Whether your business employs only a handful of employees or thousands, employment contracts are a legal obligation all employers must comply with.
Having these contracts in place allows you and your staff to know exactly where you stand in terms of obligations and rights, whilst also providing legal protection should issues arise down the line.
Lisa Judd, our Head of Employment & HR Advisory, goes into the importance of secure contracts for SMEs and what should be included.
When should contracts be introduced?
Contracts should be provided from the first day of employment.
Legally, you do not have to provide a written contract but instead a statement of main terms. However, if you do not provide a written contract, that does not mean that there is no contract in place. Taking on an employee automatically generates a verbal contract, based on any discussions and what happens in practice, which can lead to dispute. It is for this reason that it is recommended for both employers and employees to have a written contract in place.
A well drafted employment contract also increases the options available to an employer when dealing with common workplace issues e.g. giving the employer the ability to make deductions from wages that otherwise they could not make, for any sums due to the employer.
What to include
Employment contracts are made up of both express terms (those stated in any written contract and implied terms (implied by fact, law, custom and practice).
Express terms should include:
- The names of the employer and employee
- The date the employment commenced
- Terms setting out remuneration and contractual benefits.
- Working hours
- Job title and duties
- Any probationary period
- Place of work
- Notice terms
- Holiday entitlement and pay
- Terms relating to any requirement to work outside the UK
- Whether any collectively agreed terms apply
Care should be taken to identify whether any benefits offered e.g. sick pay or bonus/commission are contractual or discretionary.
In addition, employers may wish to include some form of post-termination restrictions in order to protect their confidential information. These will not be appropriate for all employees but may be very important for certain types of client-facing employees.
Implied terms include:
- Duties on employers to provide work and pay
- Duties on employees to be ready willing and available to do it and to obey reasonable instructions and to exercise reasonable care and skill
- A duty of mutual trust and confidence between employer and employee
- A duty of fidelity
- A duty on employers to take reasonable care of the health and safety of their employees (including both physical and mental health)
- A right to reasonable notice
It is best to include all of the terms in writing when drafting a contract. This ensures that there are no misunderstandings with what is expected of both employees and employers. In addition, employers may wish to include some form of post-termination restrictions in order to protect their confidential information. These will not be appropriate for all employees but may be very important for certain types of client facing employees.
Different types of contracts
Typically, employers might want to have Directors Service Agreements, a contract for more senior employees and one for more junior employees.
They may also need contracts for staff who are full time or part time, who only work part of the year, or who have irregular or no guaranteed hours.
Sometimes it is sensible for employment contracts to be in the form of a deed rather than a simple contract, for example when new terms like longer notice or restrictive covenants are introduced without some additional consideration (e.g. without their being accompanied by a pay rise, bonus or promotion).
Updating contracts
It is important to keep contracts up to date to reflect any changes e.g. in employment laws or arising from any change in the role or seniority of the employee.
Currently it is sensible for employers to be checking whether the way they calculate holiday pay is fully compliant with recent statutory changes, especially for employees who work overtime so regularly that it might be considered part of their normal remuneration.
Simple contractual changes purely benefiting the employee, like updating remuneration provisions e.g. for the recently announced increase to the National Minimum Wage (effective April 2024) can be done by way of a simple letter confirming the rise.
For more extensive changes, especially those more for the employer’s benefit or not having immediate binding effect (like changes to notice or port termination restrictions) it is sensible to take implementation advice.
This will usually be to consult and to endeavour to get the employee to sign to confirm not just their receipt of new terms, but their acceptance of them, but there are other options available where agreement cannot be reached.
If you need help with employment contracts, get in touch with one of our experts today.