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What’s the Difference Between an Offer Letter and a Contract?

What’s the Difference Between an Offer Letter and a Contract?

Understanding the difference between an offer letter and a contract is one of the key ways to set yourself up for success in your career. Since the terms are closely linked, many recent grads tend to think of them interchangeably when in fact, an offer letter and a contract have some important differences.

Here are the key things you need to know about offer letters and contracts.

What is an offer letter?

Once you’ve successfully gotten through the interview process and received a verbal offer, you’ll soon receive an offer letter. So, what is an offer letter? It’s a formal job offer that includes most or all of the following things:

  • Job title
  • Start date
  • Salary
  • Manager’s name
  • Employee benefits
  • Employment relationship

Intended to lay out the terms of employment, an offer letter is the employer’s way of letting you know exactly what the job entails and what you can expect from accepting the role. Once you receive an offer letter, you typically have anywhere from 24 hours to a week to sign it. If you choose not to do so, the offer will expire.

What is a contract?

Similar to an offer letter, a contract lays out the details of a role and includes many of the same key pieces of information. However, unlike an offer letter, a contract typically has a specific time period attached to it and is used in cases where employers are hiring someone for a certain amount of time. Contracts are likely to be used in the following cases:

  • Freelance positions
  • Temp to perm positions
  • Contract positions for specific projects

Like offer letters, contracts are time sensitive and generally require a signature within about a week.

Are you likely to receive both an offer letter and a contract?

Generally speaking, the answer is no. Although offer letters and contracts serve similar purposes, they’re generally used for different types of work. While an offer letter indicates the beginning of a long term full-time role, a contract is more often used to a establish short-term work relationship or one that does not fit the terms for full-time employment. For example, while you might work standard full-time hours on a contract, you’re unlikely to receive the same benefits as a full-time employee such as health insurance or a 401k plan.

Pro Tip: Temp to perm employees (employees who begin as contractors before transitioning to full-time members of the team) are the exception to the rule. Since these types of employees start off as contracted workers, they work on a contract basis before receiving their offer letter to join the team full-time.

Knowing the difference between an offer letter and a contract is a great way to manage your expectations when it comes to accepting a job offer. This will ensure that you know what each type of offer means and that you’re able to make an informed decision about accepting it.

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