What is a contract of employment?
A contract of employment is a legally binding agreement between an employer and employee. Its purpose is to set out the conditions of employment such as rights, responsibilities, and duties of each party and is regulated by the same basic law that governs all other contracts.
It should include several terms that are legally binding – for example the employer’s duty to pay the employee wages, and the expectations of the employees’ duty to work in exchange for payment.
Different types of contracts can apply, depending on the employment status of an individual, so be clear on the employment status of the person you’re hiring before writing or sending an employment contract.
It’s important to remember that from the 6th April 2020 all individual employees and workers are now entitled to receive a minimum of a written statement of particulars on day one of their employment.
>See also: Five areas of employment law small businesses must be aware of
Written statement of particulars vs employment contract
Unlike a contract of employment, the contents of a written statement are prescribed by law. It is generally shorter and may just be a statement of what has already been agreed orally or in writing, but the employer must include specific particulars to the employee. A written statement of particulars can be made up of more than one document but at the very least it must be provided before the employee or worker starts working for you.
Written statements must include:
- The employer’s name and address
- The employee or worker’s job title or job description
- The employee’s place (or places) of work and any relevant relocation requirements
- If the employee or worker will be required to work abroad, for more than one month
- The employee’s start date, and if a previous job counts towards continuous employment
- Any probationary period, and how long the probation period lasts and what the conditions are
- How the employee will be paid, including how much and how often
- Hours of work including any overtime allowances
- Holiday entitlement and whether that is inclusive of public holidays and how it is calculated if the employee or worker leaves
- Any employment benefits that an employee or worker will receive
- The notice period either side must give if employment ends
- Whether the role is permanent, temporary, or fixed term, and how long the job is expected to last
- Information relating to absence/incapacity and the amount of sick leave and pay
- Any paid leave entitlement which is additional to annual leave and holiday pay, such as maternity and paternity leave or compassionate leave
- Disciplinary and grievance procedures
- Information about any collective agreements
- Pension scheme information
- Any training requirements
In the absence of a written contract, the written statement will usually be the best evidence available of what terms have been agreed between the employer and employee or worker. Alternatively, the employer can include all the required terms, amongst other things in the employment contract, and dispense with the written statement.
A separate written contract will take priority over a written statement, is generally more detailed, and provides more information about what has been agreed between the employer and employee. In most cases it is also signed by both parties to show that it has been read, understood, and agreed, thus offering better clarity on expectations and obligations from both parties.
Provided that the terms are reasonable, as with other commercial contracts, if there is an offer, acceptance, consideration, certainty of terms and an intention to create a legal relationship then an employment contract will be legally binding.
>See also: Seven key types of small business employment contract
What else should I consider adding into a contract?
There may be times that you want to add more details to your employment contract, perhaps due to the specific industry or role requirements that further protect your business, whilst offering increased clarity on the obligations of both parties.
These additional clauses can include:
- Additional detail on absence, disciplinary and grievance and dismissal procedures, and where further details can be found
- Security (including IT), confidentiality and GDPR requirements, especially as a result of blended working
- How intellectual property (IP) will be dealt with
- Detail on notice periods and any payment in lieu of notices
- Obligations for the employee on termination of employment, such as return of company property and continued confidentiality and intellectual property provisions
- Post-termination restrictions, ie non-solicitation of clients or employees within a geographical area for a limited, reasonable period of time, after the termination of their employment
- Governing law and jurisdiction of the contract
- Specific clauses relating to the types of employment benefits that employees might receive, for example, bonuses, commission, company car or healthcare
Benefits of an employee handbook
Having a non-contractual staff handbook containing more detail on company policies and procedures is a great way of collecting up all the things that you may need or want your employees to know. This helps you to set clear standards along with correct and consistent processes to be followed in specific situations in the workplace.
Drafting the right employment contract and supporting documentation that supports your business now and as you grow, can be complex and time consuming. If you are in any doubt about what to include you should seek specific employment related advice.
Karen Watkins is the founder of specialist SME HR consultancy Rowan Consulting
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