12th January 2023
Employment contracts – how well do you know the different types?
6 min read
When welcoming a new team member into your business, it is important to get the right contract in place. The right type of contract ensures you reflect the engagement between the relevant parties and ensure the correct protections are in place.
But how do you know which type of employment contract is the right one?
There are several different types of contracts that you could use in varying circumstances. These include:
- Permanent employment contracts (full-time or part-time)
- Fixed term contracts
- Zero hour contracts
- Freelance, consultant and contractor contracts
- Agency staff contracts
- Volunteer Contracts
- Director Agreements
Different types of employment contracts
Permanent Contracts
Permanent Contracts are the most common type of employment contract here in the UK. Employers are legally obliged to give their employees a written statement of employment or contract which sets out the terms of their employment. This could be on a full-time or part-time basis.
Permanent Contracts are for employees who are contracted to work for you on a permanent basis and have regular working hours. Hiring people under this type of contract ensures consistency for both the employee and the employer. There will be certain statutory obligations you are required to meet as an employer under these terms, including holiday allowance, sick pay and parental leave.
Fixed term contracts
Fixed-term contracts have the same obligations as those on permanent contracts but are for a set period of time. These are commonly used when the employee is required to carry out a particular project or to cover for another employee who may be away from the business for a period of time, such as maternity leave. Someone who is on a fixed-term contract will cease to be employed by you at the end of that term unless agreed otherwise. This can be beneficial to cover the needs of a business on a short-term basis.
Zero hour contracts
Zero-hour contracts are for people who are employed by you but are only required on an ad-hoc basis. Sometimes they can also be called ‘casual employees’. These types of contracts are often used within hospitality, for example, so resources can be pulled for events when needed, and you are not required to give hours when things are quieter. It is a flexible working arrangement, so you are not obliged to provide regularity of work.
In exchange, people on this type of contract are not obliged to accept work when offered and are free to work for other employers.
Freelance, Consultants and Contractors
These types of contracts are usually between people who are providing a service to your business for a period of time or for a particular specialism. They are considered self-employed and you will need to ensure that they do not receive the same benefits as those who are employed. It is likely they will have a particular project you wish them to carry out during a fixed period of time, and the contract is there to ensure that they fulfil the requirements of what you are paying them to do.
They will invoice you for the work that they have carried out as agreed in the contract between you once the work has been completed. You will need to be careful that they are managing their own tax requirements, not performing work for you on a full-time basis, and there are clear limits of control, or they could be considered employees under IR35 regulations.
Agency staff
When you hire temporary staff through agencies, you will have a contract between you and the agency that you are using. There will be an agreement whereby you ask them for someone to carry out a piece of work, and they will ensure that they provide you with someone with the necessary skills to do that job. You will pay the agency for the work that is carried out on terms agreed between you, and they will be responsible for paying the person who carries out the work.
Be mindful though; after 12 weeks of continuous employment in the same role, agency workers get the same terms and conditions as permanent employees.
Volunteers
Volunteer agreements will normally set out the reasonable expectations of both the organisation and the volunteer. This is a very different agreement to that of an employment contract, and it is important to ensure the content reflects this. It should be a much more flexible arrangement, and they will not receive the same statutory requirements as that of an employee. They must not use language that could be seen to be contractual as it could lead to a situation where the volunteer is seen as an employee or worker.
As a business, you will need to decide as to which type of contract is best for your needs and budget. It may be that you have multiple types of contracts to meet the differing needs within your business.
Director Service Agreement
This is a particular contract, similar to that of an employment contract, but sets out the terms that a Company Director must work under. It is important to ensure that their contracts are clear about what their rights and responsibilities are. Optional clauses within this type of document might include working abroad and restrictive covenants such as non – competition and non – solicitation clauses.
The importance of terms and conditions
It is crucial that the terms of employment are clearly set out in writing, so that everyone involved understands what has been agreed to.
The way in which each of these contract types is crafted, implemented and eventually ended will be different for each type and scenario, and advice should be sought in all instances to ensure you are protecting your business, your employees and your reputation.
There will also be implied terms which are things that are implied by custom or practice when the two parties enter into the contract. One of the most important implied terms is the implied duty of mutual trust and confidence which is often cited in cases of disputes.
If you need help creating the right contract for your business, please contact a member of the MAD-HR team and we will be happy to help.
