We’re kicking off the new year with a look at one of the most important, and easiest to overlook aspects of employing people in an organisation: the employment contract.
Often thought of as an awkward formality or a tick-box exercise, the written employment contract is actually the brain centre of your relationship with your staff. The place from which all the processing should stem from.
And like any vital organ, it can also make you vulnerable.
What is an employment contract?
Let’s review the basics. An employment contract is an agreement between an employer and an employee. It’s a legal requirement to have a written agreement when employing someone, a detail that passed many small businesses by when it came into effect.
The contract is a written statement setting out various terms and conditions, including the employee’s duties, rights, responsibilities and the conditions under which they’re employed.
As outlined by The Employment Rights Act 1996 (ERA), an employment contract contains two key documents:
- Principle Statement – Covers essential terms and conditions like how much the employee is paid and when, how much annual leave they have and what the sick pay policy is. This must be given to the employee to sign on or before their first day on the job.
- The Wider Statement – This includes additional information on essential policies, such as disciplinary and grievance, additional employment benefits (e.g. childcare vouchers, private medical, group life insurance) and the pension arrangements. This must be given within 2 months of employment.
Every single person who is employed through your business needs an employment contract, regardless if they are temporary, zero hours or apprentice. Just beware that there are different requirements for each type of worker / employee.
Despite popular opinion, the employment contract must be in writing. While verbal or oral contracts can be upheld in many legal contexts, they are not valid in an employment law context.
why is having a good employment contract in place so important?
A well written employment contract that’s tailored to your business is invaluable; but fundamentally, your employees need contracts because as of April 2020, they’re now a legal requirement.
If you’re employing anyone, in any capacity, they must be provided with a written statement of the terms and conditions of their employment. You can now incur a penalty for not providing the contract, in which 2 to 4 weeks salary is awarded to the employee if they make a claim to an employment tribunal.
We are entering a brand-new era for UK employment. Employment tribunal cases are up 40% year on year and employers who’ve never had an issue with not having contracts before, may find that things are a lot stricter now and employees are a lot savvier!
employment contracts mitigate risk to your business
Employment contracts benefit and protect both the employer and the employee because ultimately, they minimise risk.
The key to a good employment contract is considering the ‘what if’s’. People are the biggest variables in any business and your contract prevents problems by setting out the rules and expectations for both parties.
It’s not just about outlining day-to-day matters such as what working hours a person is expected to do – contracts help you define what you can and can’t do when it comes to exceptional circumstances. Take bank holidays, for example:
If your employment contract includes a clause like “… including all bank holidays”, how are you going to approach additional, unexpected bank holidays? If you’ve not specified otherwise, the employees can expect to paid for all bank holidays, regardless of whether they’re a one-off for a special occasion.
However, if that clause stated “…including the 8 standard bank holidays (list the 8 that are included) and then expanded to include: “…additional bank holidays are paid at the employer’s discretion”, you have the flexibility to choose, as a business, how you will handle extra bank holidays. Your employees know where they stand and there’s no room for misinterpretation or dispute.
Many businesses I work with don’t realise their contract is inadequate for what they want it to do, until they have to rely on it.
employment contracts need to be accessible
Just because you’re including more clarifying info, doesn’t mean the contract ought to be hundreds of pages long and read like legalese word salad.
Your employment contract should be easy to understand for the employee who’s signing it. If not, it defeats the contract’s ultimate purpose; to reduce instances of contention by making sure everyone’s on the same page.
If it’s easy to understand, the contract becomes a good opportunity to show your staff that you care about their wellbeing. By being clear about the terms and conditions of their employment, you’re encouraging employees to know their rights and establishing a level of trust.
I’ve helped many organisations draft detailed and comprehensive employment contracts that are tailored to their business – and no one needs a law degree to read them!
With my help, many employers have avoided the pitfalls of using outdated, inadequate or outright wrong employment contract templates.
Employee contracts and handbooks bespoke to your business
People are the most valuable assets that any company can have – if you’re investing in employing someone, you need a good and accurate employment contract.
If you want minimise a potentially huge risk to your business and promote trust between you and your employees, get in contact. I can create a tailor-made employee contract and handbook that reflects your unique terms and conditions as an employer, and satisfies the legal requirements.
Keen to learn more about the power of a fool proof employment contract? Stay tuned for the rest of this mini-series, where we’ll how everyone – employers and employees alike – benefits from having a great employment contract in place.