How to set up and run a small business

Leaderboard – Run – Legal

You are here: Home » Run a Business » Legal » Guide to Employment Contracts for small businesses

Guide to Employment Contracts for small businesses

July 12, 2016

When you start taking on employees you will be faced with a fair amount of legal responsibilities. It’s important you understand all your obligations as an employer as if you don’t comply with UK employment law you can easily find yourself in front of an employment tribunal.

As a small business owner, your legal responsibilities when taking on staff can be somewhat daunting but with a little help you can soon get your head around what’s needed.

One of your first duties as a new employer is to ensure you comply with employment contract law. To help you understand your legal obligations, here’s a guide to employment contracts for small business owners;

When employers need to provide an employment contract

All employees who start work for an employer enter into a contract with them from day one, but it is not until the employee has worked for at least 1 month that they become entitled to receive a written contract of employment which incorporates their terms and conditions of employment.

Receiving a written employment contract is statutory right which all employees with at least 1 month’s continuous service are entitled to.

As an employer, you must provide a contract within 2 months of the start of employment. If you don’t do this, the employee can make a claim at an employment tribunal where compensation of 2-4 week’s pay may be awarded.

Also, if the employee has to ask for their employment contract this is called, ‘asserting a statutory right’ which could give rise to another claim.

Employment Contracts – the Statutory Requirements

There are a number of things which an employment contract must include as legal requirements. These requirements are specified in the Employment Rights Act 1996. An employment contract must include:

  • The name of the employer and the employee,
  • The job title and brief description,
  • The date when the employment starts and any previous employment which counts as continuous,
  • The pay which the employee will receive and how often it will be paid,
  • The hours which the employee will work, the place of work and end date if applicable,
  • The holiday, sick pay and pension entitlement provisions,
  • The length of notice required from the employer and the employee,
  • Any collective agreements which form part of the employment,

If the employee is required to work outside of the United Kingdom, then the following must also be included in the contract of employment:

  • The length of period which will be spent outside the UK,
  • The currency in which the employee will be paid,
  • The terms and conditions which will apply upon the employee’s return to the UK.

If certain sections of those listed above do not apply to the particular employment, then this must be stated in the contract of employment.

When including each of the relevant clauses which a contract of employment must contain, there are certain minimum requirements you will have to comply with. For example, the holiday entitlement clause must provide for at least 5.6 working weeks’ holiday a year.

RELATED: A Guide to calculating holiday pay

Similarly, employees who are on sick leave are entitled to at least the statutory sick pay which is currently £88.45, subject to qualifying criteria.

Remember that for both of these entitlements you can provide over and above them as a contractual entitlement, but you cannot reduce it below the statutory minimum.

What else should be included in an Employment Contract?

If there are other terms and conditions which apply to the employment, they should be recorded in the contract, too.

For example, agreements relating to probation periods, assessments, deductions of pay, restrictive covenants, disciplinary and grievance procedures should also be part of the contract or any other documents which form part of it, such as an employee handbook.

Making changes to the Employment Contract

If during the course of the employment, the employer and the employee agree a change to the terms and conditions, the employer must provide the employee with an updated version of the statement containing the new terms.

A new version of an employment contract has to be provided to the employee within 1 month of the change taking place.

Where can employers get Employment Contracts from?

A contract of employment is a vital element to the employment relationship which all businesses must provide, so it is important that employers provide contracts which reflect their company, policies and culture.

Business owners have several options when it comes to sourcing an employment contract template. Here are the four most common routes and their main advantages and disadvantages;

1. Draft your own employment contract

The best way to get a contract which you can use with your employees is to draft one from scratch.

PROS: A self-drafted contract will be tailored to fit your company and reflect the policies and practices implemented in your workplace.

CONS: It may be time consuming and some employers may not be aware off all the legal requirements which govern a contract.

2. Employ a solicitor

A contract drafted through an employment lawyer can be a reliable solution.

PROS: Solicitor drafted contracts are made to reflect your business. Solicitors have a profound knowledge of the law in the area in which they specialise and will be aware of industry specific requirements. Employers can be sure that the contract they receive will be legally compliant.

CONS: This method may be costly and may not suit small businesses which may not be able to afford the fees.

3. Use an HR Consultancy

HR consultancies – such as Peninsula – work with a number of businesses in a variety of sectors and can provide a wide range of services to companies of all sizes.

PROS: Businesses can benefit from the different expertise and knowledge of a number of advisers. Contracts are drafter quickly as advisors’ are kept up to date with legislation. Contracts are also tailored to each company, understanding their business and reflecting their nature.

As businesses are often long term clients, contracts are updated when legal changes come into force, so businesses can be assured their documentation complies with all current employment regulations.

CONS: Some consultancies offer one-off services, while others only offer services such as employment contracts to clients.

4. Download an employment contract online

There are many legal websites out there which can offer an employment contract through a simple download.

PROS: A much timelier and easy method than creating your own contract. You can have a contract on hand within a few minutes after a quick search and a few clicks.

CONS: The legal substance of contracts can quickly become outdated, and it can be extremely hard verifying whether the document you have downloaded is legally compliant. Even if the employment contract template you find is recent, it is often a mystery who the author is and whether they have any legal background and knowledge.

These types of general contracts will not fit the vast majority of businesses and industry specific requirements.

About the author

This guide has been written exclusively for ByteStart by Peter Done, Managing Director of Peninsula Business Services – the UK’s leading specialist Employment Law, HR and Health & Safety service. Other employment guides Peter has written for ByteStart include;

More help on managing staff

ByteStart is packed with guidance on a wide range of staff-related issues. For more help try some of our other guides;

And these will help you to motivate and keep great staff;