A Small Business Guide to Employment Contracts

We look at the key areas to focus on when drafting up or making changes to an employee's contract

A Small Business Guide to Employment Contracts

Employment contracts are a necessary part of employment for all businesses in the UK, setting out the terms under which you and your employee will be working.

So many employers find themselves cobbling together terms from emails and other correspondence, without having any formal written arrangement. Not only is this a real hassle that wastes lots of time, it’s breaking the law. It’s a legal requirement that you provide the written terms of employment to your employee within eight weeks of their start date, giving you a bit of time to ensure everything is correct but also ensuring that everyone is on the same page.

So, if you’ve taken on a new employee, what should you do if this is the first you’ve heard about this? First of all, don’t panic. Second, have a read of our guide to make sure that you have all the bases covered…

What does an employment contract consist of?

Contract terms may be verbal, written, implied, or a mixture of all three. However, as mentioned, you’re required to give a full written statement of the terms of employment to your employee.

Should you encounter any issues prior to issuing the contract properly, you may be able to find terms in the following places:

  • the original job adverts
  • offer letters and correspondence
  • agreements
  • staff rules and handbook

A verbal contract is as binding as a written one, though its terms may be more difficult to prove, and does not let you off the hook for not providing a contract within the required time frame. However, where you want to include provisions specific to the individual, such as restrictive covenants, these must be stated in writing.

When a written contract is issued, you might find it helpful to include a term stating that it replaces all previous discussions/correspondence in relation to terms of employment – so that this becomes the one and only document to refer to in case of any issues.

How to change an existing contract

Should you wish to change the terms of an employee’s contract, you’ll need to consult with them about it, and reach agreement first. This is the case whatever type of contract you might have with them, otherwise you might find yourself being sued for breach of contract, or they can even claim constructive dismissal.

If they don’t agree to the changes then you may have to ‘impose’ them but you need tread carefully when doing this, and should probably take advice to avoid getting into hot water.

Putting together an employee’s employment contract

You can give your written statement of terms to employees in separate parts. However, following the rules mentioned above, this will all need to be done within two months of the employee’s start date.

A written statement of employment can take the form of a single document, in which case all of the information listed below must be included. If you choose to give the documents in separate parts, you will need to first give specific particulars in what is called the ‘principal statement’. This should include the following information:

  • The legal name of the company (the employer) – you should also include the trading name, if it is different.
  • The legal name of the employee.
  • The date when the employment began.
  • Any earlier date upon which employment with a previous employer began which is treated as “continuous” with the current employment.
  • The employee’s pay (or how it is calculated), when it is paid, and the intervals (e.g. weekly or monthly) at which it will be paid.
  • The employee’s hours of work.
  • Entitlement to holidays – including public holidays – and holiday pay. The information must be good enough to allow precise calculation of accrued entitlement.
  • Job title or a brief description of the work.
  • The address of the employee’s place of work. If they will be working in more than one place then this should be indicated along with the employer’s address.

Outside the ‘principal statement’, the following will need to be provided to the employee within two months of their start date:

  • Where the employment is temporary, the period it is to continue for, or, if it is a fixed-term contract, the date it is to end.
  • The length of notice required from both parties, although rather than stating specific terms you can refer to the relevant legislation or to any relevant collective agreement which the employee has a reasonable opportunity to read.
  • Details of any terms relating to employment abroad for more than a month.
  • Details of any collective agreements with trade unions which directly affect the terms and conditions of employment.
  • A note setting out:
    • Whether the employment is covered by a pensions contracting-out certificate
    • The name or job title of the person the employee should apply to in order to resolve a grievance, how this application should be made and if you have 20 employees or more, any further steps that may follow.

You must include the following, either in the statement or, where the written statement is given in separate parts, in an instalment separate from the ‘principal statement’. However, if you wish, you can set out the above in a Staff Handbook. But you will need to make it clear to the employee where they can access this information:

  • Terms and conditions relating to sickness or injury, including any sick pay provisions.
  • Any terms and conditions relating to pensions and pension schemes.

Importantly, if there are no details to be given under a specific heading, you will need to make this clear also.

As well as the terms you actually agree with your employee, an employment contract can include implied terms. This is still a part of employment law, but is often forgotten.

Implied terms include:

  • duty of the employer to provide a secure, safe and healthy environment for employees
  • employee’s duty of honesty and loyal service
  • an implied duty of mutual trust and confidence between you and your employees that neither side will act in such a way as to breach that trust
  • a term too obvious to need stating – e.g. that your employee will not steal from you
  • any terms that are necessary to make the contract workable e.g. that someone employed as a driver will have a valid driving licence

Some terms and conditions may become part of the contract through established custom and practice, for example always paying enhanced redundancy or always paying a Christmas bonus. Note here the word ‘always’, for something to become custom and practice, it needs to be established over a period of time and be consistent. Any inconsistency is likely to make the claim for custom and practice fail.

The law also imposes some terms automatically, such as the right to paid holidays and the right to receive the national minimum wage.

What to do when you send a new employee abroad

If a new employee will normally work in the UK but will be required to work for you abroad for more than a month, the written statement you give them must include details of this. If you do require your staff to travel regularly either abroad or in the UK, this should generally be included in the contract for clarity.

Whether you already employ staff or are currently hiring, having an understanding of employment contracts and sticking to employment law is vital. For more information on hiring and managing staff, have a look at Startups.co.uk’s taking on staff section and our area on employment here.

Kirsty Senior is co-founder and director of citrusHR, the HR service taking a fresh approach to HR for small business and charities in the UK​.

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