Running a business in the UK as a small business owner comes with many obligations, one of which includes supplying your staff with necessary employment papers. No matter whether you hire your first employee or add another member to your team, it is important to know about the employment contract requirements in the UK.
A lot of entrepreneurs believe that an employment contract is necessary only for employees’ needs. Actually, a good contract will protect both parties because the rights and responsibilities of the parties will be defined right at the very beginning of cooperation.
In our article, we’ll discuss what the UK law says about written employment documentation, obligatory terms of the contracts, mistakes that small businesses usually make, and how payroll and HR services may help.
The Significance of Employment Contracts for Small Businesses
Employment contracts ensure that an agreement has been made between the employer and employee. Some of the aspects addressed by employment contracts include:
- Working hours
- Salary and pay period
- Holiday entitlement
- Sickness absence
- Notice periods
- Workplace policies
- Confidentiality
- Disciplinary procedures
Without an employment contract, there could be conflicts that would end up being very expensive or even lead to tribunals.
Written employment contracts are among the easiest ways for small companies who lacks HR departments to manage legal risk.
Do Employment Contracts Need to Be Written in the UK?
It should be known that an employment contract does not have to be written; it can also be verbal. However, according to the Employment Rights Act in the UK, employers have to provide a statement of employment terms in writing to employees and workers at the start of employment. This is done in accordance with government guidelines and UK employment law.
A written statement is an important step in achieving employment contract requirements in the UK.
What Needs to Be Included in Writing?
The employer needs to make sure that several important terms are included in the written contract.
The Name of the Employer and Employee
The following should be written in the contract:
- Name of the employer legally registered as a business
- Full name of the employee
- Date of employment
- Date of continuous employment (if there is any)
Job Title and Responsibilities
It is necessary to provide information about:
- Title of the job
- Main responsibilities
- Name of the reporting manager
- Department of the company
It is necessary to avoid ambiguous wording.
Terms and Conditions of Payment
It must be stated the following:
- Annual salary/hourly rate
- How often the payments will be made
- Method of Payment
- Conditions for overtime
- Bonuses (if any)
Payroll of the employer must be in compliance with PAYE legislation of HM Revenue & Customs.
Hours of Work
The contract shall have provisions regarding:
- Hours of work per week
- Schedule of shifts
- Provision for flexible working arrangements
- Expectations regarding overtime hours
- Weekend working conditions
If there is any possibility of variation in hours of work, it becomes imperative to make the schedule clear to prevent any ambiguity later.
Place of Work
State:
- Main place of work
- Flexible working
- Working from home arrangements
- Places of work (where applicable)
If travel is needed, then state this.
Holiday Entitlement
The written contract must include:
- Annual leave entitlement
- Public holiday entitlement
- Dates of holiday year
- Approval of holidays
- Carry-over provision
Holiday entitlements should meet the statutory minimum requirement.
Sick Pay
It covers:
- Process of notifying sickness absence
- Employees’ rights to sick pay
- Statutory Sick Pay (SSP)
- Employer’s enhanced sick pay
Employees must be clear about the process that is involved in sickness absences.
Pension Details
The employer should specify:
- Pension eligibility within the company
- Auto-enrolment details
- Details of the pension provider
- Employees’ contributions
Small employers continue to comply with the rules on workplace pensions.
Periods of Notice
Details:
- Notice period for employees
- Notice period for employer
- Notice periods during probation
- Termination of employment without notice (if legal)
Notice periods prevent any dispute on termination of employment.
Probation Period
Some small businesses have incorporated:
- Probation period
- Process for performance appraisal
- Extension clause
- Less notice period for probation period
Even though this is not legally necessary, it would be good to have a probation period clause.
Training Requirements
In case of training requirements, it would be good to incorporate the following:
- Required qualifications
- Employer’s training
- Repayment clause (legally allowable)
Disciplinary & Grievance Procedures
The employer should include information on the following:
- Process of discipline
- Policy for grievance handling
- Process of appeal
These processes are the ones that have been stipulated in the employee’s handbook.
Employment Contract v Written Statement
A lot of employers get these documents mixed up.
Written Statement of Employment Particulars is where you put the employment particulars that are mandatory under law.
An employment contract will often go beyond these particulars to add in more legal protection, company policies, confidentiality clauses, etc.
In the UK, most employers do both within one document.
Typical Problems Associated with Small Business Owners
- Utilisation of Standard Internet Downloads
Internet downloads do not guarantee compliance with the current employment law in the UK.
- Failure to Update the Contract
The employment legislation is constantly changing.
- Contract Review
A contract must be reviewed for any changes concerning:
- Payment
- Number of Hours Worked
- Entitlement to Time Off
- Company Policy
- Legalities
- Failure to Provide Necessary Details
Not providing legally required employment terms will lead to tribunal cases against the employer.
- Ambiguous Job Description
Ambiguity in duties leads to misunderstanding in performance expectations.
- Lack of Confidentiality Clause
Businesses need confidential information about the customers so that employers have a way to protect their interests legally.
What Are the Consequences When You Don’t Have a Written Contract?
Not complying with employment contract requirements in the UK can result in:
- Disputes over employment
- Claiming before an employment tribunal
- Compensation in some cases
- Inability to enforce workplace policies
- Poor employee relations
There may not necessarily be a financial consequence for not having a written statement, but an employment tribunal has the right to increase the amount of compensation paid to the employee in some cases.
How Payroll & HR Solutions Can Assist You
Small companies generally do not have their own HR department.
HR and payroll services can assist with:
- Drawing up legal employment agreements
- Recruitment
- Onboarding of employees
- Processing payroll
- PAYE compliance
- Automated pension scheme
- Calculating holidays
- Statutory payments
- Maintaining employment records
This makes your life easier while keeping you compliant.
Best Practices for Small Businesses in the UK
Compliance Considerations:
- Write up employment particulars on the first day of work.
- Make sure contracts are signed and kept.
- Have an annual review of contracts.
- Document changes to employment.
- Record payroll information accurately.
- Make sure HR policy is up to date.
- Take professional help in difficult employment cases.
How Lexarox Accounts Can Assist?
The management of employment contracts, payroll, and employer obligations according to the law can become a cumbersome task as your company grows. Lexarox Accounts provides payroll, bookkeeping, accounting, tax, and business advisory services to small businesses located in the UK, which will be helpful to employers in remaining organised and meeting their requirements.
The professional help can prevent any errors and make more time available for the business owner.
Conclusion
It is essential for a small business to understand what should be included in the employment contract in the UK. Thus, providing the employee with a written contract containing all necessary information will not only meet your legal requirements but also enhance trust and communication inside the office.
In order to have a legally compliant workforce, you should include all necessary information in the contracts.
Frequently Asked Questions
Must employers have a written employment contract in the UK?
Employers have a legal obligation to provide written information on the terms of employment to their employees or workers from the very beginning of employment. Often, companies issue a contract that contains all necessary information.
What is the bare minimum of employment contract contents in the UK?
It includes salary, working hours, job title, holidays, notice period, workplace, and other statutory employment particulars.
Can the employment contract be altered?
Yes. The alterations should be made with the mutual agreement between employer and employee and in written form.
Must part-time workers get written contracts?
Yes. Part-time workers are also eligible to get the written information about the terms of their employment where such a law exists.
Should small companies use templates for employment contracts?
They could be used as an initial step in creating an employment contract but should be adjusted to your specific situation.
For how long should employers keep the employment contract?
Employers have to save the employment contract and related employment records for some period of time after employment has finished.
What happens when the employee refuses to sign the contract?
Although there is an employment relationship if the individual keeps working for the organisation, both parties should try to sort out any differences in their agreement.
