SME Tools: a guide to employment contracts - Brought to you by NatWest

Thursday, 06 February 2020

As a new employer, you will be required to provide a contract or similar document to staff. We explain how to get this essential first step right.

For small business owners who are taking on staff for the first time, providing new employees with a contract – or at least full details of their rights and obligations – isn’t just a legal requirement. It can also help to create the right impression of you as an employer, as well as avoid any work-related issues down the line.

“Presenting a new employee with a clear, unambiguous statement of employment particulars shows them that you know what you’re doing, and you have given their role some thought,” says Rhona Ulyett, senior employment law and HR consultant at NatWest’s Mentor advisory service.

Law change in 2020

“It would be my recommendation,” says Ulyett, “that you have the contract prepared as part of the offer process. Ideally, you would be clear about what the business’s requirements are – for example, how many hours a week, what the main duties are – even before you start the recruitment process.”

Essentially, she adds, providing a contract is less about protecting the employer and more about giving the employee a statement of what they are entitled to, in terms of pay, holidays, notice and so on.

Under the current rules, employers have up to two weeks after taking someone on to provide this contractual information. However, Ulyett says, new legislation that is set to come into effect in England, Scotland and Wales at the start of April 2020 will mean that businesses have to provide such details no later than their new employee’s first day in the job.

“For responsible employers, however, this should present no problem,” she says. “The law is being changed to give employees more certainty about what they’re committing to, in terms of their working hours or location, for example, at an earlier stage. But these are things that employers should be clear about in their own minds well before they take someone on: changing your mind about where someone is based a week after they start working for you would not be an ideal way to start the employer-employee relationship.”

Contractual requirements

The following information needs to be included in the initial contract or statement of particulars:

• Names of the employer and employee
• Start date
• Rate of pay, as well as how it is calculated – for example, hourly or per annum
• Pay intervals – for example, weekly, four-weekly or monthly
• Notice period that the employer or employee is required to give to terminate the contract
• Job title or a brief description of the work required. This does not need to cover the employee’s full duties
• Place of work – for mobile workers, this could be the area they are expected to cover
• Average working hours, as well as any further terms – such as night or weekend work
• Annual holiday entitlement
• Sick pay entitlement
• Pension provision

Ulyett adds: “There also needs to be an indication of where the employee can find rules relating to the company’s disciplinary and grievance procedures – these don’t have to be included in the contract themselves.” She says that this means businesses need to have such policies drafted before they take staff on.

Show your commitment

“Employers may also wish to include the person the employee should report to, as well as a statement of the company’s data-protection policies – that is, what data will be collected by the employer and what it will be used for,” says Ulyett.

While the legal obligation is simply to provide employees with the information outlined above, it makes sense, she says, to ask the employee to sign and return a copy of their contract to acknowledge receipt.

“I would always recommend that you sign the contract yourself as well, to show your commitment: you are saying to the employee, if you turn up and comply with this contract, then I will pay you as agreed.”

She adds: “It’s a mistake to believe that, as an employer, if you don’t put anything in writing there is no contract and the relationship is infinitely flexible. Employees have a number of statutory rights, and once they have worked for you for a while a contract will be implied based on the ‘custom and practice’ of their working patterns to date.”

Some employers may be tempted to use an old contract of their own – from a previous job, for example – as the basis for new staff. “But it’s very easy to be out of date if you base your contracts on old documents,” Ulyett says. “You’re taking the risk your contract is not legally compliant, which is almost worse than having no contract at all.”

There are DIY services available online, but she points out that using some sort of legal service can reduce the risk of potentially costly mistakes.

Dealing with different types of employee

For permanent employees, whether full-time or part-time, employers should be able to use very similar contracts. This also applies to employees taken on for fixed terms, such as those covering maternity leave: the terms and conditions should be largely the same as for permanent staff, with the exception of a pre-agreed end date.

If an employee is hired on a zero-hours contract, where there’s no guarantee of a minimum level of work each week, Ulyett says, this will require some changes to reflect how holiday pay and entitlement is calculated.

“If, on the other hand, you’re using workers from an employment agency, their contract will be between the agency and each individual.”

For businesses that choose to use contractors, there should be no contract of employment involved, she adds. “If an individual comes in to do a specific piece of work for a certain price – and if, for example, they are using their own equipment, as well as bearing the risk if anything goes wrong – then they are not an employee and you have no obligation to provide an employment contract.”

NatWest Mentor offers expert business advice on employment law and HR, health and safety, and environmental management.