Contracts of Employment – What You Need to Know

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Not only are contracts of employment the ‘go to document’ of the working relationship setting out the rules for both employers and employees, the law actually requires employers to give one to each employee.

There are still many myths surrounding contracts of employment. Let’s dispel them now:

  • Myth 1: If I haven’t given an employee a written contract of employment yet, he is not a real employee
  • Myth 2: If it isn’t written down, it’s not part of the contract
  • Myth 3: I gave my employee a written contract but he didn’t sign it so I’m not legally bound to what’s in there

What is a contract of employment?

The contract of employment is a set of promises made between employer and employee where both will receive a benefit; provision of work for the employer, and (generally) pay for the employee. Contracts of employment are legally binding meaning that any changes made to it must be agreed by both parties. Verbal exchanges can also make up part of the contract.

The Employment Rights Act 1996 says that employees must receive a written contract within 2 months of their start date. Confirmation of their employment is not, therefore, tied to the date the contract was issued.

The documentation should be issued on the first day of employment. This way the employee knows immediately about your practices and what you expect of them in terms of behaviour. The employee’s signature is evidence that you have issued the contract but is not necessarily needed to make the terms within the contract apply.

Failure to issue a contract can result in compensation to the employee of 2 or 4 weeks’ pay at tribunal. 

Who needs a contract of employment?

This requirement applies to all types of employee; full time; part time (regardless of how few hours); permanent; temporary; zero hours; term time only; job share etc.

Obviously, however, the contract needs to reflect any specific circumstances e.g. a part time contract should include a pro-rata entitlement to any benefits offered otherwise the employee is arguably entitled to those a full time employee gets; a temporary contract should include an end date but give you the flexibility to terminate it earlier.

What needs to be in the Contract?

Legally required details

The Act also stipulates the several details that are needed in contracts of employment including:

  • name of employer and employee;
  • pay details;
  • hours of work; and
  • details on the pension scheme provided to employees

All of the employer’s rules and procedures – and these should be tailor made to industry type and individual employer – should be included in the contract of employment but some may be best placed in an employee handbook.

Additional information to include

You can really take care of your own interests in the additional information added into the contract. For instance, think about circumstances where you may need to withhold or recoup wages from an employee. The law states that you can’t deduct wages from an employee without their prior consent; this consent can be obtained by including the right clauses in the contract.