What Is an Offer Letter and What Should It Say?

What an offer letter does

It confirms the terms you discussed, gives the candidate something to accept in writing and starts the paper trail for onboarding.

Verbal offers get misremembered. A written offer prevents the classic problem where the owner thinks the job pays $22 an hour and the new hire thinks $24. It also gives you a record that you offered the same terms to similar candidates, which matters if a pay or discrimination question comes up later.

An offer letter is different from an employment agreement. The letter is usually short, one to two pages. A longer agreement may be used for senior roles, with details about bonuses, non-competes or severance. If you plan to rely on either, have an employment attorney review your template once.

What to include

Cover the job title, start date, pay, schedule, reporting line, benefits summary, contingencies and an acceptance deadline.

1. Job title and duties in a sentence or two, and who the person reports to.
2. Start date and location, including remote or hybrid arrangements.
3. Pay. Hourly rate or salary, pay frequency and whether the role is exempt or non-exempt from overtime. Classification is a legal question, so confirm it with your accountant or attorney.
4. Schedule. Full-time or part-time and expected hours. See types of employment.
5. Benefits overview. Health coverage, paid time off, retirement plan. Refer to the plan documents rather than copying details.
6. Contingencies. Background check, reference check, proof of work eligibility on Form I-9. See how to fill out the I-9 form.
7. Acceptance deadline and signature line.

At-will language and what not to promise

Most U.S. states presume at-will employment. Avoid wording that implies guaranteed long-term employment, such as annual salary stated as a promise of a year of work.

At-will employment means either side can end the relationship at any time, for any lawful reason. Many employers say so in the letter. But careless phrasing can undermine that. "Your annual salary is $60,000 for the year" may be read as a one-year commitment. Prefer "your annual base salary will be $60,000, paid biweekly."

Other things to avoid:

• Promises of future raises, bonuses or promotions you may not be able to keep
• Pay figures that differ from what peers in the same role receive without a reason you can explain
• Asking about salary history in states where that is restricted
• Overly detailed policies that you then fail to follow

Laws differ by state and city, so verify requirements locally.

Pay, bonuses and commissions in writing

If part of the pay is variable, describe how it is calculated, when it is paid and what happens if the person leaves. Vague bonus language causes disputes.

For commission or bonus roles, state:

• The formula or target, in plain numbers
• When it is earned and when it is paid
• Whether it is discretionary
• What happens to unpaid amounts on departure

Example (illustrative): "Sales representatives earn 5% of collected revenue on new accounts, paid on the 15th of the month after the customer pays." That is specific and tied to cash received, which protects your cash flow if a customer pays late.

Remember the full cost of the hire when you set the number. See how much benefits cost per employee.

Process: from draft to signature

Draft from a template, review the numbers, deliver promptly and set a clear deadline. Keep the signed copy in the personnel file.

1. Confirm the pay, title and start date with whoever approves the hire.
2. Fill in your template and have a second person check the numbers.
3. Call the candidate to walk through the offer, then send the written version the same day.
4. Set a reasonable deadline, such as three to five business days.
5. Collect the signed letter and start onboarding paperwork.
6. File everything in the personnel record.

Once they accept, follow a structured onboarding plan. Hiring steps before the offer are covered in how to find the right employee.

Offer letters for interns and contractors

Interns and contractors need different documents. A contractor gets an agreement, not an offer letter. Interns have special wage rules.

If the person will be a contractor, use a services agreement that covers scope, fees, deadlines and who owns the work. An offer letter implies an employment relationship and can create classification problems. See how to hire freelancers.

Internship offers should state whether the role is paid, the duration and learning goals. Wage and hour rules for interns are specific, and unpaid roles at for-profit companies face strict tests, so get advice before offering one. Our guide to writing an internship offer letter has a sample structure.

Budgeting for the hire before you send the letter

Know the monthly cost of the new person, and what revenue or savings will cover it, before you commit in writing.

Illustrative example: a $4,000-a-month hire may cost closer to $5,000 after employer taxes, insurance and equipment. If the role should add $9,000 a month in revenue at a 40% margin, that is $3,600 of gross profit, and the hire does not pay for itself yet. Test the plan before you sign anything.

If the hire is justified but cash is tight in the first months, compare options. ROI Funder shows true cost, payback period and monthly-equivalent payments before you sign, and considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. See business loans for hiring and working capital.