How your business can master employee contracts

Small businesses should not be nervous of the prospect of putting employee contracts together. While they can be complex without an HR or legal department, they certainly don't need to be. Adrian Hoggarth gives some simple advice to help.

Small businesses should not be nervous of the prospect of putting employee contracts together. While they can be complex without an HR or legal department, they certainly don’t need to be. Adrian Hoggarth gives some simple advice to help.

The first thing to note is that you do have an obligation to provide a written statement of employment particulars to new employees within two months of them starting employment. Whilst a failure to do this does not give rise to a freestanding right to bring a claim for the failure, a claim for two or four weeks’ pay can be added to another tribunal claim.

Whilst a written statement of particulars is not a contract, it must contain the following information, and this typically serves as the basis for a written contract of employment:

  1. The names of the employer and employee, the employee’s job title and job description.
  2. Employment start date and whether any employment with a previous employer counts towards this period (e.g. service for a group company).
  3. The employee’s place of work and details of work outside the UK for more than one month.
  4. Details of pay, including the scale or rate, the frequency at which it will be paid, and details of commission or bonus arrangements.
  5. The employee’s normal hours of work.
  6. Entitlement to holiday and holiday pay.
  7. Terms relating to sickness absence, including sick pay.
  8. The notice period in relation to termination of employment, and details of any probationary period and how this affects the notice period.
  9. Details of the disciplinary and grievance procedures, typically by reference to a non-contractual policy.
  10. Any terms relating to pensions and pension schemes.
  11. Details of any collective agreements which directly affect the employment (unusual for SMEs).

The basic pitfalls to avoid

Try not to fall into the trap of issuing a contract quickly to a new hire, before the completion of background checks such as references. It is fine to do so, so long as you have made the offer subject to satisfactory background checks and reserved the right to cancel the contract if these checks prove unsatisfactory. Without this, you would have to serve notice under the contract (and pay for the notice period).

See also: The Small Business guide to HR

Don’t forget about probationary periods. Whilst employees in recent years have had to be employed for a year (and now two years for hires since 6 April 2012) before claiming unfair dismissal rights, most employers will specify a reduced period of notice of termination during a set period, typically three to six months. This encourages active performance management to avoid problems building up if an employee is not working out.

Discretionary bonuses are often the subject of litigation. Does the employee have the right to be considered for a bonus? If they do, how is that discretion to be exercised? Set out bonus entitlement clearly to reduce argument, yet retain enough flexibility to consider bonuses without being obliged to make payments.

Disciplinary and grievance procedures should be expressed to be ‘non-contractual’. It is advisable to create contractual procedures that give you flexibility to deal with such matters without fear of a breach of contract claim.

Contracts should set out any right to company sick pay over and above statutory sick pay. Benevolent employers will want to provide sick pay for employees when they are unfit for work, but for SMEs, paying a salary to an employee not at work may prove costly. The generosity of large employers is something that SMEs are better advised to consider only once they can afford it.

Out with the old and in with the new. Once a template is constructed many employers will assume that it continues to be relevant, but the pace of change in employment law is rapid. If in doubt, an update is quick and easy for an employment lawyer to perform.

What to do in a contractual dispute

Disputes can arise throughout the employment relationship, and generally these are about pay. For example, if the contract contains a right to a salary review or a discretionary bonus. It is for this reason that these clauses need to be drafted with sufficient certainty that misunderstandings and disagreements are reduced.

If you do not have any internal procedures in place, you should follow the ACAS Code of Practice on Disciplinary and Grievance Procedures. Whilst not an enforceable set of rules, Employment Tribunals are obliged to consider an uplift to any award of up to 25% if an employer has failed to follow the ACAS Code and the matter ends up before a Tribunal. Similarly, there is an incentive for employees to participate, or they could suffer a similar reduction.

How to set up a basic employment contract

If you reduce a contract of employment to its basics, the key issues are an obligation on the employer to pay the employee for the work that they perform.

These days far more issues are typically dealt with in a contract of employment than is strictly necessary, and the Employment Rights Act 1996 sets out the minimum requirements of the particulars that should be provided to the employee.

However, it is possible to set up a template contract without too much fuss and without incurring significant legal fees. Technology has been embraced in many areas of the legal profession (believe it or not), and we have entered the era of the “automated document assembly system.”

Template contracts can be tailored to the needs of the employer simply by completing an online questionnaire. Once completed, the questionnaire automatically produces an employment contract that is emailed to the law firm, and a lawyer reviews the contract to check that it works. As a result of the reduced time the law firm spends on the task, costs are kept to a bare minimum and included in the price of the purchased contract.

Adrian Hoggarth

Adrian Hoggarth

Adrian Hoggarth is head of employment law at City law firm Prolegal

Related Topics

Employment Contracts

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