Employment contracts govern employee-employer relationships. They define each parties’ rights and agree key matters such as an employee’s pay and matters such as commission and claiming expenses. That’s why it is so important to understand how employment contracts work, the different types, who they apply to, and what you need to include.
This article offers a brief introduction to the most common types of employment contract. You’ll learn about when they’re relevant, and how to ensure you work with watertight contracts that protect both you and your employees.
Let’s start with the basics: what is an employment contract? A contract is a legally binding agreement through which relevant parties – in this case the employer and employee – agree on terms that set out:
Employers and employees also have some statutory responsibilties and rights as set down by relevant legislation. You don’t have to explicitly include these in the employment contract. However, it’s good practice to set these out so that all relevant parties are on the same page.
You may also want to include terms that reference your workplace’s ‘customs and practices’ to prevent misunderstandings or misplaced expectations.
Additionally, some employers choose to include ‘restrictive covenants’ in their employment contracts. These which govern an employee’s responsibilities and rights after they stop working with them.
It is good practice to ensure your employment contract is written down but this is not required for the contract to be legally valid.
Since an employment contract is legally binding both the employer and employee are bound to abide by the terms it sets out until the contract expires or until both parties agree to change what the contract says.
Though an employment contract does not have to be written down, employers are legally required to present their employees with a ‘written statement of employment particulars’ when they first start work. This is not the same as an employment contract, but does include details such as:
Additionally, employers must also explain how sick pay and other paid leave works, as well as relevant notice periods for different kinds of leave. This can be included in the ‘principal statement’ of the written statement of employment particulars or in a separate document.
The type of employment contract you agree with your workers will affect the tax and employment responsibilities you have for them as well as their employment status.
A full-time contract is what is agreed with a permanent employee. A full-time contract should lay out how much the employee will be paid, their holiday and other leave entitlements, how your workplace handles statutory sick pay and pension contributions.
A part-time contract is for employees that work fewer hours than their full-time colleagues. They are usually still considered permanent members of staff and their employment contracts look broadly the same. Their contract should explicitly outline the number of hours that they are expected to work.
As the name suggests, a fixed-term contract is one that lasts for a certain, finite time frame that is agreed ahead of time. The duration of the contract may be tied to a date or depend on the completion of a task or service, or the occurrence of a specific event.
Fixed term employees still receive the same treatment as permanent employees.
When it comes to agency staff, their employment contracts are usually handled by their agency. However, if an agency worker works with you for 12 weeks continuously, they become entitled to the same employment terms and conditions as your permanent workers.
Freelancers, consultants and contractors are all seen to be self-employed. This means that as an employer you are not responsible for their tax or National Insurance, nor are they entitled to the same benefits or protections as your permanent staff.
This kind of employment contract will outline:
You may also want to stipulate ownership over work that the freelancer does or produces for you.
Zero-hour contracts are for arrangements in which the employee does not have a minimum number of work hours every week. Instead, they work on an ‘as and when needed’ basis.
Zero-hours workers are still entitled to their statutory leave entitlement and to be paid at least the national minimum wage. You also cannot prevent them from working with other businesses.
Ensuring your employment contracts are thorough and watertight is essential for protecting both you and your employees. Though many employers choose to work with standard templates, adjusting here and there to accommodate their perceived needs, this doesn’t always go far enough.
To shield yourself from disagreements or legal liability it is vital to work with experts that understand the ins and outs of employment law. Our dedicated employment law team work with each and every client to craft bespoke contracts that properly reflect their business, set out relevant parties’ rights clearly, and protect their interests. Find out more about working with 360 Business Law here.
As per the government website, ‘all employees have an employment contract with their employer’.
As we’ve seen, there are many different types of employment contracts that cover different employee-employer relationships – from full-time, part-time, to freelancers and zero-hours workers.
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