You should hire the best talent to help your business grow. And when you do, you need to outline the terms and conditions of their employment.
Drafting an employment contract is tricky as there's plenty to be aware of. And it's easy to get it wrong if you're not sure of the law.
Poorly drafted contracts can lead to tribunal hearings and other legal action. Anything unlawful can result in employee mistrust, high turnover, as well as reputational damage.
Download our free employment contract template and see how you can create fair and legal contracts for your staff.
What is an employment contract?
An employment contract is a legally binding employment agreement between an employer and new employees. It includes the new hire’s employment terms and what an employer requires from them during their employment.
The employer presents the entire agreement when an individual accepts a job offer. The document then describes the employment terms to the individual.
The employee then agrees to the employment terms by signing the employment contract. Both parties can change the agreement at any time, as long as they provide consent.
When should you present an employee contract?
You should present an employee contract no later than the first day of a new hire's employment. In some instances, you may want to send it beforehand so the employee is certain of their duties, pay and benefits before they agree to sign the contract.
Who are the parties in an employment contract?
You should acknowledge two parties in an employment contract.
These are:
- The employer: This can include an individual or an organisation. The employer has a responsibility to follow employment laws and procedures.
- The employee: A person performing work for an employer, who hires them in exchange for money or services.
Let's explore what the law states about employee contracts.
What does the law say about employment contracts?
Under UK law, employers must produce a written contract of employment for each employee.
The Employment Rights Act states that a business must provide a written statement of employment particulars to new hires. And this must be done on the first day of their employment.
What should a written statement of employment include?
According to the law, you must give new hires a document stating the main conditions of employment. Which you must provide by the first day of their employment. This is known as a written statement of employment particulars. And forms part of the employment contract.
The document includes two statements. These are:
- The principal statement.
- The wider written statement.
Let's explore what these statements mean.
The principal statement
The principal statement is the initial document employers should provide their new hires. The employer should provide the principal statement by day one of the new hire's employment.
It must include the following details:
- The company name.
- The employee's name.
- The employee's job title.
- The employee's job description and start date of continuous employment.
- How much and how often an employee will get paid.
- Hours and days of work. And how they may vary.
- If an employee will have to work on Sundays, during the ‘night’ period, or take overtime.
- Holiday entitlement. And if that includes bank holidays.
- Where a new hire will be working. And whether they need to relocate.
- If an employer works in different places, where these will be and what the address is.
- How long the employer expects the job to last.
- Probationary period details.
- Details of benefits. For example, childcare vouchers.
- Details of obligatory training. And whether the employer pays for this.
The wider written statement
The wider statement is a separate document that must include information about:
- Pensions and pension schemes.
- Employee rights. For example, maternity and paternity leave.
- Details of non-compulsory training the employer provides.
- The disciplinary and grievance procedure.
The employer should provide the wider written statement within two months of a new hire joining the business.
Why do I need an employment contract template?
Drafting your own employment contract is risky, and there is a lot that can go wrong. Especially when it comes to meeting legal responsibilities.
That's why we've created an easy-to-use sample employment contract for UK employers. You can even adapt the employment contract template to your business needs, as well as local laws.
Different types of employment contract
There are several different types of employment contracts. And it's important to know the differences between them. For example, an employee on a full-time contract has different rights to an employee on a zero-hours contract.
These types include:
- Full-time and part-time contracts.
- Fixed-term contracts.
- Zero-hours contracts.
Let's explore these contracts in more detail.
Full-time and part-time contracts
Hours in a full-time and part-time contract is set by the employer, and hours will therefore vary. But most commonly, a full-time employee will work 35 hours a week or more. Whereas a part-time employee will work less than 35 hours a week.
Working time regulations state that an employee can't work more than 48 hours a week, unless they’ve signed an opt-out agreement.
Fixed-term contracts
A fixed-term contract is where an employer hires an employee to work for a specific period of time.
Examples of when to use this contract include:
- If an employee takes maternity leave and you need someone to cover.
- If an employee is off with long time sickness, but still hopes to continue their employment when better. In this case, the employer may offer the employee covering a fixed-term contract.
- If you experience busy seasonal periods and need extra hands. But only until the busy season is over.
Zero-hours contracts
A zero-hours employee contract is when you hire an employee but don't specify or promise contracted hours of employment. Employers who hire staff on zero-hours contracts must:
- Grant them statutory employment rights, with no exceptions. For example, maternity leave.
- Uphold their protected employment rights. For example, protection from unlawful discrimination.
- Pay the National Minimum Wage, no matter how many hours they work or offered to work.
- Make it clear whether they are an employee or a worker.
- Inform them what their rights are in regard to sick pay, holiday entitlement and redundancy pay.
- Let them know how they will end their contract.
- Pay their wages through PAYE, including tax and National Insurance (NI) deductions.
There are many reasons why you may hire an employee on a zero-hours contract. Most notably, it offers flexibility for both your business and the employee.
Other reasons include:
- Your business’s demands change weekly.
- You need help during busy seasons.
- An employee wants more flexibility for personal reasons. For example, they have childcare they need to consider.
What should an employment contract include?
As an employer, you should ensure your employment contracts include all the necessary details.
This information includes the employee's:
- Days and hours of work.
- Payment.
- Holiday pay.
- Sick pay entitlement, or details of
- For example, what level of professionalism an employee must use in the workplace.
- Pension scheme.
- Probationary period.
- Restricted clauses.
- Grievance procedures.
- Benefits.
- Notice period.
Let's explore these details further.
Employee's responsibilities
The contract of employment should include the employee's responsibilities. This makes it clear what tasks you expect the employee to do.
It includes noting the employee's:
- Job title.
- Essential job functions.
- Job description.
- Other duties.
Both parties can then refer back to the employment contract if any issues arise.
Days and hours of work
You should also include the days and hours an employee works in an employment contract. This refers to their set working hours and breaks. As well as if they must work weekends and public holidays.
Payment
The contract of employment should also include the payment details of a new employee. Payment details should be held in the sole discretion of your business and the employee.
The payment details must include the payment date, and how often the payment occurs. As well as details of payment deductions. This includes tax and National Insurance contributions.
Holiday pay
Employees are legally entitled to 5.6 weeks’s paid holiday every holiday year. You should include this and details of holiday pay in the employment contract.
This includes the amount of holiday entitlement an employee will receive. As well as if they can sell back holidays to their employer and if the employee's annual leave includes public holidays.
Statutory sick pay
Statutory sick pay (SSP) is the minimum amount of money employers should pay when an employee is on sick leave.
To qualify for SSP, employees should:
- Have done some work under their contract.
- Have been sick for 4 or more days in a row.
- Earn at least £123 per week.
The employment contract should explain the SSP conditions. And not every employee will have the same rights.
Code of conduct
All employees must follow their company code of conduct, which is a set of company policies. These policies outline the standard of behaviour an employer expects from an employee.
You should include a code of conduct in your employment contract, as it sets out the expectations of your business. Employees can then refer back to it if they're ever in doubt.
Pension scheme details
All employers must offer a workplace pension scheme to eligible staff under UK law. An employment contract will typically include details of the scheme.
The details should state the employee's date of auto enrolment and when they can opt out. As well as information about the pension provider.
Probationary period
The probationary period evaluates an employee for a certain length of time at the start of an employee contract. And assesses whether they are fit for the role.
Restricted clauses
Restricted clauses are rules that prevent a former employee sharing confidential information about their employer.
The clauses include:
- Confidentiality: Under confidentiality, the employee cannot tell a person any business secrets or private information relevant to the company.
- Non-solicitation: This restricts your employee from approaching your clientele or customers for a competitor.
- Non-competition: This restricts your former employee from working for a competitor or setting up a competitor business. And applies to their work for you during their employment and after.
It's important to include these clauses in an employment contract. As it can deter employees from competing with the business after their employment ends.
Grievance procedures
A grievance procedure explains how an employee can make a complaint about the business or someone in it. As an employer, you have a duty to treat these complaints with respect and care. Which is why you should include a grievance procedure in your employment contracts.
A clear grievance procedure will make the complaint process smoother. As well as letting your new employee know that they have a space to raise any issues.
Benefits
A list of employee benefits relates to any perk an employee may gain when joining a new business.
Benefits may include:
- Regular paid socials.
- Free breakfast.
- Christmas bonuses.
- Profit share schemes.
It's not vital you include any benefits in an employment contract. But, it can attract and keep new hires, as well as motivate employees.
Notice period
A notice period is when an employee works for a certain amount of time after you dismiss them or they resign.
You should include a written notice period in employment contracts. So you and the other party can refer back to it when necessary to avoid wrongful dismissal.
For example, you could choose to outline the notice period details in an employee's contract.
This may include confirmation that if they don’t pass their probation period, they will be dismissed. As well as what notice period you request they deliver if they don’t pass their probation, or you dismiss them.
There are three different types of notice periods. These include:
- Statutory notice: The legal minimum amount of time an employee should work after their contract ends. Legally, this must at least be one week's notice - if the employee has worked for the employer between one month and two years.
- Contractual notice: The employment contract sets out the required amount of notice that must be given by each the employer and the employee.
To find out more about the legal requirements of a notice period, check out our guide.
What happens if you don't have an employee contract?
Whilst it’s a legal requirement to provide an employee contract, it can offer a sense of security should you have any issues with new hires.
Other disadvantages include:
- Pay and benefits.
Let's explore these disadvantages in more detail.
Confusion
It's easy to get confused without an employment contract in place. For example, the employee may misremember their responsibilities if they were agreed to verbally. This could lead to an employee not performing their role in the way the employer desires.
Security
Without an employment contract, it's harder to ensure that you're following employment law.
For example, an employee may argue their probationary period is over after two months, despite you telling them initially it was three. But, without a written employment contract that states this, you might find it difficult to hold the employee to the verbal agreement.
Pay and benefits
Pay and benefits are an important part of an employment contract. And without this, they are difficult to track and refer back to. Especially if pay is something an employee believes they are entitled to more of.
Download our free employment contract template
New employees in your business are inevitable. Which is why it's important to have an employee contract template in place. This will ensure both you and your employee understand the terms of their employment agreement.
Peninsula offers an employment contract template as a free download. We can help introduce documentation services, handbooks and policies that fit and meet all your business needs perfectly.
Our expert HR consultants ensure you comply with UK employment policies and can offer help creating contracts that fit your business needs. Book a free demo today to see just how easy it is to build employment contracts with our team. Give us a call on 0800 028 2420
