As a small business owner as your business hopefully grows you will need to take on new staff. This article provides advice on what you need to think about when writing an employment contract.
An employment contract is a legal relationship between an employer and an employee.
The employer should check the employment status of the person they're employing as it can affect what contract is needed.
What an employer must provide in writing
By law, an employer must provide anyone who's classed as an employee with the terms of their employment in writing (a 'written statement of employment particulars').
This document must contain a summary of the main terms of employment, such as pay and working hours.
This document is often referred to as the 'employment contract'. But by law, the employment contract is broader than just these written terms.
For example, employment law is also part of an employee's contract but usually the law will not be written in full in the document.
When the employment contract begins
An employment contract begins when the employee starts work, even if there's nothing in writing.
The contract might begin even earlier if all the following apply:
Terms of a contract
An employment contract is made up of:
Information in the contract must follow the law. For example, stating that an employee is paid £4 per hour would be against the law, because this amount is below the minimum wage.
Terms that are part of employment law
The employer does not need to put these types of terms into writing.
The exception is any information that must be in the written terms. For example, if the employer pays an employee the minimum wage, they must display that amount in the written document.
Terms too obvious to be written
There are some terms that are so obvious that they do not have to be written (such as not stealing from your employer).
Even if they're unwritten, these types of terms are often crucial for an effective working relationship between an employer and employee.
To prevent misunderstandings, it's still a good idea for the employer to make the following clear (for example, by writing them in an employee handbook):
Custom and practice
'Custom and practice' terms are often unwritten. This type of term could become part of the employment contract, when all of these apply:
For example, an employee could expect a Christmas bonus of £100 this year if their employer has paid that annually for the last 10 years, to everyone in their team.
To prevent misunderstandings, it's still a good idea for the employer to put specific custom and practice terms into writing. For example, that getting a Christmas bonus depends on the business's profit in the latest financial year.
Terms restricting an employee's actions
An employer might state that an employee cannot take certain actions during their employment or once it ends. For example, after the employee has left, preventing them from contacting the business’s customers for a certain time.
These types of terms are known as 'restrictive covenants'. They will not usually be legal unless they're clear, specific and time-restricted. Even then, this area of the law can be complex.
If you have questions you can contact us for advice. We can help explain your options.
Changing or ending an employment contract
Please contact us if you need advice on: