Many small businesses have landed in hot water with staff, and the law, over employment contracts. With hard-pressed SMEs juggling so many priorities, some are not paying sufficient attention to drawing up robust employment contracts with new employees. It could save on disputes, time and money down the line.
ACAS advises that “Simple misunderstandings over what is or what is not in a contract are one of the main causes of employment tribunal claims.”
The Contracts of Employment Act 1963 heralded a significant point in modern employee relations in the UK – it was the first legislation to require employers to provide a contract of employment describing the employment relationship. An employee contract is a vital document which sets out the agreed rights, obligations and expectations between employer and employee. If poorly written and unclear, employment contracts can be a source of future grievance, even landing employers in employment tribunals.
Small businesses have exactly the same obligations under the law as a large company despite not having the same resources. The British Chamber of Commerce reports that a medium sized business member estimated that every claim brought costs them £15,000 to deal with.
Here are 10 tips for writing employee contracts:
- Put it in writing – a ‘contract’ begins as soon as an employment offer is accepted. Most employment contracts do not need to be put in writing to be legally valid – a relationship will be implied – but it is best practice if they are in writing.
- Issue contracts in time – most employees are legally entitled to receive at least a written statement of their main terms and conditions (e.g. pay, holidays, working hours) within two calendar months of starting work. Penalties apply for non-compliance.
- Comply with legislation – contracts are trumped by the law. Companies must therefore ensure that employment contracts reflect the latest employment legislation. For example, this will include legislation on statutory rights such as minimum wage levels, part-time worker rights, parental leave etc. as well as anti-discrimination regulations.
- Use clear language – unclear contracts are a major cause of disputes between employer and employee. Be sure to use clear and unambiguous language – any ambiguity is often interpreted by tribunals in favour of the employee.
- Conditional contract – you can make the job offer and contract conditional on, for example, taking up references or subject to a suitable medical. In fact, failure to make it conditional may bind you to the contract.
- Include a probationary period – including a probationary period is advisable; three to six months is typical to allow the employer to judge the employee’s suitability for the job.
- Variations to contract – if, and when, the need for any changes to terms of employment arise, ensure they are proposed for the employment contract as ‘agreed variations’ – however, both parties must agree for them to be included. One employer, the South Yorkshire Fire and Rescue Service, was recently found by an Employment Tribunal to have breached Working Time Regulations when they failed to included shift changes without ‘agreed variation’ to the firefighters’ contracts.
- Use the right contract – the contract needs to be appropriate for the employee’s role rather than a generic one. A contract for a director or administrator will vary from a casual employee in their duties and employment rights. Similarly, ensure you use the correct employment status (i.e. employee, worker or self-employed) each has their own employment rights which could tie employers in to the wrong arrangement.
- Spell out the obvious – apart from the main aspects such as working hours, contracts will also by implication include things too obvious to mention (e.g. not stealing) and obvious things to make the contract workable (e.g. having a driver’s licence if being employed as a driver). However, it’s still best to include as much in writing as possible.
- Link contract requirements to your time and attendance system – once issues such as working hours and pay are agreed then these can be monitored by your firm’s automated time and attendance system. This means that if staff do not clock-in at the expected time, managers can be automatically alerted. It also means your payroll will calculate the correct rates for wages with more speed and accuracy.