Complete employment contract guide 2025 India: offer letter + service agreement templates, 10 essential clauses, IP assignment (mandatory all roles), confidentiality (enforceable indefinitely), non-compete (unenforceable post-employment per Section 27 Contract Act), probation 3-6 months standard, gratuity after 5 years continuous service, lawyer costs ₹2499-19999, free templates to ₹5000 paid.
Table of Contents
- Offer Letter Basics: What Must Be Included
- 10 Essential Clauses in Service Agreements
- IP Assignment: Ownership of Work Created
- Confidentiality & NDA: Enforceable Protections
- Non-Compete Reality: What Actually Works in India
- Statutory Requirements: Probation, Gratuity, PF
- Template Options & Lawyer Costs
Offer Letter Basics: What Must Be Included
An offer letter is your first formal communication with a new employee. It’s the foundation of the employment relationship. A good offer letter is clear, comprehensive, and legally compliant with India’s labor laws. A bad one creates confusion, liability, and potential disputes.
The Anatomy of a Professional Offer Letter
An offer letter must include:
- 1. Employee Details: Full name, date of birth, address, PAN, Aadhaar (if applicable). Verify these match government IDs
- 2. Job Title & Role: Specific job title (not generic “Employee”), department, reporting manager. Example: “Software Engineer – Backend” not just “Software Engineer”
- 3. Job Description & Responsibilities: Key responsibilities, expected deliverables, key performance indicators (KPIs) if applicable
- 4. Work Location: Office address, whether remote/hybrid/on-site. If multi-location, specify which is primary. Remote policy must be explicit
- 5. Start Date: Specific date (e.g., “January 15, 2026” not “immediately”). This is binding once signed by both parties
- 6. Employment Type: Full-time, part-time, contract, temporary. Specify if at-will employment (can be terminated anytime) or fixed-term
- 7. Compensation Package: Base salary (annual, not vague “competitive”), bonuses (specify if performance-based or guaranteed), allowances (HRA, DA, etc.), frequency of payment (monthly, bi-weekly), tax treatment of components
- 8. Benefits & Entitlements: Health insurance (coverage details), Provident Fund (PF) contribution %, pension, paid time off (PTO), leave policy (casual, sick, earned, maternity, paternity)
- 9. Probation Period: Duration (standard 3-6 months), what constitutes successful completion, termination terms during probation (usually ₹0 notice)
- 10. Conditions Precedent: Contingencies (background check, reference verification, drug test if applicable) + expected completion date. If conditions not met, offer withdrawn
- 11. Offer Validity: “This offer expires if not accepted by [Date]” (typically 7-14 days). Prevents candidate accepting other offers while delaying response
- 12. Acknowledgment of Company Policies: Employee agrees to comply with code of conduct, confidentiality, IP assignment, non-compete policies. Reference attached documents
Sample Offer Letter Structure (India Compliant)
Offer Letter Template Outline
TO: [Employee Name]
Date: [Date]
Subject: Offer of Employment – [Job Title]
Dear [Name],
We are pleased to offer you the position of [Job Title] at [Company Name].
Position Details:
Job Title: [Title]
Department: [Dept]
Reports to: [Manager Name, Title]
Work Location: [Address/Remote]
Start Date: [Specific Date]
Employment Type: Full-time / At-Will
Compensation (Annual CTC ₹[Amount]):
Base Salary: ₹[Amount]/month
HRA: ₹[Amount]/month
Dearness Allowance (DA): ₹[Amount]/month
Performance Bonus: [0-25% based on performance]
Total CTC: ₹[Amount]/year
Payment: Monthly, on [Date] via bank transfer
Benefits:
Health Insurance: Arogya Raksha (self + family)
Provident Fund: [% Contribution]
Paid Leave: 12 casual + 10 sick + [Other] days/year
[Other benefits]
Probation Period:
3 months probation. At successful completion, employment becomes permanent. During probation, either party can terminate with 1 day notice or payment in lieu.
Conditions Precedent:
This offer is conditional on: (1) Satisfactory background verification (₹[Cost] to be borne by company); (2) Valid reference checks; (3) Medical fitness certificate from [Hospital].
All conditions must be satisfied by [Date]. Failure to meet conditions = offer withdrawn.
Confidentiality & IP:
You acknowledge that you will have access to confidential information and intellectual property created during employment will be owned by the Company per Service Agreement (attached).
Offer Validity:
This offer is valid until [Specific Date]. If not accepted by this date, offer stands withdrawn.
Please sign and return this offer letter along with copies of PAN, Aadhaar, and bank account details by [Date] to confirm your acceptance.
Common Offer Letter Mistakes
- Vague compensation: “Competitive salary” is unenforceable. Must state exact ₹ amount. If later dispute about salary promised, vague language = company loses
- No probation period mentioned: Without explicit probation clause, employee is permanent from day 1 = harder to fire if unsuitable
- Missing contingency clauses: If you offer contingent on background check, state it explicitly. If you don’t get satisfactory BGV result, you can withdraw offer
- No offer expiry date: Candidate can accept months later = you may have filled role with someone else. Costs credibility
- Contradiction with service agreement: Offer letter says one thing about IP, service agreement says different = legal confusion. Make them align
- Missing gratuity clause: India law mandates gratuity after 5 years continuous service (unless excluded in writing). If not mentioned, company liable
10 Essential Clauses in Service Agreements
An offer letter is short (1-2 pages). A service agreement is the comprehensive contract covering all employment terms. Here are the 10 clauses that MUST be in every service agreement.
The 10 Non-Negotiable Clauses
| Clause | What It Covers | Why It Matters | Enforceability in India |
|---|---|---|---|
| 1. Compensation & Salary Structure | Base salary, allowances, bonuses, deductions (tax, PF, gratuity). Payment frequency + date. Salary revision policy | Prevents disputes about what’s promised vs what’s paid. Transparency required | Fully enforceable. Courts examine salary structure closely |
| 2. Working Hours & Overtime | Daily work hours (e.g., 9 AM-6 PM), work days, overtime policy (paid/unpaid). Remote work flexibility if applicable | Clarifies expectations. Limits employer from demanding excessive hours without compensation | Enforceable if reasonable. Extreme hours (16+ daily) = not enforceable |
| 3. Leave & PTO Policy | Casual leaves (12 days/year typical), sick leaves (10 days), earned leaves, maternity/paternity leave, festive holidays | Statutory in India. Employer must provide minimum days or pay in lieu. Non-compliance = penalty | Fully enforceable. Cannot reduce below statutory minimum |
| 4. Intellectual Property Assignment (CRITICAL) | All IP created during employment (code, designs, processes, inventions) = owned by company. Employee waives moral rights | Without this, departing employee can claim IP ownership. Company loses product IP | Enforceable if clearly stated. Must be in writing (oral IP assignment = void) |
| 5. Confidentiality & NDA | Employee keeps confidential all business information (trade secrets, client lists, financial data, product roadmaps). Survives termination indefinitely | Prevents employee from leaking secrets to competitors. Most critical post-employment protection | Fully enforceable during + after employment. No time limit on confidential info protection |
| 6. Non-Solicitation | Employee cannot solicit company’s clients or employees for [X] duration after exit. Geographic scope specified | More enforceable than non-compete in India. Protects customer + employee relationships | Enforceable if reasonable (6-12 months typical). Courts uphold this more than non-compete |
| 7. Non-Compete (Limited) | During employment + [X period] post-employment, employee cannot work for competitor. Scope limited to specific business | Prevents direct competition. But broadly written non-competes = unenforceable under Section 27 | During employment = enforceable. Post-employment = rarely enforceable (see section below) |
| 8. Probation & Termination | Probation period (3-6 months typical). Notice period during/after probation (1 day during, 30-60 days after). Severance if any | Clarifies what happens if either party wants to end relationship. Prevents confusion | Fully enforceable. India courts uphold clear termination clauses |
| 9. Dispute Resolution & Governing Law | How disputes resolved (conciliation, arbitration, court). Which state’s law governs. Jurisdiction (e.g., Delhi courts) | Saves time + money if dispute arises. Arbitration faster than court litigation | Enforceable. Arbitration clauses in employment = valid under Arbitration Act 1996 |
| 10. Amendment & Entire Agreement | This agreement (offer letter + service agreement) constitutes entire agreement. Any future changes must be in writing + signed by both | Prevents employee claiming verbal promises override written contract. Clarity on what’s final | Fully enforceable. Protects both parties from claims about verbal modifications |
IP Assignment: Ownership of Work Created
This is the most important clause for startups. Without a clear IP assignment clause, an employee can claim they own the code/product they built. The company loses everything.
IP Assignment Framework (India Law)
- Rule 1: Explicit written assignment required. Oral agreement to assign IP = void under Indian Copyright Act 1957. Must be in writing
- Rule 2: All IP created during employment = company owns automatically. This applies to software, designs, processes, inventions created on company time using company resources
- Rule 3: Ownership applies even if created outside office hours. If you create code at home but it’s related to company business, it’s company IP (unless written exception)
- Rule 4: Moral rights waiver needed. Author always has “moral rights” (attribution, integrity). Employee must waive these in writing for company to use IP without crediting them
- Rule 5: Contractors own IP unless explicitly transferred. Independent contractors = automatic IP owner unless contract says otherwise. Only way to transfer = explicit IP assignment agreement
Sample IP Assignment Clause (Enforceable)
IP Assignment Language
The employee assigns to the Company all intellectual property rights, including (but not limited to) copyrights, patents, trade secrets, know-how, and inventions (collectively “Work Product”) created, developed, or invented by the employee during the term of employment, whether developed during work hours or outside, on company premises or elsewhere, using company resources or personal resources, if such Work Product is related to the Company’s business or the employee’s duties.
The employee hereby assigns all rights in the Work Product to the Company effective immediately upon creation. The employee waives all moral rights in the Work Product. The employee shall execute any documents reasonably necessary to perfect the Company’s title to the Work Product, including patent applications, copyright registrations, and assignment agreements, at no additional cost to the employee.
If any Work Product is created outside the scope of employment, the employee shall immediately notify the Company. The Company shall have a 30-day right of first refusal to acquire such Work Product at fair market value.
What IP Assignment Covers
- Includes: Software code, algorithms, technical documentation, product designs, databases, marketing materials, business processes, trade secrets, customer lists, proprietary methodologies
- Excludes (typical carve-outs): Inventions created entirely on personal time using personal resources with no relation to company business (rare). Any prior IP employee brought to company + disclosed upfront
Real Case Study: Why IP Assignment Matters
- Scenario: Startup hires CTO. CTO builds entire product over 18 months. No IP assignment clause in offer letter. CTO leaves angry. Claims he owns all IP code. Startup can’t use product = business dies
- Alternative (with IP clause): Same scenario, but offer letter has IP assignment clause. CTO leaves. Startup owns all code. Can hire new CTO to maintain. Business survives
- Lesson: IP assignment clause = ₹1000 document saves ₹1 crore+ startup value
Confidentiality & NDA: Enforceable Protections
Confidentiality clauses are the most enforceable type of restrictive covenant in India. Unlike non-competes (which are often unenforceable), NDAs are reliably upheld by courts.
Why Confidentiality > Non-Compete in India
- Legal basis: Confidentiality protected under Indian Contract Act 1872 (Section 27 doesn’t apply). Courts recognize legitimate need to protect trade secrets
- Enforceability: ~90% of NDA disputes win in court (vs. ~20% for non-competes). Confidentiality is narrowly tailored = easier to enforce
- Post-employment duration: Confidentiality extends indefinitely (or for reasonable period like 3-5 years). No time limit on protecting trade secrets
- Remedy: If breached, company can get injunction (court order) + damages. Faster than general lawsuits
Sample Confidentiality Clause (Enforceable)
Confidentiality & NDA Language
The employee acknowledges that during employment, they will have access to confidential information including (but not limited to) trade secrets, technical data, source code, product roadmaps, financial information, customer lists, pricing strategies, vendor relationships, and other proprietary knowledge of the Company (“Confidential Information”).
The employee shall maintain strict confidentiality of all Confidential Information during employment and indefinitely after termination. The employee shall not disclose, use, or allow access to Confidential Information except as required for job performance. Exceptions: publicly available information (not due to breach), information independently developed, or information legally required to be disclosed (with prior written notice to Company).
This confidentiality obligation survives termination of employment indefinitely. Any breach of this clause entitles the Company to seek injunctive relief and monetary damages.
Key Takeaways on Confidentiality
- Define what’s confidential: “Financial data” is vague. Better: “any financial projections, balance sheets, P&L statements, margin calculations, customer acquisition cost”
- Specify duration: “Indefinitely” is standard for true trade secrets. “3 years” if you want time limit
- Document what’s shared: Keep log of what confidential info employee accessed. Helps in court if breach happens
- Get written acknowledgment: Have employee sign NDA on day 1. Signature = employee knowingly accepted confidentiality terms
Non-Compete Reality: What Actually Works in India
This section is critical because many companies include non-compete clauses they think are enforceable. They’re not. Here’s why.
The Legal Reality: Section 27 of Indian Contract Act 1872
“Every agreement or covenant, in restraint of the profession, trade, or business of any person, is to that extent void.”
Translation: Post-employment non-compete clauses are generally unenforceable in India. Courts prioritize an individual’s right to work over a company’s desire to restrict competition.
When Non-Competes ARE Enforceable in India
- During employment (100% enforceable): Employee can’t work for competitor WHILE employed. Makes sense. Courts uphold this
- Post-employment (RARELY enforceable): Must meet 4 strict tests:
- Reasonableness of duration (6 months or less typical, 1 year maximum)
- Reasonable geographic scope (e.g., “within Delhi NCR” vs. “entire India” = more enforceable)
- Must protect legitimate business interest (trade secrets, confidential info, not just general competition)
- Must not unduly restrict employee’s fundamental right to livelihood (Article 19 Constitution)
- With consideration/payment: If company pays employee NOT to work elsewhere during restriction period = more enforceable. Example: “₹5L signing bonus on condition of 6-month non-compete”
- In M&A context: Founders signing non-compete as part of acquisition deal = enforceable. Different from employee non-compete
Real Court Cases (India 2024-25)
- Vijaya Bank v. Prashant Narnaware (2025): Supreme Court held employee non-compete unenforceable because employer failed to establish legitimate proprietary interest. Employee won right to work for competitor
- Diljeet Titus v. Alfred A. Adebare (2006): Delhi HC held: broad non-compete unenforceable, but restrictions on USE OF CONFIDENTIAL INFORMATION post-employment enforceable. Key learning: focus on confidentiality, not general non-compete
What DOES Work: Non-Solicitation Clause
Since non-competes don’t work, use non-solicitation instead:
Non-Solicitation Clause (Actually Enforceable)
The employee shall not, for a period of 12 months after termination of employment, directly or indirectly solicit, hire, encourage departure of, or attempt to hire any employee of the Company. Similarly, the employee shall not solicit, sell to, or do business with any client, customer, or vendor of the Company with whom the employee had contact during employment for a period of 12 months post-employment.
This clause is narrower than non-compete (focuses on relationships, not general competition) and is more likely enforceable under Indian law.
Recommendation: Skip Broad Non-Compete, Use These Instead
- ✓ Use confidentiality clause: Enforceable indefinitely. Prevents use of trade secrets
- ✓ Use non-solicitation clause: Enforceable 6-12 months post-employment. Prevents hiring/selling to customers
- ✓ Use IP assignment clause: Prevents employee ownership of work product
- ✗ Skip broad non-compete: Will be rejected by courts. Wastes legal resources
Statutory Requirements: Probation, Gratuity, PF
India has mandatory statutory benefits. You can’t opt out. If you don’t provide them, you face penalties + employee lawsuits.
Probation Period (Statutory)
| Aspect | Standard in India | Rules | If You Deviate |
|---|---|---|---|
| Duration | 3-6 months typical | No statutory minimum/maximum, but 3-6 months is standard market practice | 18+ months probation = risky (looks like indefinite probation, may not hold up in court) |
| Notice during probation | 1 day notice (either party) | Can terminate immediately with 1 day notice. No severance required | If offer says “30 days notice” during probation but you want 1 day, courts enforce what’s written = you bound |
| After probation | 30-60 days notice | Post-probation must give 30-60 days notice (as stated in agreement). Severance = ₹0 typically | Less notice = you can pay in lieu (salary for notice period) |
| Confirmation in writing | Recommended | After probation, send confirmation letter. Documents that probation period successfully completed | Without confirmation, legal ambiguity. Employee can claim “still on probation” = harder to fire |
Gratuity (Statutory, Mandatory)
- What is it? Lump sum payment to employee after 5+ years continuous service as mark of appreciation
- Calculation: ₹[(Last month salary × 15) ÷ 26] × Years of service. Example: Salary ₹1L/month, 5 years service = ₹(100000 × 15 ÷ 26) × 5 = ₹28.8L gratuity
- Payable when? On resignation after 5+ years OR termination (any reason). Not payable if employee quits before 5 years
- Can you opt out? NO. Gratuity is mandatory under Payment of Gratuity Act 1972. Opting out = invalid
- How to document? Must explicitly mention in offer letter: “Gratuity payable as per Payment of Gratuity Act 1972”. If not mentioned, employee still entitled (law overrides document)
- Penalty for non-payment: ₹100-500/day interest + potential legal action + employee compensation
Provident Fund (PF) – Mandatory
- What is it? Retirement + emergency savings fund. Company contributes 12% of salary, employee contributes 12% (auto-deducted)
- Applicability: All companies with 20+ employees. Below 20 = optional but recommended
- Payment timing: Contributions due by 15th of next month. Late payment = penalties
- Withdrawal rules: Employee can withdraw after 5 years or at retirement. Limited withdrawals allowed for medical/education before 5 years
- If you don’t have PF? You’re liable to set up. Employees can file complaints with Employee Provident Fund Organization (EPFO)
Leave (Statutory Minimum)
- Casual Leave: 12 days/year minimum (0.83 days/month). Non-cumulative (don’t roll over)
- Sick Leave: 10 days/year minimum. Don’t need doctor’s note for <2 days
- Earned Leave: 15 days/year for first 5 years, 20 days/year after 5 years
- Can you refuse? NO. These are minimums. You can give MORE but not LESS
- Payment for unused leaves: At termination, employee gets paid for unused leave (except casual leave in some states)
Template Options & Lawyer Costs
You don’t need a fancy lawyer to create employment contracts. Templates work fine. Here’s pricing for 2025.
Free Templates (₹0)
| Source | Quality | India Compliance | Best For |
|---|---|---|---|
| SalaryBox | Good – comprehensive | Yes – covers gratuity, probation, PF | Startups with 1-10 employees |
| LawDepot (Free version) | Basic – minimal clauses | Yes but limited detail | Very small startups, contractors |
| GreyHR | Good – modern + practical | Yes – compliant | SMBs, service companies |
| QuikChex | Good – detailed | Yes | HR teams, medium companies |
Paid Online Templates (₹399-5,000)
| Service | Cost | What’s Included | Customization | Turnaround |
|---|---|---|---|---|
| LawDepot Paid Plan | ₹399-799 | Offer letter + employment contract. Customizable. Download Word/PDF | Medium – you fill in blanks | Instant download |
| Etsy Lawyer Templates | ₹1500-3000 | Lawyer-drafted offer letter + service agreement (bundled). Word format, editable | High – professional quality | 3-5 days |
| SalaryBox Premium | ₹2000 | Complete employment contract suite (6-8 documents: offer, service agreement, IP assignment, NDA, confidentiality, non-compete) | High – questionnaire guided | Same day |
| Wise Monk Employment Suite | ₹3000-5000 | Offer letter + service agreement + IP assignment + confidentiality + non-compete + probation confirmation template | High – fully customizable | 1-3 days |
Lawyer-Drafted (₹2,499-19,999)
| Service Tier | Cost | What’s Included | Best For | Timeline |
|---|---|---|---|---|
| Template Review + 1 hour consultation | ₹2,499-4,999 | Lawyer reviews your template + 1 hour call to explain clauses + answer questions | You have template, want lawyer review + guidance | 3-5 days |
| Custom drafting – 1 role type | ₹7,999-11,999 | Lawyer drafts offer letter + service agreement from scratch for 1 role (e.g., engineer). 1 round of revisions | Customized contracts, no template tweaking | 5-7 days |
| Custom drafting – multiple roles | ₹13,999-19,999 | Lawyer drafts customized contracts for 3-4 role types (engineer, sales, operations, executive) with role-specific clauses. 2 rounds revisions | Growing startups with diverse roles | 10-14 days |
| Premium: Full employment legal suite | ₹25,000-50,000+ | All role types + employee handbook + policies + IP assignment + NDA + confidentiality + induction checklist + annual review template. Ongoing support 6 months | Companies raising Series A or scaling rapidly | 2-4 weeks |
Which Option Should You Use?
- Startup (1-5 employees, pre-funding): Use free template (SalaryBox, GreyHR) or ₹2K paid template. Time = 3-4 hours to customize. Cost = ₹0-2K
- Growing startup (5-20 employees): Use ₹3-5K paid template or hire lawyer for ₹8K template review. Better customization. Cost = ₹3-8K
- Funded company or complex roles: Hire lawyer ₹13-19K for custom drafting. Worth it for professional contracts. Cost = ₹13-19K
- Series A+ or rapid scaling: Get full employment legal suite ₹25-50K. Protects you legally as you hire aggressively. Cost = ₹25-50K
Important: Make Your Own Adjustments
- Don’t copy-paste from another startup’s contract. Different companies need different terms. Your specific business might require specific clauses
- Always customize for your business. Change company name, role-specific responsibilities, location, salary structure, leave policy, gratuity calculation
- Get legal review if you deviate from template: If you modify clauses significantly, have lawyer review to ensure enforceability in India
- Maintain version control: Keep dated versions of contract templates. When you update, note what changed. Helps in disputes later
Key Takeaways: Employment Contract Mastery
1. Offer letter is CRITICAL. Must include: job title, role, compensation (exact ₹), start date, probation period, contingencies, offer validity date. Vague language = unenforceable later
2. Service agreement is the comprehensive contract. Must include: 10 essential clauses (compensation, IP assignment, confidentiality, non-compete, probation, termination, benefits, gratuity, dispute resolution, entire agreement).
3. IP assignment is MANDATORY. All code/designs/processes created during employment = company owns automatically. Without written IP clause, employee can claim ownership = company loses product IP
4. Confidentiality & NDA are ENFORCEABLE indefinitely in India. Unlike non-competes, courts reliably uphold confidentiality clauses. Most important post-employment protection
5. Non-compete clauses are RARELY enforceable post-employment in India (Section 27 Contract Act). During employment = yes. After employment = only if reasonable duration (6 months max), geographic scope limited, protects legitimate interest
6. Use non-solicitation instead of broad non-compete. More enforceable (prevents hiring/selling to customers). Same protective effect without legal risk of unenforceable broad non-compete
7. Probation period: 3-6 months standard. During probation = 1 day notice to terminate. Must mention explicitly in offer letter. Post-probation = 30-60 days notice required
8. Gratuity is MANDATORY under Payment of Gratuity Act 1972. ₹[(Last month salary × 15) ÷ 26] × Years service (after 5+ years continuous service). Can’t opt out. If not mentioned in contract, still legally owed
9. Leave is MANDATORY statutory minimum: 12 casual + 10 sick + 15 earned days/year. Can give more but not less. Must pay unused leave at termination
10. Provident Fund (PF): Company contributes 12% salary + employee 12%. Mandatory if 20+ employees. Contributions due by 15th next month. Late payment = penalties
11. Free templates available (SalaryBox, GreyHR, LawDepot). Good for startups. Paid templates ₹2-5K (Etsy, SalaryBox premium). Lawyer-drafted ₹8-20K (comprehensive + reviewed)
12. Customize every contract for your company + role. Don’t copy-paste from other startups. Different business = different needs
13. Define what’s confidential: NOT “business info” but “financial projections, balance sheets, P&L statements, customer lists, product roadmaps.” Vague = not enforceable. Specific = enforceable
14. Document everything in writing. Verbal promises override = can’t enforce. If manager promises something, get it in writing (amendment to contract)
15. Action: Day 1 = offer letter signed + 12 statutory documents prepared (offer, service agreement, IP assignment, NDA, confidentiality, probation confirmation template, etc.). Cost ₹0-20K. Time investment: 5-20 hours. ROI: Protects company + prevents disputes