Hiring your first employees is an exciting milestone. But it’s not enough to agree on salary with a handshake. A clear, well-drafted offer letter sets expectations, outlines key terms, and helps reduce the risk of misunderstandings later.
Here’s what founders should know about getting offer letters right.
What Is an Offer Letter?
An offer letter is a non-binding document that outlines the key terms of employment. It’s not the same as a full employment agreement (which can be more detailed and legally binding), but it’s still an important part of your hiring process.
Think of it as the bridge between your recruiting pitch and the employee’s first day.
What to Include in an Offer Letter
Here’s what your offer letter should cover:
- Position and Start Date: Spell out the job title, department, and expected start date.
- Compensation: Include base salary or hourly rate, pay frequency, and whether the position is exempt or non-exempt (overtime eligible).
- Equity/Options: If you’re offering stock options, reference your equity plan and note that the grant is subject to board approval. Include vesting terms if possible.
- At-Will Employment: Clarify that the employment is at-will (if applicable), meaning either party can terminate at any time, for any reason.
- Benefits: Summarize key benefits like health insurance, 401(k), PTO, and any other perks.
- Contingencies: Make the offer conditional on things like reference checks, background checks, or signing other agreements (e.g., IP assignment or NDA).
- Expiration Date: If the offer is time-sensitive, include an acceptance deadline.
Common Mistakes to Avoid
- Making the letter too binding: Avoid phrases like “guaranteed employment” or “contractual right to equity” unless that’s truly the case.
- Skipping IP assignment mention: Always mention that the employee will be required to sign a separate invention assignment and confidentiality agreement.
- Not customizing for exempt vs. non-exempt: Non-exempt roles need clear language about overtime eligibility and time tracking.
What Happens After Signing?
The offer letter is usually followed by:
- Signing an IP assignment and confidentiality agreement
- Onboarding forms like I-9s, W-4s, and direct deposit info
- Orientation into company policies, handbooks, and compliance
A good offer letter sets the tone for all of this - building trust and professionalism from the outset.
Final Thoughts
Even in a fast-paced startup environment, offer letters are worth doing right. They’re not just paperwork - they’re part of how you protect your company and show employees that you're serious. We can help you craft a founder-friendly, legally sound template that fits your stage.
Frequently Asked Questions
FAQs on Offer Letters for Startups
Is an offer letter legally binding?
Most offer letters are not legally binding contracts, but they do outline expectations. Binding obligations often come from separate agreements, like equity grants or confidentiality agreements.
Do startups need both an offer letter and an employment agreement?
Yes. The offer letter provides a summary of terms, while a formal employment agreement can cover more detailed obligations, protections, and restrictions.
Can I make an offer letter verbal instead of written?
It’s not recommended. A written letter avoids disputes, creates clarity, and provides a paper trail if questions arise later.
What happens if an employee signs but later declines the job?
Generally, there’s no legal penalty if the offer letter is non-binding, but you should keep documentation and prepare for possible delays in hiring.
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