Understanding the Benefits of Psychological Contracts in the Workplace 

February 9, 2023

As the world continues to move and adapt to the ever-changing technological advancements and various business impacts, many organisations are now embracing the important roles played by a skilled, healthy, and reliable workforce in promoting business success.

 As such, employers are now making formidable efforts to evaluate the unique needs of their workers as well as to enhance employee well-being and health. One of the trendy and guaranteed ways of achieving this is by promoting and harnessing the benefits that come with having positive psychological contracts in the workplace. If used well, this un-codified set of expectations shared by the employees and their bosses can go a long way in advancing work culture to ensure good working relations.

To gain a better understanding of psychological contracts in the workplace, their benefits, disadvantages, and many more insights, you need to consider reading this article.


What is meant by a Psychological Contract?

Why is it important to have psychological contracts?

How to improve psychological contracts in the workplace


What is meant by a Psychological Contract?



According to Rousseau who first came up with this concept in 1989, a psychological contract is some sort of faith that one may have in mutual obligations between themselves and another party. It is also defined as a set of intangible and un-codified expectations that exists between an employer and an employee.

This informal contract describes the sometimes unspoken expectations that each party wishes to get in return after making their own contributions and commitments in the workplace. Since it is founded on the promises sold to the employees by the organisation, an employee might use it to measure their daily efforts, contributions, and expectations in the company. For instance, an employee might expect to get timely, adequate, and constructive feedback from their employer regarding a project they’ve been working tirelessly on. Failure to get this will result in a demotivated and uncommitted workforce.

This relationship between the employer and employee can be enhanced with positive communication. It is highly dependent on trust between the two parties, is unique for every individual and it is also bound to change with time depending on the individual’s priorities and expectations at that particular time. 

For example, if a young, hardworking employee currently hopes and expects to get an opportunity to study and grow their skills, it does not mean that the same employee will still expect to have the same opportunity 20 years later. By then, they might be prioritising stability and job security more than anything else. As such, it is important to understand that a psychological contract varies from one individual to another.

Why is it important to have psychological contracts?



There are many reasons why you should consider understanding and assessing the psychological contracts you have in the workplace. 

It is worth noting that psychological contracts have proven to hold more influence over an employee’s daily contributions in the workplace. Employees who have a positive, well-balanced psychological contract with their employers tend to contribute immensely to the company’s growth. For instance, employees who constantly feel like their employers always disappoint them and are never satisfied with the work done by the employees will most likely feel used and they will end up contributing less and less in the workplace.

Some of the benefits of having a balanced set of unwritten expectations include:

  • It makes employees feel valued, respected, and appreciated for the roles they play in the organisation.
  • It can also improve employee loyalty hence increasing their input and commitment to the workplace which ultimately improves productivity.
  • It is individually focused, and as such, no employee is overlooked.
  • It enhances employee and employer relationships.
  • A balanced psychological contract reduces employee retention.
  • It creates an attractive employer reputation that drives in more potential recruits.

How to improve psychological contracts in the workplace



To develop, improve and maintain positive psychological contracts in the workplace, it is important to: 

  • Perceptions of fairness and trust should be promoted.
  • Transparency and explicit promises should be made and acknowledged.
  • Acknowledge and work together to repair any breached psychological contract.
  • Employers should set clear and realistic promises that they will be able to deliver.


What are some of the features of psychological contracts?

A psychological contract might include any of the aspects below: 

  • A fair chance for promotion.
  • Opportunities to get training that will help them learn and up-skill.
  • Job security
  • A supportive employer.
  • A perception of equity, diversity, and fairness within the organisation.

What types of psychological contracts do you have at your workplace? 

Rousseau who first initiated the concept of psychological contracts, compiled and classified it into various types such as balanced, transactional, relational, and transactional contracts.

How to prevent breaches in psychological contracts?

Since this type of contract is not written and bound to any laws, a breach will not result in any legal ramifications. A psychological contract relies on trust which is never easy to regain if it’s ever broken. So, it is always best to prevent a breach of this contract before it can happen. To do this, there should be:

  • Understanding of the psychological contract that exists between employees and employers.
  • Good communication between employers and employees regarding their expectations.
  • Employers should set realistic promises during the hiring process and ensure that it is upheld.

What are some of the pros and cons of psychological contracts?

Some of the pros associated with people analytics include:

  • It improves loyalty between employees and the organisation when the expectations are met.
  • It maintains empathy between the two parties which results in a positive work environment.

Below are the cons of psychological contract: 

  • It is difficult to enforce and execute.
  • It is inconsistent due to the uniqueness of each employee.

Despite being unwritten and sometimes unverbalised, the psychological contract does exist and it has always been there since time immemorial. Dismissing it as redundant as well as a breach of any kind will only result in lower productivity, employee retention, and poor service delivery. As such, for better business outcomes, it is crucial for every party involved to better communicate and understand any existing psychological contracts between them. . It is important to note that it is the responsibility of both employers and employees, so they should work well to prevent possible breaches to this contract.