Employment contracts – a guide for business owners

If you take on staff to work for your business, you must take on board a number of duties and obligations towards your employees. Here, we look at what employment contracts are, and the paperwork you must complete in order to comply with employment law and avoid being taken to a tribunal by an unhappy employee.

What is an employment contract?

• An contract of employment is an agreement between an employer and employee, setting out the employment rights, duties and responsibilities of both parties.
• The contract becomes binding as soon as an individual accepts a job offer. The contract remains in force until the term of employment comes to an end, or the terms of employment are changed.
• Interestingly, the contract itself does not necessarily need to be in writing, although all employees are entitled to receive a statement of employment within two months of starting work (see below).
• Not all contract terms are explicit. Some may be implied, such as via collective agreements, those which are required by law, those which may be reasonably expected (such as ’employees must not steal’), or terms contained in a staff handbook, etc.
• If your business has an agreement with a union or staff association (although this is less likely for small firms), details of how the relationship operates form part of the employment contract (this would typically relate to how working conditions and rates of pay are negotiated).
• An existing employment contract can only be changed with the permission of both parties.

Written statement of employment

You must provide each staff member with a statement of employment within two months of starting work, if they’ve worked for your for one month or more.

The ‘principal statement’ must include the following details as a minimum, and can be included on an employment letter, a written employment contract, or as a separate document.

• Name of the employer.
• Name of the employee.
• Job title and description.
• Rate of pay, and payment cycle.
• Working hours.
• Start date.
• Holiday entitlement (including public holidays).
• Where the job is located, and if the employee may have to relocate.

Although the following details don’t form part of the mandatory ‘principal statement’, they must be included in the written statement.

• Notice periods.
• End date (if fixed term contract)
• Information related to any collective agreements.
• Pension arrangements.
• Who to contact if you have a grievance
• How to complain about the handling of a grievance, or disciplinary or dismissal procedure.

The written statement does not need to contain information relating to:

• Sick pay arrangements.
• Disciplinary / Grievance procedures (except in Northern Ireland).

But the statement must let employees know where such information can be found.

What happens if an employment contract is breached?

• An employee may terminate the contract of employment by resigning; an employer may terminate the contract by dismissing the employee.
• As an employer, you must provide the notice period contained in the employment contract, or use the statutory minimum notice period (whichever is the longer).
• Clearly, disputes can arise between employers and their employees, an the terms of an employment contract can be breached by either side (e.g. the employer fails to pay the staff member the pre-agreed wage, or the employee fails to turn up to work on time).
• Leading organisations, such as ACAS and Citzens Advice suggest that you should try to resolve any disagreements informally in the first instance. If the problem cannot be solved in this way, an employee may decide to raise a grievance against his/her employer (following the grievance resolution guidelines referred to in the statement of employment).
• As a last resort, your business could be taken to an employment tribunal – a potentially costly and stressful event for both sides.
• To be safe, ensure that you provide a clear statement of employment to each and every employee, as staff-related grievances about unrelated matters (e.g. a disciplinary issue) may be worsened if there are inconsistencies in the way you have drawn up the contract and statement of employment.

Further Information

10 things you must do when you hire your first employee – from the Company Bug team.

You can download a Statement of Employment template from the GOV.UK site here.