Recently, we’ve been inundated with requests at Wright People HR to review and renew Employment Contracts with small and medium businesses. An Employment Contract is something that is simple to get wrong, but also easy to get right, if you know what you’re doing – and perhaps you don’t resort to downloading a template from the Internet that doesn’t fit your business.
They’re also something that, if you do get wrong, can have huge ramifications; creating serious difficulties further down the line, if and when a relationship breaks down.
So, let’s talk you through the basics and advise you on best practice to follow.
What is an employment contract?
Simply, an employment contract is the agreement that you have, as an employer, with an employee.
Why is an employment contract important?
All UK employees should receive a contract of employment on the day of their employment that forms the basis of their relationship. Employment law in the UK states that employers should provide employees with employment contracts within two months of starting work.
While we recommend employment contracts are in writing, they can begin as verbal agreements from the point of an offer being made and accepted. They can be a written statement outlining your main employment terms, if you’re not going to give a full written contract.
In practice, many employees in the UK don’t’ have an up-to-date written contract. We would always advise that an Employment Contract is given to every employee – and not a verbal nor a simple written statement. A clearly written contract helps you both to understand your employee’s rights to certain pay and conditions, and manage your employee’s expectations of their new role.
Additionally, an Employment Contract ensures that you’re compliant and protected. When disputes arise in the workplace, the starting point for interpreting the terms and conditions – and determining the outcome of that dispute – is usually the written contract of employment. By failing to provide a contract – or a contract that is sufficiently robust – employers can face a whole host of complications and uncertainty further down the line.
When should you issue an Employment Contract?
As soon as someone accepts a job offer, we would recommend they are given a contract with their employer. An employee has the legal right to get a written statement from their employer the first day they start work. It doesn’t matter how many hours they work each week. The statement should describe the main terms of the contract of employment.
What are the different types of Employment Contract?
At Wright People HR, we simply classify the different types of Employment Contract as:
Permanent – where an employee is not given an end date but are employed indefinitely.
Fixed term / temporary – where an employee is paid and employed directly by the company (not through an agency) but for a fixed period or temporary period of time e.g. 12 months or for a specific project activity.
Zero-hours – where a worker is paid directly by the company but has no fixed weekly hours guaranteed, and they are only paid for the hours they work. The employee can turn down work that is offered and can accept work from other employers. These workers are still entitled to annual leave and national minimum wage.
If you have employees or workers, we recommend you should have an employment contract, outlining the terms and conditions of the relationship.
What should be included in a contract of employment?
The legal parts of a contract are known as ‘terms’. An employer should make clear which parts of a contract are legally binding. Your Employment Contract for all employees should include details of the:
- employer’s name and address, and the employee’s name;
- start date (and end date if the agreement is temporary or fixed-term);
- the date that continuous employment (working for the same employer without a significant break) started for the employee
- job title/ brief description of role;
- place of work
- pay details (the amount e.g. annual salary or hourly based, how often e.g. monthly and when e.g. 28th of each month);
- hours of work/days of work (e.g. 9am-5:30pm Mon-Fri);
- the amount of holiday pay;
- holiday entitlement/annual leave (including details of how it is calculated if the employee joins mid-year or when the employee leaves);
- sick pay and sick leave;
- other paid leave or where the employee can find it if it’s in a policy (for example maternity leave and maternity pay);
- other benefits (including non-contractual benefits, e.g. childcare schemes or company car schemes)
- notice period each party is required to give;
- probation period if applicable (duration and conditions of probation);
- pension and pension schemes;
- any collective agreement that affects the employment;
- disciplinary rules and grievance procedures
What are implied terms?
Implied terms are terms that are too obvious to be written. For example, not stealing from your employer is an implied term. We would still advise for these to be in writing, so everyone is clear on their rights and responsibilities. Even if they are unwritten, these types of terms are often crucial for an effective working relationship and to prevent mis-understanding. We would recommend these are written in the policies in the Employee Handbook. For example, this could include the standards of behaviour that are expected when dealing with customers, and what happens if they are not met (in your disciplinary policy).
Custom and practice are usually unwritten terms. This could be something that is well known in the business and has applied for a period of time. For example, if an employee has got a Christmas bonus of £100 every year for the last ten years, and everyone in their team got this, this could then be expected every year. To prevent mis-understanding we would, again, recommend any bonus and the terms around it are in writing – in a letter (in this instance) rather than the contract. This is so it can be changed more easily in the future because any bonus depends on the business profitability and financial results each year.
What’s the difference between an Employment Contract and an Employee Handbook?
A contract of employment is legally binding. To change the terms of a contract of employment you have to consult with employees. An employee handbook or set of policies are guidelines or rules about working at your specific company and they can be changed and updated more regularly without having to consult with employees. They may be guidelines or rules on, for example, how and when to report sickness absence, what you should do if you are going to be late for work etc.
You need to make employees aware of any changes to your policies and where to find them, but you don’t have to formally consult on the changes. That’s why we always recommend two separate documents – an Employment Contract with the minimum but required information and a separate Employee Handbook with all of the Company’s policies. This means should you need to change any policy, it is not subject to a consultation, as it would be if it were in the Contract.
When does an employment contract end?
Employees and employers must work within the terms of the contract until it ends. For example, by an employee giving notice to resign, or an employer giving notice to dismiss. In the case of gross misconduct, they may not need to give notice. A current employment contract can also end when the terms are changed, usually by agreement between the employee and employer.
Some of the terms of a contract may continue for a period of time after an employee leaves the business. For example, “restrictive covenants”; these may prevent an employee after leaving from contacting a business’ customer. To be legal, “restrictive covenants” should be clear, specific and time restricted.
How do I go about changing the terms of an Employment Contract?
Any changes to the employment contract must be mutually agreed by the employer and employee, or in some circumstances, with a trade union or employee representatives. If the changes are updates in the light of new employment law, or to improve terms like maternity, paternity or parental leave, then an employer may not encounter much opposition. However, where an employer, for example, is changing to a different location, it could bring about significant changes to some employees. In these cases, we would recommend talking to us for specific advice on your situation, and to carrying out a consultation process with employees affected.
What happens if there is a breach of an employment contract?
A breach of an employment contract can be a serious matter. If an employee feels that their employer has seriously breached their employment contract, they may resign and claim constructive dismissal. For instance, an employee not being paid the agreed amount, or raising a grievance that the employer refused to look at, or changing an employee’s place of work without agreement. We would recommend, as an. Employer, if you have any of these issues that you look to resolve them with employees when they first arise. This could be either informally, or possibly through a formal grievance process where a written complaint is made. Again, Wright People HR can assist you in any of these processes.
Employment Contract Advice. Let’s talk.
At Wright People HR, we can help you to create new – or revise your existing – Employment Contracts. We can advise on what documents, terms and policies are best to reflect your particular circumstances – with both an Employment Contracts and Employee Handbook. Likewise, we can advise and help if you need to consult with employees on a change to terms, or to resolve and / or mediate on any potential breach of contract issues. If you would like to discuss this further, then please get in touch.