Understanding Employee Contracts: What Small Businesses Need to Know

When running a small business, employment contracts may be seen as a tick-box exercise that only gets read at the beginning and end of an individual’s employment. However, they are crucial in ensuring employees have a clear understanding of what is expected of them and what they are entitled to throughout the duration of the employment journey. Well-drafted employment contracts also serve to manage any disputes or misunderstandings that may arise more effectively.

What is a Contract of Employment?

A contract of employment is a legally binding agreement between an employer and an employee. It sets out the terms of the contract, including the conditions of employment and each party’s rights, responsibilities and duties.

A contract may be oral or in writing or a mixture of the two, and the terms of a contract may be express (explicitly agreed between the parties) or implied (terms that are too obvious to mention or are developed through custom and practice). A contract comes into force as soon as the employee accepts the job offer.

Written Statement of Particulars

Employers must provide employees with a ‘written statement of particulars’ when they start work. The written statement of employment particulars is often referred to as the contract of employment; however, it is not the same. The employment contract is much broader than the written statement. Employers must provide the principal statement on the first day of employment and the wider written statement within 2 months of the start of employment. Failure to do so is illegal.

What Should the Principal Statement Include?

The principal statement must include at least the following:

• • the employer’s name;
  • the employee’s or worker’s name, job title or a description of work and start date;
  • how much and how often an employee or worker will get paid;
  • hours and days of work and if and how they may vary;
  • holiday entitlement;
  • where an employee or worker will be working;
  • how long a job is expected to last (and what the end date is if it’s a fixed-term contract);
  • how long any probationary period is and what its conditions are;
  • any other benefits;
  • obligatory training, whether or not this is paid for by the employer.

On the first day of employment, the employer must also provide the employee or worker with information about:

• • sick pay and procedures;
  • other paid leave (for example, maternity leave and paternity leave) and
  • notice periods

Wider Written Statement Requirements

A wider written statement should include information about:

• • pensions and pension schemes;
  • collective agreements;
  • rights to non-compulsory training provided by the employer;
  • disciplinary and grievance procedures.

It’s also advisable for small businesses to include specific confidentiality clauses that prohibit employees from sharing company-related confidential information and trade secrets with third parties.

Need Help Drafting Employment Contracts?

To make sure your company is protected, it’s important to have contracts in place for all staff, including full-time employees, part-time and temporary workers, and seasonal or fixed-term employees.

If you’re looking to review, update or even write entirely new contracts, our team of experts at MAD-HR are here to help. We will ensure your contract is compliant and relevant to your business and the role.