Employment contracts 101: essential tips and best practices
Your first step towards 'good HR' is nailing down your team’s employment contracts. Employee contracts set the tone for the working relationship between an employer and an employee. Everyone wants to start things off on the right foot, but it’s tricky to get right.
It’s common for early-stage startups to have a fairly casual attitude towards contracts – when your company is just a handful of people, it’s tempting to think that a template you’ve downloaded off the internet and a bit of goodwill is enough to see you through. But when it comes to people’s jobs and livelihoods, you need the security of contracts drawn up by a professional. Without that clarity, you’re leaving a lot of space for friction or misunderstandings to escalate into full-blown conflicts that could end in legal action. This would be the worst case scenario!
As a CIPD-qualified HR expert at CharlieHR, my job is to help businesses get off to the best start possible by making sure they comply with HR law requirements.
How you frame your employment contracts is a big part of the equation when it comes to the early success of your small business. It’s not just a legal document, it’s a legally-binding agreement that significantly impacts both you and your new hire.
Making sure it’s drafted correctly is critical to ensure you avoid potential legal issues down the line, and that the new hire feels secure and in a position to start their new role off with a bang.
With that said, hiring an employment lawyer is more than what most small businesses in the UK can afford, and puts them under even more financial strain.
I’d like to draw on my expertise in advising small businesses on HR topics, dive into the intricacies on how to get started with UK employment contracts, what UK employment contracts should include, and how to write them.
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Understanding employment contracts
An employment contract is a legally binding agreement between a company and a new employee. It outlines the terms and conditions of employment and the working relationship, including the new hire’s job responsibilities, working hours, salary, and other important details.
Some of your employees won't need an employment contract, and you can find out more about this depending on their work statuses.
There are different types of employment contracts suited to different employment scenarios and configurations:
- Full-time contracts: These are for employees who work a full set of hours defined as full-time by the company
- Part-time contracts: These are for employees who work fewer hours than full-time employees
- Fixed-term contracts: Contracts such as these are used for employment that terminates at the end of a pre-determined date or the end of a particular project
These different types of employment contracts aren’t just formalities. They protect both the employer and the new employee, providing job security for the new hire, and a guarantee of services and labour for the organisation. A well-drafted employment contract template provides clarity and security for both parties and lays down the foundation of a successful working relationship.
How to write an employment contract
Writing an air-tight employment contract seems like a daunting task.
In many small businesses, HR duties like this are either overseen by the CEO or founder (who is perennially busy with a million tasks and would rather do other things), or the designated HR point-person on the team (who has to juggle creating an employment contract template alongside a dozen equally-important small business HR tasks). Hiring a contract lawyer, as I previously pointed out, is simply not a viable option for most small businesses.
When we break down the elements of an employment contract, the process becomes much more straightforward:
1. Start with the basic information: The contract should start out with the names of both employer and employee, the job title, and a brief description of the employee's role and responsibilities.
2. Define the terms of employment: Specify whether this arrangement is permanent, temporary, or on a part-time basis. If temporary, state the duration of the arrangement.
This makes it crystal clear to all parties involved what the terms of the working arrangement are. You can also mention the length of their probation period.
3. Detail the compensation: Clearly state the salary or hourly wage, along with any bonuses or commissions. This helps avoid any confusion or potential disputes about fair pay.
4. Outline the work schedule: Spell out the days and hours the new employee is expected to work, and set clear expectations regarding the employee’s availability.
5. Describe the benefits: Provide a comprehensive view of the employee’s compensation package as well as any benefits they are entitled to, including health insurance, retirement plans, and paid time off.
6. Include confidentiality and non-compete clauses: Include any clauses to protect sensitive business information such as intellectual property, and prevent the employee from working with competitors for a certain period after leaving. This helps to protect your interests even after the relationship ends.
7. Specify termination conditions: State the terms in which the contract can end, including notice of termination and grounds for dismissal. A minimum notice period is dependent on how long the employee has been working with the organisation:
- One week: For employees who have worked at the company from one month to two years
- One week for each year worked: For employees who have worked between two and 12 years
- Twelve weeks: For employees who have been at a company for 12 years or more
8. Mention severance pay: Mention when the employee is entitled to severance pay. This makes sure that the employee has a safety net to fall back on if the relationship doesn’t work out.
In April 2020, the Good Work Plan updates came into effect, and you will also need to include additional clauses in your contract to make it compliant. Reach out to us if you’d like to find out more: we can review your contract to make sure it complies with the latest employment law regulations.
The importance of professional contract review
Employment contracts in the UK are tricky. There are a lot of details to remember, and a lot that can go wrong.
While you have the option of drafting your employment contract independently, it’s highly advisable to have it reviewed by a professional.
UK employment law is complex and constantly changing. A professional can help you avoid pitfalls and legal disputes that can potentially cripple your small business, and ensure your contract is up-to-date and HR compliant with all relevant UK employment laws and regulations.
It's in the best interest of both you and your employees to have a well-written employment contract template - it protects you from drawn-out and expensive legal battles you can't afford, and it protects your employees from having their rights violated.
I and our team of HR advisors at CharlieHR are experts in this field and have helped countless small businesses navigate challenges like this. We can review your employment contract, make suggestions and necessary edits to ensure you stay compliant, and give you peace of mind that your employment contracts are legally sound.
An employment contract is more than a document, it’s a reflection of your values as an organisation and a statement of commitment to do right by your employees. Let us help you get it right. For those who want a more comprehensive, out-of-the-box solution, we offer a complete employment contract template drafted by a solicitor.
Secure your business’ future with a solid employment contract
A well-drafted, well-thought-out UK employment contract is a cornerstone of any successful small business. Getting it right from the start can help create a harmonious and mutually beneficial relationship with your employees.
If you need more personalised advice drafting your contract, our Advice sales team is here to help you. Book a call with our Advice team and we can help you navigate the complexities of HR law.
Take the first step today, and let us support you as you build a thriving and legally compliant business.
You can also think about the different ways you will protect your business by drawing important documents such as a training agreement template – check it out today.