Contract of employment guide

Protecting you and the people who work for you 

It’s easy to pass off a contract of employment as a bit of box-ticking that no one ever looks at. However, these important documents play an important role, helping clarify what’s expected of you and your employees. This makes them especially valuable if there is a dispute down the line. 

Working with our HR Partners, HR Revolution, in this guide we look at contracts and written statements of work. We’ll also explain the differences between them – and offer useful, free templates of what you might want to consider including in your contracts.  

Why employers need to issue an employment contract 
What to include in a contract of employment 
Employment contract types  
How to create an employment contract 
HR templates

Employment contract template 
Statement of work & statement of terms templates

The surprising truth about contracts of employment 

As a business that employs people, you have a contract with the people who work for you, even if you haven’t formalised anything in writing. UK contract law states that a contract is as simple as an individual accepting your offer of employment in return for payment. 

So why is a written contract necessary? And what is a statement of work?  

Statements of work & employment contracts - what’s the difference? 

What is an employment contract?

An employment contract (also known as a contract of employment) exists between employer and employee and forms the basis of the employment relationship.  

An employment contract is an agreement between an employer and an employee that outlines the terms and conditions of their working relationship. These terms include salary, working hours, job descriptions, and benefits. 

A contract comes into force as soon as the employee accepts their job offer. This is the case whether it’s a written contract, or not.  

Introducing the statement of work 

Statement of work 

A statement of work states the main conditions of employment and is the bare minimum that must be agreed between you as the employer and the people who work for you. Both employees and worker are entitled to receive a statement of work. (This has been the case since April 2020.) 

The statement of work is also known as the ‘written statement’, and has two parts: the main document, known as a ‘principal statement’ and a wider written statement. 

You must give new employees their principal statement by the end of their first day of employment with you. In addition, you should give your new employee or worker information about:  

Sick pay and procedures 
Other paid leave (for example, maternity leave and paternity leave) 
Notice periods

You can include this information in the same document as the principal statement or in a separate document. If you provide it in a separate document, the employee or worker must be able to access it easily – for example using the company intranet. 

The second part, the wider written statement, should be provided within two months of an individual’s start date. 

In partnership with our HR Partners, HR Revolution, we’re offering free templates covering an employment contract, statement of work and statement of terms later on in this guide.  

1. Why every employer needs to issue an employment contract 

As a business owner, it’s vital that every aspect of your company is well-structured and documented to ensure that there are clear guidelines and expectations for everyone involved. One crucial aspect of the employment process is issuing an employment contract.   

While you don’t need a written contract of employment, having one makes the terms of employment clear for both sides. Sadly, not all business relationships work out positively. If difficulties arise in your business, having comprehensive employment contracts can protect both parties and avoid potentially costly litigation. 

Most terms will be set out in writing between an employer and employee – these are explicit contract terms and include things like rights, responsibilities and duties, remuneration, legal requirements and benefits. 

However, there are also implied terms which may not be written explicitly but are considered part of the contract. For example, they could be very obvious things such as an employee not stealing from an employer or the employer providing a safe place to work.

They may also include details which are necessary for the contract of employment to work, such as a driver having a driving licence. Terms which have been established as custom and practice over time e.g., paying a Christmas bonus, can also be considered as an implied term. 

There will also be statutory terms included in a contract, either implied or explicitly imposed by an Act of Parliament or statutory instrument, such as the right to be paid the minimum national wage. 

Why should SMEs issue employment contracts? 

Here are 5 reasons why it’s a good idea for small businesses to have employment contracts in place: 

1. Legal protection: 

Issuing an employment contract can offer you a form of legal protection in case there is a dispute between you and the employee. An employment contract clearly outlines the expectations and obligations of both parties, providing a legally binding document for reference in the event of any legal disputes. If there is no proper employment contract in place, disputes between the employer and employee would likely end up in court, which can be an expensive and stressful process for everyone involved. 

2. Clear communication: 

A well-drafted employment contract allows for clear communication between the employer and the employee. Both parties will know what to expect from each other and the terms that accompany the job, such as working hours, vacation days, salary, duties, and responsibilities. This clarity will help eliminate any misunderstandings or confusion that may arise during the course of employment and will allow both parties to work together more effectively. 

3. Protection of company confidentiality: 

Issuing an employment contract can also help to protect your company's confidentiality. The contract should include specific confidentiality clauses that prohibit the employee from sharing any company-related information with outside parties, including your competitors. An employment contract that addresses confidentiality matters, is particularly crucial if your company relies on unique and proprietary information for its operations. 

4. Protection for intellectual property: 

Your employees are not just workers. They are also creators who bring various types of intellectual property to your organisation. An employment contract protects your business’s intellectual property through a set of clauses and policies related to copyrights, trademarks, and patents. Failure to protect your company's intellectual property can lead to the breaching of various legal laws, and in some cases, it can also lead to the loss of a critical business asset. 

5. Better orientation: 

A well-documented employment contract provides a better orientation period. When an employee joins the organisation, you can quickly go through the provisions and explain the structure of their employment. The employment contract acts as an orientation guide that informs employees about the company's expectations and the standards of their job. This can help to minimise issues arising from misunderstandings, and the employee can settle into their position much quicker. 

Contracts of employment also help promote good working relationships between you and your employee. They paint you as an organised and efficient employer and provide a solid working structure.  

2. What should be included in a contract of employment? 

Contracts of employment are essential documents that outline the terms of agreement between an employer and an employee. They are legally binding agreements that set out expectations for both parties.  

As an employer, you must make sure that your employment contracts are comprehensive and complete. This way, you can avoid misunderstandings, disputes, and lawsuits. In this section, we'll guide you through the crucial elements that you need to include in your contract of employment. 

Job title and description

Your contract of employment should include the job title and a detailed description of the role. This should include information such as key responsibilities, working hours, the location of work, and any specific requirements for the job. This will provide clarity for the employee and reduce any potential misunderstandings. 

Salary and benefits package

It's essential to outline the agreed salary or hourly pay rate in the contract of employment. This can also include any additional benefits, such as bonus arrangements, pension contributions, or health insurance. It's important to be explicit about any pay deductions, including taxes and national insurance contributions. 

Probationary period

You can include a probation period within your contract of employment, usually lasting between 3 to 6 months. This allows both parties to consider whether the role is the right fit. During this time, you can assess the employee's ability, work ethic, and cultural fit. Use this time to set clear goals and expectations and provide regular feedback. 

Termination and notice period

It's important to include clear provisions in the contract of employment should things not go to plan. You must detail termination procedures, including the process and notice periods required. This ensures that both parties are aware of the contractual obligations and reduces the risk of misunderstandings and disputes. 

Employee confidentiality and non-compete clauses

These clauses can protect your company's confidential information, trade secrets, and intellectual property. A confidentiality clause prevents employees from disclosing any sensitive information that they acquire during their employment with the company. A non-compete clause can prevent an employee from leaving the company and then working for a competitor. You should seek legal advice before including either of these clauses in your contract of employment. 

An employment contract is a vital document that can benefit and provide important legal protection for both employers and employees. It fosters a better working relationship by clearly setting out expectations and obligations for both parties involved and protecting confidential and intellectual property matters.  

Remember when you launch your new contracts, to ensure you communicate the contents fully so that employees understand their responsibilities. Don’t skip the employment contract when hiring new employees – it’s a legal requirement, and it may save you an enormous amount of money and headaches in the long run. 

 3. Employment contract types 

There are many types of contracts, and you should take the time to review your requirements with an HR or legal professional. There are a few of them to choose from and they are each written slightly differently to ensure they cover the relevant job type.  

You will need a different type of contract for employees who are employed and those who are contracted. 

Contracts for employees who are employed by the business 

Permanent  
Fixed-term  
Part-time 
Temporary  
Director service agreement 
Senior level  
Apprentice or work-experience  
Shift work  
Homeworker  
Term-time  
Job-share 
Zero-hours 
Young worker 
Compressed hours

Contracts for third party suppliers who aren’t employed by the business 

Independent consultancy  
Contract for services

What should you do if the contract of employment needs to be varied? 

Varying a contract involves changing certain terms or obligations within the contract without creating a new one. A contract can be varied by both the employer and the employee. An employer might do so because of changes in economic conditions or business reorganisation. An employee might wish to negotiate better terms such as increased pay, a change to their job role or additional benefits. 

Changes can only be made with the agreement of both parties and should ideally be in writing. You should consult with your employee and explain any changes you wish to make. 

What should you do if the contract of employment needs to be terminated? 

A contract of employment is terminated when the employee stops working for you – either because they’ve resigned, or because you’ve dismissed them. The process of terminating an employment contract should be clearly explained within the contract. The contract will end on the last day of the employee’s notice period. 

4. How to write an employment contract 

Once you know the type and level of contract you need, you can start building it. You will need to include everything about working for your company, such as onboarding processes, employee benefits, location, job role, confidentiality levels, GDPR compliance requirements, restrictive covenants and exit processes.  

This information will be used in the contract to outline specific clauses. 

Advice for creating employment contracts 

In most cases, your HR representative should be able to draw up a standard contract of employment for your business. However, if you need more legal clauses, it might be wise to call upon specialist employment law support.

Your contracts of employment represent your business, so issue them on headed paper, spellcheck them and ask someone else to proofread before sending. It’s especially important to confirm the employee’s name and address are correct. 
Double-check any contract terms that you change. Once signed, this is a legal document so if anything is incorrect it’s often only picked up when the individual resigns or is terminated. By then it’s too late to change anything that isn’t right.  
Have the same contract for all employees at the same level. This will ensure fairness and ease of management and upkeep. Your management contracts may need to be slightly different to account for the greater responsibility involved in these roles.  
Build in the right level of compliance you need for your business, GDPR, internal processes and confidentiality.

 5. HR templates  

To help support your small business, HR Revolution have put together some templates of what an employment contract, a statement of work and a statement of terms should include.   

Please note that every contract must be specifically tailored for your business and the employees you’re hiring. We’d recommend that you use an HR professional to review and update your templates. You may also require some input from a lawyer depending on the level and depth of the contract of employment that is required, so please check before finalising.  

Download full guide & templates

Safe, secure & compliant 

We know how important it is to store employment contracts safely & give visibility to those that need it.  

You can easily file employee contracts within Breathe’s secure, ISO 27001-accredited system & streamline your document management with unlimited online storage.  

Disclaimer: Please note, the employment templates included in this guide are intended as overviews, to give you an outline of what you need to have in place for your employees. Business-specific circumstances will always apply.  

If you’re drawing up a contract (and are not an HR or legal professional with employment law experience), it’s important to seek professional support. Doing this will make sure the document fully protects you & provides all the compliance elements you’ll need to support your individual business. 

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