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Understanding employment contracts

When you're working hard running your business, finding the time to create a contract of employment for new starters may not be a priority. But, did you know that you are required by law to give your employees a written statement of main terms within two months of starting work? Many small business owners don't and can fall foul of employment tribunals as a result.

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What is a contract of employment?

A contract is an agreement between employer and employee that exists as soon as an employee unconditionally accepts a job offer. It can be oral, written, implied or a mixture of all three.

The terms of the contract can be based on a number of factors, including:

  • Terms set out in the offer letter
  • Terms agreed between the employer and any trade union that represents the workforce
  • Terms stated in the job advertisement Spoken agreements between the employer and employees.

Although the contract doesn't have to be written, the Employment Rights Act 1996 requires you to give your new employees a written statement of main terms within two calendar months of starting work.

Why should I provide a written contract?

Although you are not legally required to provide a written contract of employment, verbal agreements are a poor substitute for the written word. By setting out what is expected from both the employee and the employer in writing, this can prevent misunderstandings in the future and make managing your employees much easier.

For example, if you want to prevent employees working for a competitor, maintain confidentiality or impose overtime, these need to be explicitly stated in a contract of employment and can be difficult to impose retrospectively.

Although you have up to 60 days to provide a written statement, it is good practice to present the statement or contract upon induction to the company. This gives the employee the chance to ask questions and you, the employer, to test their understanding of the terms and conditions.

Where an employer does not provide such a statement (or provides an incomplete or inaccurate statement) then an employee may complain to an employment tribunal while still in employment, or for up to three months after employment has ended. Failure to provide terms and conditions at the very least will not be looked upon favourably by employment tribunals.

Creating a written statement

An employee's written statement must include - at the very least – the following information:

  • your name/your organisation's name your employee's name
  • the date when the employment (and period of continuous employment) began
  • pay and the intervals at which it will be paid
  • hours of work
  • holiday entitlement
  • entitlement to sick leave, including any sick pay pension schemes
  • notice of termination
  • job title or a brief job description
  • where it is not permanent, the period for which the employment is expected to continue
  • if it is for a fixed term, the date when it will end
  • the place of work
  • details of the existence of any relevant collective agreements which directly affect the terms and conditions of your employee's employment
  • details of your disciplinary and grievance procedures.

Where there are no particulars to be given for one of the items required to be covered in the statement (i.e. pension entitlement), this must be stated.

Can I change the terms and conditions?

Changing the terms and conditions of a contract can have legal implications, so it's best to seek advice. Forum members should call the helpline on 0845 130 1722.

Is my contract up to date? 

Changes to employment law may need to be reflected in your contract. If you need to make a change it is advisable to take advice beforehand.

Where can I find a template contract?

We provide members with a free downloadable employment contract template. If you need practical help implementing employment law in your workplace, our Employer Xtra package, brings together everything you need to know in one easy-to-understand guide, plus we'll review your contract for you. Our advice is backed up by a 24/7 employment helpline and insurance. Call us on 0845 130 1722 to find out more.