PSYCHOLOGICAL CONTRACT FOR BUSINESSES

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Psychological contract

March 04, 2025




v  Introduction

A psychological contract is an unwritten contract between an employee and their employer. Unlike formal employment contracts, psychological contract is not tangible and it builds on the day-to-day activities and statement made by both parties.  “Employees under positive leadership will give ideal output to the organization and this relationship between employees and employer is known as a Psychological work contract” (Angyris 1960).

 


 

v  Benefit of a pshycological contract

A strong phycological contract helps to build a strong employee and employer relationship. It is very important to achieve the organisation goals. Recruiting a person is not only hiring a new human resource to the organisation. The person builds a new relationship with the organisation and its stakeholders. A good employee and employer relationship will lead to happy and productive team member. Maintaining these relationships in a higher level is a major role for the success of the organisation (Rajalakhmi and Naresh 2018).

 

Employee and employer benefits 

·                                * Increase in productivity

·                                * Increase in employee loyalty

·                                *  Conflict reduction

·                                * Achieving goals

·                                * Equality on work and human

·                                * Delegation of work task

·                                * Effective communication

·                                * Increase in employee trust

·                                * Decrease in employee retention

·                                * Sustainability of talented employees

·                                * Decrease in employee grievances

·                                * Organizational development

Benefits of employee and employer relationship (Science Direct)

Source: Author’s work



  

  



v  Pshycological contract breaches

 

Pshycological contract breaches have significant negative impacts for both employee and employer. The contract breaches involve feeling of disloyalty, promises not fulfilled, workplace bullying behaviours, less carrier development and pshycological distress, whereby the victim experiences anger, dislike, a sense of injustice (Topa et el, 2022).

 

Employee and employer outcomes

·                           * Decreased job satisfaction

·                          * Low productivity and performance

·                          * Reduced trust

·                          * Increased stress and well-being

·                          * High turnover

 

Industrial-Organizational Psychology

Source: Author’s work

 

 

Conclusion

The phycological contract theory is very crucial for the modern business world specially for the Sri Lankan businesses to reduce current turnover and enhance productivity due to shortage of young professionals and skilled workforce. This unwritten contract and mutual understanding between employee and employer are very important to success in the organization. It enhances job satisfaction, commitment, trust, productivity while reducing turnover. By aligning employee expectations and organisational goals, each organisation in Sri Lanka can apply this concept to achieve their goals while satisfying employees. Maintaining a pshycological contact is essential for a motivated team, ultimately contributing to success of the organization.

 

 

References

Angyris, C. (1960) Influence of psychological contract on workplace bullying. Science Direct [Online]. Available at https://www.sciencedirect.com/topics/social-sciences/psychological-contract. [Accessed on 03rd March 2025]

Rajalaksmi, M., Naresh, B. (2018) Influence of psychological contract on workplace bullying. Science Direct [Online]. Available at https://www.sciencedirect.com/topics/social-sciences/psychological-contract. [Accessed on 03rd March 2025]

Topa, G., Aranda-Carmena, M., De-Maria, B. (2022) Psychological Contract Breach and Outcomes: A Systematic Review of Reviews. International Journal of Environment Research and Public Health., 19(23) 15527 [Online]. Available at https://pmc.ncbi.nlm.nih.gov/articles/PMC9737235/#B58-ijerph-19-15527. . [Accessed on 04th March 2025]

Industrial-Organizational Psychology, Psychological Contract Breach: Impact on Employee-Employer Relationships. [Online]. Available at https://neurolaunch.com/psychological-contract-breach/. [Accessed on 04th March 2025]

 


Comments

  1. Razi JalaldeenMarch 5, 2025 at 12:56 PM

    Good job

    ReplyDelete
  2. chinthanashilpikaMarch 5, 2025 at 4:43 PM

    This is a very powerful and unseen thing in the workplace, and the HRM should manage this carefully. HRM should communicate clearly, listen to the staff member's matters, manage necessary changes in the workplace carefully, and explain them to the members, which can build strong psychological contracts.

    ReplyDelete
  3. AnonymousMarch 5, 2025 at 11:37 PM

    This is a good topic to discuss further. Most HR managers are not well-aligned with their job roles. I have experienced this situation several times, especially in private limited companies where favouritism has a significant impact and acts as a barrier to building strong psychological contracts.

    ReplyDelete
  4. Dan C March 6, 2025 at 7:53 AM

    Thought it has many benefits sometime it can
    leads to misunderstandings as it is not legally binding, interpretations can be vary. Further more employers may struggle to balance diverse employee expectations.

    ReplyDelete
  5. Jasmine JayakodyMarch 6, 2025 at 8:15 AM

    Interesting take on the psychological contract! I agree that maintaining trust and clear expectations between employers and employees is key to productivity and retention. Breaches can seriously impact morale, so organizations must prioritize transparency and communication. Great read!

    ReplyDelete
  6. Udari IshankaMarch 6, 2025 at 1:19 PM

    In order to maintain a strong bond between the employee and employer, positive psychological contract really matter. It will always lead to the lower turnover rates ,improve performance and productivity outcomes in the organization. When both parties have clear understanding it become easier to address issues as the arise.

    ReplyDelete
  7. Heshan Adhisha PathiranaMarch 6, 2025 at 8:40 PM

    Building mutual understanding between employers and employees is essential for minimising turnover and increasing productivity in regard to the current labour difficulties. Fantastic insights!

    ReplyDelete
  8. Charitha BoraluwaMarch 8, 2025 at 2:10 PM

    In contrast to previous generations with our new generation like Gen Z doesn't like to have psychological contract with their employers. They are more focusing on their work life balance and career progression. This mindset has become an issue for the company's who looking at psychological contracts rather than formal contracts with their employees

    ReplyDelete
  9. K.P. Harsha Pradeep JayathilakaMarch 9, 2025 at 2:11 AM

    Employee and employer mutual understanding is very important to psychological contract between both party.the contract is given massive benefit for both parties by incresing efficiency, productivity,profitibility.

    ReplyDelete
  10. Chathuri SamarawickramaMarch 9, 2025 at 1:50 PM

    Companies need to build employee trust by providing direct communication and professional advancement together with actions that match staff member expectations.

    ReplyDelete
  11. Samantha GamageMarch 13, 2025 at 12:13 PM

    Clear discussion of the psychological contract between people and organizations! The focus on trust, expectations, and changing working relationships is enlightening. Understanding how organizations can improve engagement and retention requires this perspective.

    ReplyDelete
  12. Sumudu ThanthrigeMarch 22, 2025 at 7:47 PM

    Although almost all of the employees are under monetary contracts with their employers (specially for their wages), the phsycological contracts are the need of the era which in return beneficial for both employers and employees. That is in simple, more the phsycological bond then the productivity will be definitely more thus enhancing the profitability.

    ReplyDelete
  13. Poornima Abeykoon April 1, 2025 at 12:29 PM

    A strong psychological contract builds trust and engagement, while breaches can harm satisfaction and retention. Organizations should prioritize clear communication and fairness.

    ReplyDelete
  14. Manori KolonnageApril 3, 2025 at 3:49 AM

    Important read. Managing the psychological contract is vital for employee retention, performance, and culture. Employers should align their expectations through transparency, fairness, and effective communication to maintain confidence in employees to work with much collaboration to champion the organization.

    ReplyDelete

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