There comes a time in every worker’s life when they need a formal letter of employment.
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What Is a Letter of Employment?
A formal letter of employment is sometimes called an employment verification letter. This is an official document that gives a confirmation of an individual’s working status.
If you are self-employed or own a business, you can do formal letters of employment. You can do these either for yourself or your employees, if you have them.
In this case, the letter is requested by lenders to confirm a potential borrower’s self-employment income and total years in business. The borrower can write the letter, but lenders would rather have an official document, prepared and signed by a CPA or tax preparer.
Be warned. They don’t want just any CPA. They prefer one with a history of preparing the self-employed person’s financial documents.
The letter must include certain parts to be accepted. We will talk about these in a later section.
If you are a freelancer, you can write an income verification letter for yourself. You can use the IRS Form 1099 Miscellaneous Income to prove that you’ve had jobs that paid $600 or more.
Who Needs a Letter of Employment?
As an HR Professional, you may need to write these on behalf your company’s employees. They are used to providing financial information to mortgage lenders and landlords.
Individuals often need letters of employments when trying to rent or buy a home. Other people may also require them in cases where they need information about their employment history. This could be changing careers or applying for college.
An employee who is a former or current employee may require employment verification. This is so that they can document their salary and employment history for a new employer.
How to Write a Letter of Employment
A letter of employment will have the features we discuss below.
A heading that includes your contact information. It will also have the date you are writing the letter. The contact information of the person to whom you are writing should also be included.
After this, there should be a brief overview of the information that has been requested. Most importantly, the dates that the employee worked for you or the company you represent. Other details, depending on the reason the third party needs employment verification might be included.
Formal letter of employment if self-employed
This letter must confirm that the potential borrower has been self-employed with a consistent income. This has to be verified by the person who does the individual’s taxes.
It is sometimes referred to as a comfort letter. It must be on the CPA’s or preparer’s letterhead, with the firm’s contact information, or the lender won’t accept it.
The letter itself states the self-employed person’s name, address and date of birth. It includes the individual’s Social Security number and names the business.
The letter states the business entity information. For example, if the self-employed individual isn’t a sole proprietor. That is filed under the person’s own Social Security number.
Lenders scrutinize self-employed income because of its inconsistent nature. The letter confirms that the individual has been working as a self-employed contractor.
It states that they have been in the same industry for some time with an average consistent income. The lender then uses this information to run debt-to-income ratios as part of determining loan eligibility.
To Wrap Up
You’ve learned that a letter of employment is important. It can document your start date, work hours, and your next steps in the process of finding a new job. It is an essential component of some formal employment processes.
This article has talked about tips for writing a letter of employment. It details who needs a letter of employment and what the process is from start to finish.
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