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Do all employees need a contract of employment?

The short answer to this question is "no". Because of this, it's tempting not to bother: if you’re trying to set up a new company, then you probably have a hundred different things on your mind. You’re working on your business model, assessing profit margins, and looking for the new hires who can turn your idea into reality. But not having written contracts is a bad idea. Here's why.

You could be forgiven for asking yourself: do my employees really need a contract right now?

The short answer? No

There is no law stating that employees must receive a written contract from their employer. If you want to carry on employing your team without providing one, then you certainly can. The option is there.

It’s just not a good idea. Here’s why.

All employees have a contract... even if it’s not written down

Just because you haven’t written down a contract of employment does not mean it doesn’t exist. This is one of the peculiar quirks of UK employment law – the arrangement for you to pay someone in return for their work is enough in itself to constitute a contract of employment.

And while you do not have to provide that contract in writing...

You have to provide a ‘written statement of employment particulars’

Every employee working for your company longer than one month is entitled to receive what is known as a ‘written statement of employment particulars’. It doesn’t matter how many hours they will be working, or what working pattern that might fall into  – this applies to everyone.

By law, the employee needs to receive that statement within two months of their start date.

Now, legally speaking, this statement does not constitute a formal contract of employment. But it does need to contain much of the information that you’d have to provide in that contract anyway.

The information that statement must contain is as follows:

  • The names of both your company and the employee
  • The date on which they started work with you
  • Their job title
  • A description of their role and responsibilities
  • The amount of pay they will receive and how often they will be paid – for example, weekly or monthly
  • Their hours of work (and if they might need to work Sundays, nights, or overtime)
  • Their holiday entitlement – how many days off they are entitled to, whether that includes Bank Holidays, and your holiday pay policy
  • How much notice you will give the employee if you decide to let them go
  • How much notice you will ask from the employee if they decide to leave
  • Where the job is based – for example, if they will need to work at more than one location
  • Details of any collective agreements you have made with the employee’s representatives (such as trade unions etc).

While it doesn’t need to be in the employment particulars, that statement must also let the employee know where they can find information about the following:

  • Pensions and pension schemes
  • Disciplinary and grievance procedures
  • The appeals procedure for disciplinary and grievance processes

So… should I give my employees a contract?

Let’s rewind a minute. Remember, all your employees have a contract of employment – it just hasn’t been written down. Given that you are legally obliged to provide all of the above information anyway, then there is very little reason not to go ahead and provide them with a full written contract.

You lose nothing by doing so… and stand to gain a lot.

Why you should provide your employees with a contract

The statement of employment particulars is really designed to protect employees, and give them clarity over their work. In terms of the employer’s own interests, it doesn’t do much at all.

A written contract is your chance to set out exactly what you expect from your team, protect your company from any misunderstandings, and lay the foundations of a good relationship with your employees.

Here are a few of the reasons why you should make getting your contracts sorted a top priority:

1) It’s your chance to be explicit about terms

If you choose not to set out your contracts in writing, you miss out on a chance to be very specific about what you expect from your team. There’s a whole host of reasons why that is a mistake.

If you need any of your business operations to remain confidential, for example, then the employment contract is the place to make that clear. This not only makes that expectation obvious but also helps protect your company from a legal standpoint.

Alternatively, you might want to make clear any agreements around intellectual property. Otherwise, some companies use contracts to set out non-competition rules, ensuring that ex-employees do not set up competing companies immediately after leaving the business.

All of these things need to be explicitly stated in a contractif it’s not, then you can’t rely on being protected.

2) It gives everyone clarity and peace of mind

It’s true that verbal agreements can often constitute a legally binding contract. The thing is, reaching agreements verbally leaves a huge amount of room for misunderstanding.

What's more, if that relationship ever does go south then proving that verbal agreement was made is notoriously difficult.

Having your agreement with an employee set down in writing means everything is much clearer and, crucially, much more robust. That peace of mind isn’t only for the employer though...

3) Written contracts encourage good relationships between you and your team

From an employee's point of view, having a written contract of employment is a really important aspect of feeling comfortable in their new role. To simply not receive one is needlessly jarring. It could mean they feel ill at ease about the company they’ve joined, and make them wonder if they’ve missed something important.

This is especially true of early-stage startups, where there is the potential for a certain amount of uncertainty anyway. The lack of a more formal HR structure certainly doesn’t help either.

One of the most crucial parts of the HR or Operations mission is to help your team to perform at their best. If your employees are stressing over the particulars of their employment, then they aren’t doing their best work.

If you're going to start producing written contracts for your employees, then it’s a very good idea to get specialist advice – it’s one of those areas you just can’t afford to get wrong. For convenient and reliable assistance with any query on employment contracts, take a look at our HR Advice service. Our in-house HR professionals are available for live chat and email support, for advice whenever you need it.