Why do you need a contract of employment?

Simon Misiewicz

Expat & Property Tax Specialist

16th September 2021

What’s the right terminology?

So, why do you need a contract of employment?  If you are employing staff, you will hopefully know that you need to issue your employees with a contract of employment. Now firstly, let’s get our terminology right here. The Employment Rights Act 1996 (ERA) requires us to issue a ‘written statement of particulars’. This is what we call the contract of employment, and it is a legally binding document.

Do we need a written contract for employees?

I often hear clients say they don’t need a written contract because they agreed terms on a handshake or have a verbal contract in place.  While in general contract law, verbal contracts can exist, under the ERA 1996, you do need to provide this ‘written statement’.

The written statement of particulars required has mandatory inclusions but otherwise can be fairly bland and vague in its content.  However, while you want to comply with your legal obligations, you don’t want to opt for the bare minimum here; you want to ensure this document provides you with the protection you need as an employer.

What do we need to be aware of with a contract of employment?

A key thing to be aware of is that what you put into your contracts not only binds your employee but also binds you.  A contract is a two-way agreement, and you must ensure that you’re able to comply with everything you state within it.  An example here is sick pay; although many businesses pay statutory sick pay if your contract states that you will pay some element of company sick pay, you will not be able to renege on that without follow up clauses or disclaimers just because you perceive that the employee may not be genuine or has had too much sickness absence already.

It can be tempting to go on Google and find all kinds of documents, including employment contract templates and amend them for your own purposes.  Google is a wealth of information, and we can often find handy stuff that can save us a lot of money.  However, as we’ve seen already, contracts of employment are legal documents, and you want to make sure that what you are adopting into your business is fit for purpose.  If you’re finding documents on Google, you won’t know who they’ve been written by, with what knowledge, and sometimes you don’t even know when.

What else to consider with employment contracts found online

For example, there will be many contract templates available on Google that were written before 2020.  Now that’s very recent, so you might think a contract written in 2019 is absolutely fine for you to use because it’s only a couple of years old.  However, new legislation effective from April 2020 updated the mandatory inclusions in contracts.  This became effective as we were starting to navigate lockdown and furlough, so it is no surprise many employers missed this, but in a tribunal, this would not amount to a defence.  If you don’t know what you’re looking for, you won’t necessarily know whether the contract is compliant or not.

It is always relevant to consider the culture of your business when drafting any document for your business, including the contract.  We don’t find many legal documents that have an amicable and pleasant tone, but that doesn’t have to be the case with your employment contract.  I have worked with many businesses with a vibrant, lively and fresh culture, but their contracts are dull and full of jargon and really do not portray the company’s culture well at all.  Remember, this can often be among the first documents your new starters will see, and it is all part of cultivating the right impression.

Keeping your employment contract updated

If you have updated and refreshed your contract, don’t let it become stale and out of date.  It is recommended that you get your contract reviewed every 12 months.  Legislation that affects contracts doesn’t always change that frequently, but your business can, and your contract needs to make sure that it keeps pace with your business.  For example, if you’re adopting hybrid or flexible working practices after Covid, your contract may need to reflect this.  If you have issued equipment or uniforms, you may need to draft inclusions to cover this.

You might not need to issue everybody with a new contract annually. In fact, changes to contracts and variations of contracts can be complex, and therefore, it may just be necessary to issue the updated contract to your new starters. Still, if people have changes in job roles, it is definitely recommended that you reissue their contract for clarity.  I have had many cases of clients moving people into new roles and updated contracts never being issued to confirm changes in rates of pay or working hours, and it can present genuine difficulties when things arise in the future. So again, make sure you do carry out a review every 12 months.

How to deal with a zero-hour contract of employment?

Zero-hour contracts have been demonised in the British media over the last five years. However, they still have a valid place in employment, and they offer much-needed flexibility to a variety of employers, and many workers will welcome that flexibility.

There are always unscrupulous employers, and it is these employers that the changes to zero-hour contracts were addressing. However, when executed correctly, there is nothing wrong with zero-hour contracts, and you shouldn’t be discouraged from employing people on this basis.  You will still need to provide them with a ‘written statement of particulars’, which we call the contract of employment in this document. Still, it will need to be amended from your standard contract to address the various considerations around holiday accruals, sick pay, working hours and ability to work elsewhere.

What about a casual contract of employment?

An awful lot of people seem to think you don’t need to issue contracts when people are just casual workers.  In nearly all circumstances, you will need to issue a contract of employment. If your casual workers do not have fixed work hours, they will likely need a zero-hour contract referred to above.

What does the contract of employment actually achieve?

Apart from complying with the law, they can also protect you in many ways.  There are certain things that, if not written into a contract, you cannot do, for example;

– you will not have the right to search an employee if you suspect them of theft;
– you cannot simply place somebody on garden leave,
– you cannot pay somebody in lieu of their notice; and
– you do not have the right to lay somebody off or put them on short-time working

To do any of these things without a contractual clause, you would have to consult with employees which could be problematic and lengthy.   A good example is to look at a lay-off and short-time working clause in reference to the last 18 months.  Layoff and short-time working were effectively what the furlough scheme was.

Covid-19 is a great example of this?

Very few employees would have rejected the opportunity to be at home on 80% of their salary, so we didn’t see the resistance to the furlough scheme like we would have done had the 80% of wages not been guaranteed.  However, the furlough scheme is ending at the end of September. With lots of conversations swirling regarding winter lockdowns, many business owners will wonder what life has in store for their business. We all sincerely hope that we do not return to the days we have seen over the last 18 months and that businesses can remain open and fully operational over the winter months. However, if you feel that you could be affected and your work may diminish, you may find it necessary to invoke a period of layoffs or short-time working.  Without such a clause in your contract, you will not be able to do this easily and will have to consult with all of your employees to invoke this.  These kinds of inclusions will make your life as an employer easier if you have a robust contract of employment in place.

What other ways can a contract of employment support you?

Other ways the contract can support you include allowing you to state notice periods higher than the statutory minimums, providing rules around taking annual leave, expectations of confidentiality, ownership of property, payment of expenses, and deductions from wages.  All of these things should be explicitly stated within the contract, and if it isn’t, you may not have the protection you would like.

Sitting alongside the contract is the staff handbook jam-packed full of your rules and policies, and we’ll look at why this is important next month.

Hopefully, this explains the question, ‘Why do you need a contract of employment?’ If you would like further help or information, please read on

If you are an employer and need ongoing assistance with staff and employment matters, talk to Cheryl at PeakHR. We offer competitive rates and cater specifically for small employers.

Please note our blog posts contain general information and are intended as guidance only, and should not be taken as an authoritative or current interpretation of the law. Please ensure that you obtain advice tailored to your individual situation before taking action. These posts apply to the UK only.

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