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An employment contract may be oral written, or partly oral and partly written. However, it is in both your best interests as well as your employee’s for the agreed terms and conditions that govern your employment relationship to be confirmed in writing. A contract should expressly set out all of the essential terms and conditions so as to avoid unnecessary disputes arising at a later point in time, which in some circumstances may result in legal action.
As a bare minimum, a contract should include all the matters that are required to be referred to in an employment statement (see Employment Statement), and will therefore avoid the need to give a separate written statement. Otherwise, however, there is no prescribed form for a written contract.
Some of the most important clauses that should be included in your contract of employment are the following:
This type of clause will provide a job description and the place or places where the employee will be required to perform his or her duties. You should ensure that your employee's duties are widely defined so as to cover all duties that you may envisage that your employees will be required to do, and any possible future changes in duties.
Under the provisions of the Working Time Regulations 1998 you cannot force your employees to work for more than 48 hours a week on average. The average weekly working time is usually calculated over 17 weeks but is longer for certain employees (26 weeks) and it can be extended by agreement. Working time includes travelling where it is part of the job, working lunches and job-related training but does not include travelling to work or lunch breaks.
Employees can agree to work longer than the 48-hour limit but must do so in writing and can change their mind at any time upon giving you at least seven days’ notice, or longer (up to three months) if this has been agreed.
For more information on the Working Time Regulations 1998 see: Department for Business, Innovation and Skills (BIS) 
Where you have employed an employee for an indefinite period of time (i.e. where employment is intended to be permanent), the contract should specify the notice period to be given by the employer or employee to terminate the contract. However, in the absence of such notice statute implies a minimum notice period into every contract that can be terminated by notice. Where contractual notice does apply it must be at least equal in length to statutory notice. A summary of the statutory notice periods is as follows:
| Length of continuous employment | Employee's notice entitlement |
|---|---|
|
1 month up to two years |
1 week |
|
2-11 years |
1 week for each year (e.g. 3 weeks for 3 years) |
|
12 years + |
12 weeks |
You are entitled to impose a longer notice period on your employees by mutual consent. In the case of a managerial, professional or other senior employee, it may be advisable and appropriate to make the notice period fairly long, for example six months to be given by either party.
The benefit to you is that you will not be deprived of a key employee on short notice. It may of course be suitable to reduce the notice period in the early stages of employment. This will allow earlier termination if either you or your employee has reason to believe that it is not suitable or convenient to continue with the existing contract.
You may reserve the right to terminate an employee's contract without notice by making a payment to an employee in lieu of notice (a 'PILON clause').
A PILON clause may be express or discretionary. An express PILON clause will state that the employee must make payment in lieu of notice and will therefore contain such language as 'will' or 'must'. A clause of this type will immediately terminate an employment contract.
A discretionary PILON clause allows you to use your discretion as to whether or not they wish to make payment in lieu of notice. A clause of this type will contain such language as 'the employer may make a payment in lieu of notice to the employee...'.
Without a PILON clause, however, you have no contractual right to make a payment in lieu of notice.
Once you have decided to dismiss an employee, you may place him or her on garden leave. The aim of garden leave is to get the employee out of the office so that you can either investigate alleged misconduct or so as to protect your business interests.
If an employee is placed on garden leave then he or she will receive full pay but will be asked not to perform any services or special duties for you for the duration of his or her notice period. Employers commonly put an employee on garden leave so as to protect the business interests of the company as it ensures that the employee refrains from continuing with his or her employment duties and keeps them away from the premises.
The National Minimum Wage Act 1998 sets out the framework for the National Minimum Wage (NMW) that you must consider when deciding how much to pay your employees. Regulations outlining the detail of the National Minimum Wage have since been published. The Minimum Wage provisions were implemented with effect from April 1999.
From 1 October 2010, the National Minimum Wage guidelines are as follows:
If your employee is to be remunerated partly by commission, the contract should deal with this. The clause should not only deal with the rate of commission but also when it becomes payable.
For information on the minimum wage see: NMW from Business Link
If an employee is absent for more than three days then he or she is entitled to claim Statutory Sick Pay from the fourth day of absence (so long as they qualify). The current rate of Statutory Sick Pay is £79.15 per week. However, many employers chose to offer their employees a company sick pay scheme.
The contract should state whether you offer the employee a sick pay scheme (other than statutory sick pay). If a scheme is offered, the contract should state the period for which it is payable, how much is payable and whether statutory sick pay is deducted in calculating it.
You are entitled to include a clause specifying that you require your employee to self-certify illness or provide a medical certificate if absent for more than a certain number of days. GPs are not obliged to provide certificates for illnesses of seven days or less.
For more information on sickness and absence see the Business Link site: sickness and absence from Business Link
As at 1 April 2009, all employees have had a statutory right to at least 5.6 weeks' paid annual leave (that's 28 days' paid holiday if you work five days a week).
Employees do not have a statutory right to paid leave on bank and public holidays. If an employer gives an employee paid leave on a bank or public holiday, this can count towards your minimum holiday entitlement. There are eight permanent bank and public holidays in England and Wales, nine in Scotland and ten in Northern Ireland.
If an employee works on a bank or public holiday, there is no automatic right to an enhanced pay rate. What you get paid depends on your contract of employment. It is important that you address such matters in an employee’s contract of employment so as to avoid any disputes arising at a later point in time.
Information regarding pensions must be correct at the date that this document is provided to the employee.
If an employer employs five or more employees and at least one 'relevant employee' it should offer all its 'relevant employees' access to a stakeholder pension scheme (that is, a low cost money purchase scheme similar to a personal pension) unless it is exempt from doing so. The employer is not required to make contributions to an employee's scheme, but it must deduct an employee's contributions from his/her pay if asked to do so.
The employer is exempt from having to offer a stakeholder pension scheme, even if it employs five or more people, if it meets one or more of the following conditions:
1. The employer does not employ any 'relevant employees'.
2. The employer offers access to an occupational pension scheme which all employees can join within a year of starting work (scheme rules can restrict membership to employees aged 18 or over and to employees who have at least five years to go before reaching the scheme's normal pension age).
3. The employer offers access to a personal pension scheme and to pay a contribution of at least three per cent of the employee's basic pay to a personal pension scheme and to deduct their contributions if requested. The scheme should not penalise members who stop contributing.
4. The employer offers an occupational pension scheme to some employees and a personal pension scheme to others, which comply with the above-mentioned conditions.
All employees (including directors of a company) are 'relevant employees' unless:
1. They have worked for the employer for less than three calendar months.
2. Their earnings are below the National Insurance lower earnings limit for one or more weeks over the last three months.
3. They are prevented by an HM Revenue & Customs restriction from contributing to a UK pension scheme - e.g. resident overseas.
4. They are a member of the employer's occupational pension scheme.
5. They could have joined the occupational pension scheme but decided not to or scheme rules prevent them from joining as it restricts membership to employees age 18 or over and to employees who have at least five years to go before reaching the scheme's normal pension age.
If an employer is not exempt, it must choose a stakeholder scheme, which is registered with HM Revenue & Customs and with the Pensions Regulator. The employer should consult employees (or their unions) about its proposed provider and then write to the scheme provider to say it has formally chosen its scheme. Employees should be given details of the chosen provider and a contact name and other appropriate contact details.
The employer should not advise employees about the financial benefits or provide any financial advice on the chosen scheme but should simply provide a channel to allow the employee to discuss these matters with the scheme provider. The employer can provide help and guidance, give additional information or interpret the information, but should be careful not to advise employees. The provision of financial advice is strictly controlled by the FSA. Employees are not obliged to sign up to the scheme.
The Pensions Regulator offers a decision tree for employers and a register of stakeholder pension providers. Their helpline is 0870 6063636 (9.00 am to 5.30 pm, Monday to Friday).
The employer must ensure that it keeps a record of the direct payment payroll arrangements showing the rate and dates of contributions. Separate records should be kept for contributions made by the employer and employee. The records must be kept for a minimum period of six tax years.
Occupational pension schemes are either:
This is a complicated area and tax relief may be available to employers who contribute to an occupational pension scheme that is approved by HM Revenue & Customs.
