For anyone today, time is of the essence and seamless operations are paramount. However, HR professionals often find themselves consumed by the time-consuming nature of basic contract management activities.
Traditional methods of HR contract management fail to deliver the streamlined processes necessary to meet modern demands. As a consequence, employees are left frustrated by delays when they don’t receive their employment contracts on time, resulting in a subpar onboarding experience.
This is when you MUST think of investing in CLM software. It can help you navigate the intricacies of HR contract management with unparalleled efficiency, enabling faster processes, enhanced accuracy, and a delightful experience for employees and new joiners.
Let’s delve into the world of mastering HR contract management with a few handy best practices and a CLM tool at your disposal.
Types of HR contracts
As the HR department of your organization, you would rely on various types of contracts to establish employment relationships, protect confidential information, and define terms and conditions.
Only after you know the type of contracts you’ll be dealing with will you be better equipped to understand the challenges that arise in managing them effectively and how HR contract management software can help overcome these hurdles.
#1 Employment contracts
Employment contracts serve as the cornerstone of the employer-employee relationship, providing clarity and defining the rights and responsibilities of both parties. There are three kinds of employment contracts:
a. Permanent employment contracts
Permanent employment contracts are the most common type of employment agreement. They establish an ongoing employment relationship between an employer and an employee without a specified end date, and typically outline essential details such as job responsibilities, compensation, benefits, working hours, and termination provisions.
b. Fixed-term contracts
Fixed-term contracts are agreements that establish employment for a specific period. They are commonly used when there is a temporary need for an employee, such as to cover a maternity leave or a specific project with a defined timeframe. These contracts clearly state the start and end dates of employment, as well as any conditions for renewal or termination.
c. Part-time and temporary contracts
Part-time and temporary contracts are used when the employment relationship is not intended to be permanent or full-time. Part-time contracts define reduced working hours and associated benefits, while temporary contracts outline employment for a short duration, covering seasonal or short-term staffing needs.
#2 Independent contractor agreements
Independent contractor agreements are used when engaging individuals or companies to perform specific services for your organization on a contractual basis.
These agreements clarify that the contractor is not an employee and outline the scope of work, compensation terms, intellectual property rights, confidentiality provisions, and any other relevant terms and conditions.
#3 Non-Disclosure Agreements (NDAs)
Non-disclosure agreements are contracts used to protect sensitive information shared between parties, such as trade secrets, client lists, or proprietary data. NDAs ensure that the recipient of confidential information does not disclose or misuse it, maintaining the confidentiality and integrity of valuable business assets.
Also read: The Ultimate NDA Checklist: Draft, Review & Sign NDAs
#4 Confidentiality agreements
Similar to NDAs, confidentiality agreements are designed to safeguard sensitive information. They typically cover a broader range of information, including not only trade secrets but also internal processes, financial data, customer information, and other confidential materials related to the organization's operations.
#5 Non-compete agreements
Non-compete agreements are contracts that restrict an employee's ability to work for a competitor or start a competing business within a specific geographical area and timeframe after leaving their current employer. These agreements aim to protect a company's intellectual property, trade secrets, and client relationships by preventing former employees from using the knowledge gained during their employment to compete against the organization.
#6 Severance agreements
Severance agreements are contracts that define the terms under which an employment relationship ends. These agreements often provide financial compensation, benefits continuation, and other considerations in exchange for the employee's agreement to release any legal claims against the employer.
#7 Consulting agreements
Consulting agreements are contracts used when engaging external consultants or freelance professionals to provide specialized services to an organization. These agreements outline the scope of work, deliverables, compensation terms, and other relevant provisions to ensure a clear understanding between the consultant and the hiring company.
Challenges of HR contract management
Given the number of HR contracts in a company, there are several challenges that can have dire consequences. Here are some of the most common ones.
#1 Manual and paper-based processes
Relying on manual and paper-based processes for managing HR contracts can lead to inefficiencies, errors, and increased costs.
For example, imagine a scenario where an organization stores its employment contracts in physical files. If an important contract goes missing or is misplaced, it can cause delays in retrieving critical information, such as an employee's agreed-upon salary or benefits. This can result in payment discrepancies, discontented employees, and even potential legal issues.
#2 Lack of standardization
When there is a lack of standardized contract templates and processes, it can lead to inconsistencies and misinterpretations.
For instance, consider a situation where you have multiple departments, each creating their own employment contracts without clear guidelines. Inconsistencies in clauses, terms, or obligations can create confusion and disputes when conflicts arise.
Also read: How to Standardize a Contract in 7 Easy Steps
#3 Compliance risks and legal issues
HR contracts are subject to numerous legal and regulatory requirements. Failing to comply with these obligations can result in serious consequences.
For example, if you fail to include mandatory clauses related to minimum wage requirements in your employment contracts, you may face legal penalties and back-payment claims from employees.
Also, non-compliance with data protection laws, such as failing to include necessary privacy provisions, can lead to data breaches, lawsuits, and significant financial losses.
“It’s important for employers, especially those operating a nation-wide business, to remember that employment laws vary across provinces. It’s the employer’s responsibility to stay up to date on the terms and provisions of any provinces they operate in.”
~ Patrick Stepanian, Legal Manager, Peninsula Canada
How to draft a 'watertight' employment contract
#4 Difficulties in tracking expiration and renewals
Tracking contract expiration and renewal dates manually is cumbersome, especially when dealing with a large number of contracts.
Without a proper system in place, you may fail to renew contracts on time or overlook crucial renewal terms. This can result in unintended contract terminations or missed opportunities for renegotiating favorable terms.
#5 Inefficient collaboration and communication
Lack of efficient collaboration and communication among stakeholders involved in HR contract management can lead to delays, errors, and misunderstandings.
For instance, if a contract review process heavily relies on email exchanges and physical document sharing, important updates or revisions may be missed or misunderstood. This can result in inaccurate contract terms, delays in approvals, and a breakdown in communication between HR, legal, and other departments. In some cases, this breakdown can lead to costly legal contract disputes or missed business opportunities.
You can easily address all these challenges and prevent heavy losses or reputation damage for your company with a process to manage your HR contracts.
8 Best practices to manage HR contracts efficiently
After seeing the challenges above, you’d have realized that managing HR contracts effectively is non-negotiable.
By implementing HR contract management best practices, you can streamline your contract processes, reduce errors, and optimize HR operations.
#1 Standardize contract templates for clarity and consistency
Establishing standardized contract templates helps maintain consistency and clarity across all HR contracts.
Standardizing contracts is not a complex process; all it needs is planning and the right tools. Let’s take you through the seven steps to building standard form contracts.
These templates should include essential clauses.
While specific clauses may vary depending on the organization and jurisdiction, here are some common clauses to consider including in HR contract templates:
- Parties to the contract: Clearly identify the parties involved in the contract, including the employer and the employee or contractor
- Employment status: Define the employment status, whether it is permanent, fixed-term, part-time, or temporary
- Job description and responsibilities: Outline the employee's position, duties, and responsibilities within the organization
- Compensation and benefits: Specify the employee's salary or wage, payment schedule, and any additional benefits or allowances provided, such as health insurance, retirement plans, or paid time off
- Work hours and schedule: Define the standard work hours, scheduling requirements, and any provisions for overtime or flexible working arrangements
- Probationary period: If applicable, state the duration of the probationary period, during which the employee's performance and suitability for the role will be evaluated
- Termination and notice periods: Clearly state the conditions and procedures for terminating the employment contract, including notice periods required by both parties
- Confidentiality and non-disclosure: Include provisions that safeguard the organization's confidential information and trade secrets, restricting the employee from disclosing or misusing such information during and after employment
- Intellectual property rights: Address the ownership and protection of intellectual property created by the employee during the course of their employment, ensuring it belongs to the organization
- Non-competition and non-solicitation: If applicable, specify any restrictions on the employee's ability to compete with the organization or solicit its clients or employees after the termination of the contract
- Dispute resolution: Outline the mechanisms for resolving disputes, such as mediation or arbitration, to avoid unnecessary litigation
- Governing law: Specify the jurisdiction and applicable laws that govern the interpretation and enforcement of the contract
- Amendments and entire agreement: Clarify that any modifications to the contract must be in writing and signed by both parties, and specify that the written contract constitutes the entire agreement between the parties, superseding any prior agreements or understandings
With standardization, you automatically reduce ambiguity, minimize errors, and facilitate easier interpretation and understanding of contract terms.
Also read: Rolling Out An Employment Agreement - Key Clauses
#2 Centralize contract storage for visibility and easy access
Maintaining a centralized digital repository for all HR contracts enables easy access, retrieval, and tracking.
Cloud-based document management systems, such as Google Cloud or One Drive, provide secure storage, version control, and access controls, ensuring that contracts are organized, protected, and readily available when needed.
This centralization eliminates the risks associated with physical document storage, such as misplacement, loss, or damage.
Also read: Contract Storage: Store Your Contracts Effectively
#3 Automate contract creation and approval processes to reduce delays
Automated workflows ensure that contracts follow the designated approval hierarchy, reducing delays and ensuring accountability. Contract creation templates, pre-approved clauses, and electronic signatures further accelerate the contract lifecycle, improving efficiency and minimizing errors.
“By building the CLM tool, we brought added value. When you’re spending multiple hours a day on redundant tasks, it’s a good sign to see small improvements to that process yielding tremendous results. The CLM tool helped our legal team work more efficiently and the sales team to see what we were doing to enable them. Also, we got the bandwidth to prioritize commercial work and strategic thinking. It also helped us document the work and learn from it, and as a side benefit, it helped make a solid business case to scale the legal team at Pinwheel.”
~ Ryan Nier, General Counsel, Pinwheel
Counsel Corner: Putting legal on the map in a hypergrowth startup
For this, you need to implement HR contract management software and automate the creation, review, and approval processes. Here are some steps to automate these processes effectively:
- Adopt a secure HR contract management software and make sure it has e-signature and version control features. It should also enable collaboration and commenting features
- Standardize contract templates that include the necessary clauses and terms for different types of contracts
- Utilize the contract management software's template functionality to generate contracts automatically based on predefined templates
- Set up automated workflows to route contracts for review and approval. Define the order and hierarchy of approvers, specify the timeframes for each approval stage, and configure notifications and reminders
- Implement electronic signature functionality to facilitate remote and efficient contract signing
- Track all changes made during the contract creation and approval process
- Integrate the contract management software with other HR systems, such as HRIS (Human Resources Information System) or payroll software, to automatically populate contract details and ensure data consistency across platforms
Also read: Contract Management Software: Essential Features Checklist
#4 Establish clear contract governance to ensure adherence
Defining clear contract governance processes and roles is essential for effective contract management. Designate individuals or teams responsible for contract oversight, monitoring compliance, and managing contract renewals and terminations.
“While it doesn’t always get the love it deserves, a robust compliance function is an important part of risk-reduction at companies of any size. As such, in-house lawyers should get behind the creation of a compliance group if there isn’t one or enhance the existing one whether it sits in the legal department or not.”
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Building a Strong Compliance Department
Regularly review contract performance and enforce contract governance practices to ensure adherence to terms and obligations.
#5 Implement contract expiration and renewal tracking
Tracking contract expiration dates and renewal terms is critical to avoid unintended terminations or missed opportunities. You could set up manual contract reminders to get notified of upcoming contract expirations and renewal deadlines.
Proactively assess contract terms before renewal to renegotiate favorable conditions or consider alternative options.
Also read: How to Set Up Contract Reminders For Free
#6 Ensure compliance with legal and regulatory requirements
“With rapidly evolving technologies, the legal framework tends to lag behind. Whenever there is any amendment in a related regulation, you should be able to suggest necessary changes to the product team to ensure compliance.
~ Juliette Thirsk
Streamlining Legal at a FinTech Startup
Stay up to date with labor laws, non-discrimination regulations, privacy laws, and other legal and regulatory obligations that impact HR contracts.
Regularly review and update contract templates to incorporate changes in laws or industry standards. Ensure that contracts comply with applicable regulations and minimize legal risks.
Also read: SpotDraft completes SOC2 Type 1 audit
#7 Foster collaboration and communication
“Rebellions are built on hope 💫
But contracts ... are built on collaboration.”
~ Shiv Vyas, GC of Compusoft Group
Contracts are not built on hope, but on collaboration
Establish effective channels of collaboration and communication among stakeholders involved in contract management.
Encourage open dialogue between HR, legal, finance, and other relevant departments to facilitate timely review, negotiation, and approval of contracts.
Leverage collaboration tools to streamline communication, share documents, and track progress in real-time.
Also read: Unlock Efficiency with Contract Collaboration Software
Also read: 8 Top Contract Management Software Platforms
#8 Periodically audit and assess contract performance
Conduct periodic audits to assess contract performance, identify areas for improvement, and mitigate risks.
Evaluate contract effectiveness, vendor performance, and adherence to contract terms. Use the insights gained from audits to refine contract templates, negotiate better terms, and enhance overall contract management practices.
Did you know that you could further streamline these practices by simply adopting HR contract management software? Let’s see how.
Benefits of using SpotDraft as HR contract management software
When it comes to HR contract management tools, SpotDraft takes the lead. It is a comprehensive HR contract management software solution that offers numerous benefits for organizations looking to streamline their HR contract management processes.
With its advanced features and user-friendly interface, SpotDraft provides an efficient and effective solution for managing HR contracts.
Here are some key benefits of using SpotDraft as your HR contract management software:
#1 Streamlined contract creation
SpotDraft simplifies the contract creation process with its intuitive template-based system. It offers a library of customizable templates tailored for various HR contracts, ensuring consistency and accuracy in contract generation.
“It is helping us prepare standard templates and the agreement creation happens instantly through an intuitive questionnaire. Also, helps in digital signature alongwith keeping a trail log for the same.”
~ Abhisek M., Legal Counsel
G2 Review: Useful tool for agreement creation and digital signing
This eliminates the need to start from scratch for each contract, saving time and reducing errors.
#2 Automated approval workflows
SpotDraft enables automated approval workflows, ensuring contracts are routed to the right stakeholders for review and approval in a timely manner.
“SpotDraft is an end-to-end contract management tool, it has helped my organization maintain contract hygiene and clean approval workflow.”
~ G2 Review: Best customer support service and pliable as per business requirements
Customizable workflows can be designed based on organizational hierarchy, allowing for efficient collaboration and reducing bottlenecks. Automated notifications and reminders keep stakeholders informed and ensure contracts move through the approval process without delays.
Also read: Contract Workflow: A Step-By-Step Guide
#3 Electronic signatures and contract execution
SpotDraft integrates electronic signature functionality, enabling seamless and secure contract signing. This eliminates the need for physical signatures and the associated delays caused by printing, signing, scanning, and mailing documents.
“We wanted a one-stop shop, and we got it here, especially with their e-sign feature. Their editor is a beautiful combination of MS Word and Google Docs and hence very easy to use.”
~ Shria T., Manager Legal
G2 Review: Value for money
Contracts can be executed quickly and remotely, improving turnaround times and enhancing the overall efficiency of the contract management process.
Also read: How to Convince Clients to Sign Contracts Electronically
#4 Centralized contract repository
SpotDraft provides a centralized digital repository for storing and organizing all HR contracts. Contracts are securely stored in the cloud, ensuring easy accessibility and eliminating the risks associated with physical document storage, such as loss or damage.
“The key term extraction and a centralized repository for all of our contracts has made our contract tracking easier and hassle free. The user interface is intuitive and user-friendly, allowing business users or collaborators to easily navigate through the platform and find the information needed.”
~ G2 Review: Centralized repository for all our Contracts
The robust search and filtering capabilities of SpotDraft make it effortless to locate specific contracts, saving time and increasing productivity.
#5 Advanced collaboration and communication
SpotDraft facilitates seamless collaboration among stakeholders involved in the contract management process. Users can leave comments, track changes, and have discussions within the software, eliminating the need for disjointed email exchanges or separate document editing.
“SpotDraft does all the heavy lifting in terms of end-to-end contract management, maintaining all review versions, final validation before releasing for signatures, mapping parent contract to a subsequent child, saving important deadlines, notes etc.”
~ Aruna M., Manager legal
G2 Review: Hassle free comprehensive contract management tool
This enhances communication, streamlines the review process, and ensures everyone is on the same page.
#6 Contract analytics and insights
SpotDraft provides powerful analytics and reporting features that offer valuable insights into the contract management process. Users can track key metrics such as contract cycle times, approval times, and contract status.
“The reporting feature in SpotDraft also makes collecting and analyzing data points from contracts much easier. Also, all our contracts are in one place.”
~ Charlene N., Senior Contracts Manager
G2 Review: Great tool and great team!
These insights enable organizations to identify areas for improvement, optimize workflows, and make data-driven decisions to enhance contract management efficiency.
Also read: How to Use Contract Analytics Software to Uncover Insights
#7 Integration and compatibility
SpotDraft integrates smoothly with other HR systems and tools, allowing seamless data transfer and eliminating the need for duplicate data entry.
“We have multiple systems from which we get inputs that go into the process of letter generation. Spotdraft supports integration with all leading platforms to enable a smooth data flow.”
~ Jeykaran G., Manager - HR
G2 Review: Excellent tool for letter & signature automation
Integrations with HRIS, payroll software, and other platforms ensure data consistency and streamline HR processes.
Also read: 6 Must-Have CLM Integrations with Business Tools
Harness efficiency and eliminate errors with SpotDraft as your HR contract management software
As an organization that wants to establish and maintain employment relationships, protect confidential information, and ensure compliance with legal and regulatory requirements, you need to leverage HR contract management software.
The challenges associated with manual processes, lack of standardization, compliance risks, tracking difficulties, and inefficient collaboration can have dire consequences, leading to errors, delays, legal issues, and missed opportunities.
SpotDraft, as a leading HR contract management software, can significantly improve your HR contract management processes, save time, reduce errors, and enhance overall productivity. Want to see how it works for your organization? Request a demo!
