When running a small business, employment contracts may be seen as a tick-box exercise that only gets read at the beginning and end of an individual’s employment. However, they are crucial in ensuring employees have a clear understanding of what is expected of them and what they are entitled to throughout the duration of the employment journey. Well-drafted employment contracts also serve to manage any disputes or misunderstandings that may arise more effectively.

What is a Contract of Employment?

A contract of employment is a legally binding agreement between an employer and an employee. It sets out the terms of the contract, including the conditions of employment and each party’s rights, responsibilities and duties.

A contract may be oral or in writing or a mixture of the two, and the terms of a contract may be express (explicitly agreed between the parties) or implied (terms that are too obvious to mention or are developed through custom and practice). A contract comes into force as soon as the employee accepts the job offer.

Written Statement of Particulars

Employers must provide employees with a ‘written statement of particulars’ when they start work. The written statement of employment particulars is often referred to as the contract of employment; however, it is not the same. The employment contract is much broader than the written statement. Employers must provide the principal statement on the first day of employment and the wider written statement within 2 months of the start of employment. Failure to do so is illegal.

What Should the Principal Statement Include?

The principal statement must include at least the following:

  • the employer’s name;
  • the employee’s or worker’s name, job title or a description of work and start date;
  • how much and how often an employee or worker will get paid;
  • hours and days of work and if and how they may vary;
  • holiday entitlement;
  • where an employee or worker will be working;
  • how long a job is expected to last (and what the end date is if it’s a fixed-term contract);
  • how long any probationary period is and what its conditions are;
  • any other benefits;
  • obligatory training, whether or not this is paid for by the employer.

On the first day of employment, the employer must also provide the employee or worker with information about:

  • sick pay and procedures;
  • other paid leave (for example, maternity leave and paternity leave) and
  • notice periods

Wider Written Statement Requirements

A wider written statement should include information about:

  • pensions and pension schemes;
  • collective agreements;
  • rights to non-compulsory training provided by the employer;
  • disciplinary and grievance procedures.

It’s also advisable for small businesses to include specific confidentiality clauses that prohibit employees from sharing company-related confidential information and trade secrets with third parties.

Frequently Asked Questions

Useful questions and answers about “Understanding Employee Contracts: What Small Businesses Need to Know”

Do employees need a contract?

Technically, there is no legal requirement to provide an employee with a written contract of employment. However, we would strongly recommend providing one for clarity and to protect your business. <br> Although there is no legal requirement to provide a written contract of employment, employers have a duty to provide employees and workers with a 'written statement of employment particulars' under S.1 of the Employment Rights Act 1996.

Can an employee handbook be considered an employee contract agreement?

Employee handbooks are generally non-contractual documents and, therefore, do not create legally binding obligations between the employer and the employee. To avoid any potential misunderstandings, it is advisable that the handbook explicitly states whether it is or is not contractual. 

Can an employee refuse to sign a contract?

There is no legal requirement for a contract to be signed by the employee, and it can usually be enforced even if not signed; however, it's always good practice to ensure a contract of employment is signed to avoid doubt or disagreement in the future. If an employee refuses to sign the contract, it is recommended to send written reminders, seeking to understand the reasons for not wanting to sign and address any concerns the employee has to ensure you have tried your best to get it signed. Fundamentally, if an employee works in accordance with the terms of the contract and accepts their salary without protest, it would be deemed that they've agreed to the contractual terms.

Need Help Drafting Employment Contracts?

To make sure your company is protected, it’s important to have contracts in place for all staff, including full-time employees, part-time and temporary workers, and seasonal or fixed-term employees.

If you’re looking to review, update or even write entirely new contracts, our team of experts at MAD-HR are here to help. We will ensure your contract is compliant and relevant to your business and the role.