for a limited time and in a specific geographic location. The ability to enforce a non-compete clause varies throughout the states.
- Non-solicit. The purpose of a non-solicit clause is to prevent employees from soliciting other employees, clients, and customers to leave the company and follow the employee to their new company. Again, this prohibition should be for a limited period.
- Mandatory arbitration. Arbitration is not necessarily a bad option for dispute resolution; however, arbitration prevents you from presenting information to a jury. You cannot file an appeal if the arbitration process does not produce a satisfactory resolution to the problem.
Other Important Details
- Vacation time. The job offer letter should provide information about your paid vacation time, how you earn it, and when you can use it.
- Sick time. You should find information about how you accrue and use paid sick time.
- Family and Medical Leave Act. Covered employers must allow employees up to 12 weeks of unpaid leave each year to recover from illness or to care for a seriously ill family member.
Although this seems like a lot to consider before you accept a position, critically reading and clearly understanding the job offer letter will help you make an informed decision. If you have any concerns about a job offer, consult an attorney before you sign and begin your new position.