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Guide to employment contracts for small businesses

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 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.

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 one 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 currently only employees with at least one month’s continuous service are entitled to.

As an employer, you must provide a contract within two 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 or 4 week’s pay may be awarded.

If the employee has to ask for their employment contract, this is called, ‘asserting a statutory right.’ This could give rise to another claim, especially if the employee suffers a detriment as a result of their request.

It is important to note that from 6th April 2020, the right to receive a written contract will be a day one right. At the same time, the right to receive a contract will also be extended to include those with worker status, including zero-hours and casual workers.

Employment Contracts – the Statutory Requirements

There are several 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.

From 6th April 2020, additional information will need to be included within written contracts. From this date contracts must also include:

  • Terms relating to regular hours of work, days of the week the worker will be required to work, and whether these days/hours may vary,
  • Terms relating to other forms of paid leave such as family-friendly leave,
  • Details of other employee benefits, not just those relating to pay, such as benefits in kind or financial benefits,
  • Terms relating to probationary periods including those concerning length and conditions,
  • Details of training provision and requirements.

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.

Similarly, employees who are on sick leave are entitled to at least the statutory sick pay which is currently £96.35, 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.

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.

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