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Seven key types of small business employment contract

The number of different employment contracts can feel overwhelming if you are a small business owner. Here is a brief guide to seven different types of small business employment contracts – and where to turn to for help drafting them

 Business people negotiating a contract.

Small print: there are seven key types of employment contracts in any business

As a small business owner, your legal responsibilities when taking on staff can be somewhat daunting but with a little help you can soon understand what’s needed.

When you start taking on employees you will be faced with a fair amount of legal responsibilities. It is important you understand all your obligations as an employer because if you don’t comply with UK employment law you could find yourself in front of an employment tribunal.

One of your first duties as a new employer is to ensure you comply with employment contract law.

See also: Five areas of employment law small businesses must be aware of

Full-time contracts

Employees are legally entitled to a written statement of the main terms and conditions of employment if their employment contract lasts at least one month or more.

You, the employer, must provide the written statement within two calendar months of an employee starting work.

There are a number of things that an employment contract must include, according to requirements specified in the Employment Rights Act 1996. An employment contract must include:

  • Name of the employer and the employee
  • Employee’s start date, taking into consideration previous periods of employment which are counted
  • Job title and brief description
  • Pay that the employee will receive and how often it will be paid
  • Hours that the employee will work, place of work and end date if applicable
  • Holiday, sick pay and pension entitlement provisions
  • Length of notice required from the employer and the employee
  • Disciplinary and grievance procedures

An employer may include information on other terms and conditions relating to employment – for example, notification of absence procedures, information about benefits, etc – and it is useful to include these in a separate employee handbook.

If you don’t do this, the employee could make a claim at an employment tribunal where compensation of 2-4 weeks’ pay may be awarded.

Also, if the employee has to ask for their employment contract this is called, “asserting a statutory right”, which could give rise to another claim.

Other key types of small business employment contract

A full-time permanent employment contract is not the only option for an employer who wants to engage staff. There are a variety of contracts that can be used to reflect your needs as an employer.

Part-time contracts

Part-time employment can be appealing for those with childcare commitments or other outside responsibilities.

A part-time worker works fewer contracted hours than a full-time employee.

However, part-time workers generally also hold permanent positions and their contracts contain many of the same details as their full-time counterparts. The number of hours they’re scheduled to work per week should be clearly visible within the contract, but they may have the option to work overtime, if and when desired.

It’s important you don’t treat part-time staff any less favourably than full-time colleagues.

This ruling is in the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000. It’s otherwise known as the part-time workers regulations.

For example, part-time workers can receive the same amount of holiday as a comparable full-time worker on a pro-rata basis. This same principle also applies when it comes to calculating holiday pay for part-time workers.

Fixed-term contracts

This contract includes an end date at which the contract will terminate. These are often used by employers who require staff to complete a specific project, after which there is no need for an employee to remain, or they are used for maternity cover.

Fixed-term employees enjoy all the same rights and benefits as with any other employment contract, although factors such as holiday entitlement will depend on contract length.

Depending on the role, and an individual’s performance, fixed-term contracts can sometimes lead to longer-term positions.

Temporary contracts

Like fixed-term contracts, temporary contracts are offered when a contract is not expected to become permanent. Benefits of temporary contracts include increased flexibility and the ability to manage work around study or other interests.

However, unlike fixed-term contracts, temporary contacts can be flexible when it comes to an end date.

Despite their short-term status, temporary workers are entitled to the same rights as any other member of staff.

See also: The Small Business guide to HR

Agency contracts

A recruitment consultancy or agency agree and manage their staff contracts. Agency workers usually work on a temporary basis, and the length of their contract will depend on your needs as an employer, as well as their availability.

It is the agency’s responsibility to make sure their employees’ rights are protected. However, National Insurance Contributions (NICs) and statutory sick pay will be paid by you, the employer, to the agency.

And agency workers are entitled to the same rights as permanent employees after three months of continuous employment.

Freelancers and contributors

If you hire a freelancer, consultant or contractor it means that they are self-employed, which means they look after their own tax and National Insurance contributions (NICs) and they might not be entitled to the same rights as full-time or part-time/fixed-contract workers. However, you are still responsible for their health and safety.

See also: The differences between freelancing and zero hours contracts

Zero-hour contracts

Also known as casual contracts, zero-hour contracts specify that an employee works only when required by you, the employer. This is a contract that provides the utmost flexibility to you, the employer, if you cannot guarantee any number of hours to be worked. As an employer, you are under no obligation to provide a set number of hours worked. And, similarly, the employee does not have to accept any work that you offer to them.

Zero-hour workers are, however, entitled to the same annual leave as permanent workers, and the employer must pay them at least the National Minimum Wage to work. And you are still responsible for health and safety of zero-hours contracted staff.

How do you draft different employment contracts?

All businesses must provide an employment contract, so it is important that you, the employer, provide contracts which reflect your company, policies and culture.

Small business owners have several options when it comes to sourcing a small business employment contract template. Here are the four most common routes and their main advantages and disadvantages:

Draft your own small business employment contract

The best way to get a contract which you can use with your employees is to draft one from scratch.

Pros: A self-drafted contract will be tailored to fit your company and reflect the policies and practices followed in your workplace.

Cons: It may be time-consuming, and some employers may not be aware of all legal requirements.

Download an employment contract online

There are many legal websites out there that offer an employment contract through a simple download.

Pros: A much quicker and easier method than creating your own contract. You can have a contract in hand within a few minutes after a quick search and a few clicks.

Cons: The legal substance of contracts can quickly become outdated, and it can be extremely hard verifying whether the document you have downloaded is legally compliant. Even if the employment contract template you find is recent, it is often a mystery who the author is and whether they have any legal background and knowledge.

These types of general contracts will not be suitable for most businesses as they won’t cater to industry specific requirements.

Employ a solicitor

Having an employment lawyer draft a small business employment contract can be a trustworthy solution.

Pros: Solicitor-drafted contracts are tailored to reflect your business. Solicitors have a profound knowledge of the law in the area in which they specialise and will be aware of industry-specific requirements. Employers can be sure that the contract they receive will be legally compliant.

Cons: This method may be expensive and may be beyond the means of most small businesses.

Use an HR consultancy

HR consultancies – such as Peninsula – work with a number of businesses in a variety of sectors and can provide a wide range of services to companies of all sizes.

Pros: Businesses can benefit from the different expertise and knowledge of several advisers. Advisers are kept up to date with legislation so contracts are drafted quickly. Contracts are also tailored to each company, understanding their business and reflecting their ethos. As businesses are often long-term clients, contracts are updated when legal changes come into force, so businesses can be assured their documentation is compliant with current employment regulations.

Cons: Some consultancies only offer one-off services such as drafting initial employment contracts with no follow-through. This can be problematic if your small business employment contract needs to be redrafted or there are changes in employment legislation.

Award-winning HR and health and safety support for small businesses. Arrange a free consultation with one of Peninsula’s local advisors today

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