How to draw up an employment contract

Employment law is one area that is constantly changing so it's important that you keep up-to-date, particularly as changes happen regularly in this subject.

Although UK employers are not obliged to give employees contracts every employer must provide a statement of employment, clearly laying down certain details, and it can be in your interests to include policies that are not needed by law, but that would be beneficial.

A recent study from the Economic and Social Research Council shows that 42% of managers have seen the number of unfair dismissal cases grow, and this can be a costly mistake for businesses. According to Jobsworth, which provides online employment contracts and polices, failure to be aware of changes can result in a fine of up to £53,000 for unfair dismissal.

Related: The seven key types of small business employment contract

To ensure you don’t get caught out, follow the guide below to help you produce an accurate and up-to-date contract of employment for every one of your staff.

What to include

An employment contract can basically be made up of anything you write or say, but should include the following:

  • the name and address of both employer and employee
  • the place of work
  • the date the job started
  • rate of pay and how it will be paid
  • amount of holidays, and when the holiday year starts
  • amount of notice required from both employer and employee
  • any terms and conditions relating to pensions

At present, if you employ 20 or more people, you must have a written disciplinary and grievance procedure which is reasonably accessible to your employees. This must include details of who to apply to and how to apply. Since April 2003, minimum written disciplinary and grievance procedures have been required for every contract of employment, irrespective of how many people you employ.

“It is advisable for an employer to include these in an employment contract, to show that you are up-to-date with, and following new laws,” advises Kirsty Scott, general manager at Jobsworth.

It is worth remembering that many employers fall down at industrial tribunals because grievance procedures have not been followed properly.

Pitfalls to avoid

According to James Dirks, founder of law firm Russell Dirks & Co, which specialises in helping small- and medium-sized businesses, a common mistake amongst employers is failing to keep employees up-to-date with legislation.

“It is common for employers to include new laws in a contract when it comes to new employees starting, but not so much for existing employees. This can often cause resentment, particularly in relation to any additional perks. Having one person within your management team who is dedicated to helping out on employment issues is well worthwhile,” recommends Dirks.

Jobsworth‘s Scott says that it is also a good idea to include a clause relating to expenses, setting out clearly what can be considered as an expense, and what the employee needs to have in order to claim.

Some contracts also ask staff to refer to more information in a staff handbook, but Dirks advises it’s often better if everything is contained within one document. You can draw up your own contract of employment, or purchase ready-made contracts or build your own ones through companies such as LawDepot and Compact Law.

Keep it clear and simple

The way you word a contract of employment is also important. It needs to be as clear and easy to understand as possible.

It’s important to keep the language on the contract as clear as possible, so keep the sentences short and to the point – no employer is expected to be an expert in employment law,” adds Scott.

Also see: What SME owners should put in an employment contract

Related Topics

Employment Contracts

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