What is a contract of employment?
If you think a contract of employment is just another bit of box ticking and no one ever looks at them, think again. Whilst you don’t need to have one in writing it certainly helps to clarify things, especially if there is a dispute down the line.
A contract of employment exists between employer and employee and forms the basis of the employment relationship. Generally speaking, it will cover things such as hours to be worked, scope of the job, holiday entitlement, sick pay, benefits and an employee’s duties and responsibilities.
A contract, whether written down or not, comes into force as soon as the employee accepts their job offer.
Why employers need to provide their employees with a contract of employment and the legalities around it
While you don’t need to have a contract of employment in writing it is always preferable so the terms are clear for both sides. With the best will in the world, not all business relationships work out positively. If this happens in your business, having comprehensive employment contracts can protect both parties and avoid costly litigation down the line.
Most terms will be set out in writing between an employer and employee – these are explicit contract terms and they will include things like rights, responsibilities and duties, remuneration, legal requirements and benefits.
However, there are also implied terms which may not necessarily be written explicitly but are considered part of the contract. For example, they could be very obvious things such as an employee not stealing from an employer or having a safe place to work in, things needed to make the contract of employment work e.g. like a driver having a driving licence and terms which have been established as custom and practice over time e.g. paying a Christmas bonus.
In addition, there will be statutory terms included in a contract, either implied or explicitly imposed by an Act of Parliament or statutory instrument, such as the right to be paid the minimum national wage.
If someone works for you for more than a month, as a minimum you’ll have to provide them with a written statement of employment within two months of their start date. This isn’t an employment contract but it will include the main conditions of employment.
Contracts of employment and statements of work
In April 2020, new rules were introduced which make it compulsory for employers to provide an employee with document stating the main conditions of employment when they start work. This is known as a ‘written statement of employment particulars’ and differs from a contract.
The written statement is made up of:
- the main document (known as a ‘principal statement’)
- a wider written statement
The employer must provide employees who commenced work before 6th April 2020 with the principal statement on (or before) the first day of employment and the wider written
statement within 2 months of the start of employment.
In this guide we look at contracts and written statements of work and explain how they differ.
The principal statement
The principal statement must include at least:
- The employer’s name
- The employee’s or worker’s name, job title or a description of work and start date
- How much and how often an employee or worker will get paid
- Hours and days of work and if and how they may vary (also if employees or workers will have to work Sundays, nights or overtime)
- Holiday entitlement (and if that includes public holidays)
- Where an employee or worker will be working and whether they might have to relocate
- If an employee or worker works in different places, where these will be and what the employer’s address is
- How long a job is expected to last (and what the end date is if it’s a fixed-term contract)
- The length of the probation period and any terms and condition which apply
- Any other benefits (for example, childcare vouchers and lunch)
- Obligatory training, whether or not this is paid for by the employer
- If the worker is required to work outside the UK for over a month: arrangements for working outside the UK (including period, currency of pay, additional pay and benefits and return terms)
- The date that a previous job started if it counts towards a period of continuous employment.
Other information the employer must provide on day one
On the first day of employment the employer must also provide the employee or worker with information about:
- Sick pay and procedures
- Other paid leave (for example, maternity leave and paternity leave)
- Notice periods
The employer can choose whether to include this information in the principal statement or provide it in a separate document. If they provide it in a separate document, this must be something that the employee or worker has reasonable access to, such as on the employer’s intranet.
The wider written statement
Employers must give employees and workers a wider written statement within 2 months of the start of employment. This must include information about:
- Pensions and pension schemes
- Collective agreements
- Any other right to non-compulsory training provided by the employer
- Disciplinary and grievance procedures
Casual worker contracts
In some cases, you may require someone to work on a flexible and casual basis. In this circumstance, you could employ someone as a ‘worker’.
If you wish to use workers, the most likely use is for casual work. Casual workers:
- Generally, supply a short-term or specific need.
- Typically, will have periods of work with breaks in between where no
work is performed.
- Are offered and accept work ‘as and when required’.
- Are not under an obligation to accept the work.
- Have no agreement on the particular number of hours of work.
Such an arrangement may suit individuals who want the flexibility to take work as and when it suits them. The arrangement may suit employers, to fill short term needs, such as to cover shifts in a care home or to deal with occasional peaks in administrative workload.
Workers have some rights under employment law, but not as many as those who are also employees. For example, they do not have the right to claim unfair dismissal, notice pay or redundancy pay.
Workers do, however, have the following core employment rights:
- To have a written statement of terms and conditions. This is a right that takes effect for workers engaged from 6 April 2020.
- The written statement for workers should not be the same as that for employees but tailored to what you require workers to do.
- To receive the national minimum wage.
- Not to suffer unlawful deductions from wages.
- To receive itemised payslips.
- To receive a minimum of 5.6 weeks’ holiday per year.
- Not to be discriminated against.
As workers are not considered to be genuinely self-employed, in most cases, they should be paid via the payroll. You still need to take references, check their right to live and work in the UK and, if appropriate to the role, seek a Disclosure (criminal record check) on them from the DBS.
Types of employment contracts
There are many types of contracts and you should take the time to review your requirements with an HR or legal professional. There are a few of them to choose from and they are each written slightly differently to ensure they cover the relevant job type, so think it through before you decide what you need. This document is a very important one to protect your business and your employees.
These contracts are for those employees who are employed by the business.
- Director service agreement
- Senior level
- Apprentice or work-experience
- Shift work
- Young worker
- Compressed hours
These contracts are for services provided for third party suppliers who are not employed by your business.
- Independent consultancy
- Contract for services
Once you know the type and level of contract you need you will be able to start building it. You will need to know everything about working for your company, joining processes, employee benefits, location, job role, confidentiality levels, GDPR compliance requirements, restrictive covenants and exit processes.
All this information will be used in the contract to outline specific clauses.
An employment contract allows you to be specific about terms. This can be especially important if you want to protect trade secrets, include non-compete agreements or if they will be working with sensitive or copyrighted material. It also allows both you, and your employee, to refer back in the event of a future dispute and can be used as evidence if necessary.
What to do if the contract of employment needs to be varied/terminated
A contract can be varied by both the employer and the employee. An employer might do so because of changes in economic conditions or business reorganisation. An employee might wish to negotiate better terms e.g. pay, job role or benefits.
Changes can only be made with the agreement of both parties and should ideally be in writing. You should consult with your employee and explain any changes you wish to make.