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how to draw up an employment contract

Legally you must provide a written statement of employment for every person who works for you within the first two months of their employment. Part-time workers (see separate article) are entitled to the same treatment as full-timers – including the same hourly rates of pay, holidays, bank holiday entitlement, sick pay, access to promotion opportunities, pension schemes etc.

The written statement must set out the main terms and conditions of employment, and although it is not a contract in itself it can provide evidence of the terms and conditions of employment between you and the employee if there is a dispute at any time. The employment contract itself immediately exists as soon as a job offer is accepted, even if it is not written down. It does not even have to be spoken, but can merely be implied, so be very certain you want a person to work for you before you commit in any way whatsoever. However, the offer of employment can be conditional – perhaps depending on references or a health check.

Below is a set of guidelines for anyone wishing to draw up an employment contract. The article outlines what a contract is and how to put it together – what must go into the written contract given to an employee and what can be written elsewhere. It also answers the question of ‘implied terms’ in a contract, and there are links to other articles on basic rights imposed by law, as well as useful websites.

what is a contract of employment?
The terms of a contract of employment may be oral, written, implied or a mixture of all three. The employment terms may be found in a number of places: the original job adverts, letters, agreements, staff rules and handbooks, for example. Even though an oral contract is as binding as a written one, obviously its terms may be more difficult to prove and as an employer it is best to make issues crystal clear. Setting everything down in writing helps everyone understand what is expected of them. It may even save you a costly and stressful industrial tribunal.

how do I put together an employee’s written statement?
The statement can be a single document, or be in separate parts, as long as the employee receives all parts within two months of starting work. Some specifics must be put in the main single document – this is known as the “principal statement.” The written principal statement should include the following:

  • your legal businesses name (it is a good idea also to include the trading name if different)

  • the legal name of the employee

  • the date their employment with you began. Include the date the employee’s period of continuous employment began – this is usually the date they started with you, but not always (for example if you bought the business from their previous employer, the continuous employment runs from when they started with that employer)

  • how much the employee is paid, or how it is calculated, and the intervals at which it will be paid - e.g. weekly or monthly

  • hours of work. This should be straightforward enough to work out

  • holiday entitlement. This includes public holidays and holiday pay. The information must be accurate enough to allow precise calculation of accrued entitlement

  • job title or brief job description

  • place of work. This is the address of the employee’s place of work. If he or she will be working in more than one place then this should be indicated

There are other details that also need to be set out either in the written statement or in separate documents (e.g. job-offer letter or company handbook) which the statement can refer to and which the employee cab get hold of easily. These include

  • sickness leave and sick pay entitlement

  • length of notice you and the employee must give to end the employment. If you prefer, it may be easier to refer to the relevant legislation, or any relevant collective agreement with the employee has a reasonable opportunity to read

  • period of employment. Is the job permanent? If the job is temporary, state how long it will continue, or if it is fixed-term, the date it will end

  • details of any collective agreements with trade unions which directly affect the terms and conditions of employment

  • employment abroad. Details of any terms relating to employment abroad for more than a month. This includes the period they will be abroad, the currency they will be paid in and any additional pay or benefits because of employment abroad. Terms relating to their return to the UK

  • pensions. Any terms relating to pensions and pension schemes including whether the employment is covered by a pensions contracting-out certificate

  • dismissal, disciplinary and grievance procedures. Some details must be in the written statement itself, including the name or job title of the person the employee should apply to in order to resolve a grievance and how this application should be made. Also include the name or job title of the person the employee should apply to if they are unhappy with any disciplinary decision or a decision to dismiss them and how to go about it. Other details to include here are your own disciplinary rules, or dismissal procedures, and further steps that follow an application to resolve a problem

how do I change an existing contract?
If you want to make changes to the terms of an employee’s contract of employment you will need to get his or her prior written consent to the changes. This applies whether the contract is oral, implied or written. If you do not get this an employee may be entitled to sue for breach of contract or resign and claim constructive dismissal.

If you do make changes to the written statement you must tell the employee in writing about any changes to the written statement no later than one month after you have made the change. You still need your employees consent.

what are ‘implied terms’ in an employment contract?
Some terms in the contract are implied and do not need to be written into the contract. For example, it goes without saying you must provide a secure, safe and healthy working environment and the employee has a duty to be honest and loyal. It is implied that there will be mutual trust and confidence between you and your employee and neither side will act in a way to breach that trust.

Other implied terms include any term too obvious to need stating e.g. that an employee will not steal from you. Other terms that are needed to make the contract workable can be implied - e.g. it is obvious someone employed as a driver will have a valid driving licence.

The way you treat staff may also form part of the contract. Some terms and conditions, e.g. entitlement to enhanced redundancy pay above those set by law, may become part of the contract through established custom and practice.

Some terms are automatically imposed by law – e.g. the right to paid holidays and the right to receive the minimum wage.

You cannot opt out of writing an employment contract. There may be legal and financial implications if you try to ignore the law. For instance, if your employee wins a tribunal complaint about one of a number of issues such as unfair dismissal (not about the written contract itself), you may be ordered to pay an additional two or four weeks’ pay if the tribunal finds that you did not issue a written statement, or that it was wrong or incomplete.

The contract can be simple and straightforward as long as you cover the points above. There are websites which offer free templates and further guidance on employment contracts. The Acas website: www.acas.org.uk is well worth a look.

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