If you think a contract of employment is just another bit of box ticking and no one ever looks at them, think again. Whilst you don’t need to have one in writing it certainly helps to clarify things, especially if there is a dispute down the line.

What is a contract of employment?

A contract of employment exists between employer and employee and forms the basis of the employment relationship. Generally speaking, it will cover things such as hours to be worked, scope of the job, holiday entitlement, sick pay, benefits and an employee’s duties and responsibilities.

A contract, whether written down or not, comes into force as soon as the employee accepts their job offer.

Why employers need to provide their employees with a contract of employment and the legalities around it

While you don’t need to have a contract of employment in writing it is always preferable so the terms are clear for both sides. With the best will in the world, not all business relationships work out positively. If this happens in your business, having comprehensive employment contracts can protect both parties and avoid costly litigation down the line.

Most terms will be set out in writing between an employer and employee – these are explicit contract terms and they will include things like rights, responsibilities and duties, remuneration, legal requirements and benefits.

However, there are also implied terms which may not necessarily be written explicitly but are considered part of the contract. For example, they could be very obvious things such as an employee not stealing from an employer or having a safe place to work in, things needed to make the contract of employment work e.g. like a driver having a driving licence and terms which have been established as custom and practice over time e.g. paying a Christmas bonus.

In addition, there will be statutory terms included in a contract, either implied or explicitly imposed by an Act of Parliament or statutory instrument, such as the right to be paid the minimum national wage.

If someone works for you for more than a month, as a minimum you’ll have to provide them with a written statement of employment within two months of their start date. This isn’t an employment contract but it will include the main conditions of employment.

The benefits of providing employees with a contract

An employment contract allows you to be specific about terms. This can be especially important if you want to protect trade secrets, include non-compete agreements or if they will be working with sensitive or copyrighted material. It also allows both you, and your employee, to refer back in the event of a future dispute and can be used as evidence if necessary.

It also helps promote good working relationships between you and your employee, painting you as an organised and efficient employer and providing a solid working structure.

The different types of contract

  • Full-time contracts – These are usually used for full-time, permanent members of staff and will set out salary or hourly pay, holiday entitlement, pensions, sick pay and benefits.
  • Part-time contracts – Part-time staff work less than full-time but they’re still often in permanent positions so this type of contract will contain many of the same terms as a full-time contract with some of them on a pro-rata basis.
  • Fixed-term contracts – These last for a set amount of time which is agreed in advance. It might not specify a specific amount of time but rather when a project is finished. Fixed-term contracts include many of the same rights given to permanent staff although certain things, such as holiday entitlement or benefits, depend on the length of contract.
  • Temporary contracts - These are similar to fixed-term contracts but there may be more flexibility on the end date depending on demand. There may also be increased flexibility for temporary contracts allowing workers to manage study or other commitments around the work.
  • Agency contracts - Agency staff will have their contract agreed and managed by their recruitment agency and it will be down to the agency to make sure workers’ rights are protected.
  • Freelancers and contractors – These contracts vary in each individual case. They can include start/end dates and remuneration for a particular project or rate of pay.
  • Zero hours contracts – These contracts mean an employee will only work when required by the employer. A zero hours worker however, can look for employment elsewhere and such a contract would not be valid if it stopped them from doing so.

What to do if the contract of employment needs to be varied/terminated

A contract can be varied by both employer and employee. An employer might do so because of changes in economic conditions or business reorganisation. An employee might wish to negotiate better terms e.g. pay, job role or benefits.

Changes can only be made with the agreement of both parties and should ideally be in writing. You should consult with your employee and explain any changes you wish to make.