Small business guide to UK employment contracts

Managing people

23 April 2020

If your small business has staff, it’s important to recognise the different responsibilities that come with being an employer.

There are lots of things to get your head round when hiring somebody new and understanding employment contracts is up there with the most important. This might seem like a daunting task at first, but don’t worry, AXA’s got you covered.

If you’re thinking about taking the next steps to grow your business by employing someone for the first time, of if you’d just like to brush up on your knowledge, read AXA’s guide to employment contracts for small businesses.

 

General information about employment contracts

As an employer, you’ll be faced with a number of legal responsibilities. One of the first things you’ll need to do is make sure you’re complying with employment contract law. Being up to speed with the latest guidelines will ensure you’re being a responsible employer and will help you avoid costly employment tribunals.

 

What is an employment contract?

An employment contract sets out the rights, duties and responsibilities of the employer and employee. These are called the ‘terms’ of the contract and they’re usually included in a written statement of employment.

 

What’s included in a written statement of employment?

Employers must give employees a document that contains the main conditions of employment. This is known as a ‘written statement of employment particulars’ and must include:

  • Names of employer and employee
  • Job title and description
  • Hours
  • Start date
  • Salary and payment date
  • Holiday entitlement
  • Location
  • Length of contract

As of the 6th April 2020, employers will also need to include some additional information when a new employee joins their business. Employers now need to include:

  • Terms and conditions relating to the hours and days of the week they work
  • Paid leave entitlement
  • Employee benefits
  • Probationary period
  • Required training

Employees can request an updated employment contract on or after the 6th April 2020. Employers must give this to the employee no later than one month after the employee’s request.

 

What’s not included in an employee contract?

Some employment terms don’t always need to be included in a written statement. For example, it’s reasonable to expect that employees shouldn’t steal from their employer without the need for it to be written into their contract. These are known as ‘implied’ terms.

An employment contract also doesn’t need to include details about the procedures for sick pay, disciplinaries or grievances. However, the contract must tell employees where they can find this information.

 

What should I do if my employee needs to work abroad?

If a member of your team needs to work outside of the UK for more than a month, this must be set out and agreed in their employment contract. You’ll need to confirm:

  • How long they’ll be abroad for
  • The currency they’ll be paid in
  • The additional pay or benefits
  • Information about when they’ll return to the UK

 

Changes to written statement of employment in April 2020

As well as the new details employers need to include in in the written statement, there are two other changes that came into effect on the 6th April 2020.

  • Written statements must be provided immediately, rather than two months after the start date. A written statement of employment is now a ‘day one right’. Employees must get one on the day they start their job or earlier.
  • All workers are entitled to a written statement of employment. This now includes staff employed through an agency.

 

Can I update my employee’s contract?

In most cases, the employer and the employee both need to agree to any changes to an employment contract. If you want to update your employee’s contract terms, you’ll need to:

  • Speak to the employee or their representative (for example, a trade union)
  • Explain why you want to make a change
  • Give the employee alternative options

It’s always a good idea to talk to your employees regularly about their plans for the future. This is particularly true for older employees who may be close to retirement. You might want to discuss their options for staying in the job and any changes to their role which would require you to update their employment contract.

 

Different types of employment contracts

The employment contract you need will depend on the type of employee you’re looking for, the number of hours they’ll work and how long they’ll be working for the business. Here’s a quick summary of the most common types of employment contracts.

Full time
Full-time contracts are the most common type of employment contract. They’re usually offered for permanent positions and set out the employee’s salary or hourly pay, as well as the other employment conditions we mentioned above. There isn’t a minimum number of hours an employee must work on a full-time contract. However, most people recognise full-time as 35+ hours per week.

Part time
A part-time contract is very similar to a full-time contract and they’re also usually given to employees with a permanent position. The main difference between the two is that part-time employees have fewer contracted hours.

Fixed-term
Fixed-term contracts should set out the same employment conditions and benefits as full and part-time contracts. However, unlike permanent contracts, fixed-term employment only lasts for a set length of time or until a specific task has been complete. The conditions on the length of the employment should be set out in the contract.

Temporary
Just like fixed-term contracts, temporary contracts usually include an end date which can be subject to change. That’s why temporary contracts are often extended to meet demand and availability. Temporary contracts should still include the same conditions and employment rights as permanent contracts.

Agency
Agency employees’ contracts are usually agreed and managed by the agency themselves. The contracts are usually temporary, and the length will depend on the needs of the business and the agency’s availability. It’s the agency’s responsibility to make sure their employees’ rights are protected. National insurance contributions and sick pay are paid to the agency and not to the employee directly.

Contractors and freelance
Contractor and freelance contracts will be different from employee contracts because they’re usually self-employed individuals. The type of contracts will vary, but they’ll usually outline the start and end dates, how much they’re getting paid and details of the work they’re expected to do. Freelancers or contractors might not be entitled to the same rights as employees, but the company will still be responsible for their health and safety.

Zero-hour
Sometimes referred to as ‘casual contracts’, zero-hour contracts are usually used for ‘piece work’ or ‘on call’ staff. A zero-hour contract doesn’t outline a set number of hours an employee must work and the employee doesn’t have to accept any work that’s offered to them. However, zero-hour workers are still entitled to the same annual leave as permanent workers and employers must pay them at least the national minimum wage.

 

Non-compete agreements

Non-compete agreements are legal documents that prevent employees from entering into work considered to be in direct competition with their current employer. They’re also known as terms non-compete, a non-compete clause, a non-compete covenant or a covenant not to compete.

A non-compete agreement comes into effect when an employee leaves a company and the employer wants to prevent them working for a competitor or starting another business in the same field and recruiting the company’s other employees. Employers might also use non-compete agreements to protect themselves against former employees revealing secrets or sensitive information about their business. The agreements will vary in length depending on the company and the position the employee held.

An example of a non-compete agreement

A company that offers a specific product or service might ask their sales team to sign non-compete agreements because they don’t want them going to a competitor and taking their customers with them.

 

Do I need employers’ liability insurance?

Employers' liability insurance protects your employees if they get injured or become ill at work. It’s a legal requirement and you could face a fine if you don’t have the right cover.