SigningA well drafted contract will guide business owners in managing their staff effectively, avoid as far as possible problems arising in the employment relationship and deal with them quickly and effectively when they do.

Contract of employment -the basics

As a minimum legal requirement you must issue employees with a written ‘statement of particulars’ containing information about some of the main terms of employment as follows:

  • name and employer’s name
  • job title or a brief job description
  • date when your employment began
  • pay rate and when payment is made
  • hours of work
  • holiday entitlement
  • location
  • sick pay arrangements
  • notice periods
  • disciplinary and grievance procedures
  • any collective agreements (terms and conditions negotiated with a union)
  • pensions and pension schemes
  • end date for temps and fixed term contracts

So technically you can meet your legal requirements by putting that down on a bit of paper yourself, or by using a free template you could download from somewhere on the internet.

Why you need a bit more than that

Just meeting your legal requirements doesn’t get you any of the benefits a well-drafted contract can bring. You wouldn’t resort to the lowest common denominator in relation to any of the major commercial decisions of your business; why do it with your staff, your most valuable asset?

Here are five crucial reasons why it’s important for any employer to have more:

1. If you have only the pieces of information required by law set down in writing, what happens in a dispute about the other terms?

Your contract with your employee will extend far beyond the basic written statement, and established terms and conditions will evolve out of what’s known as ‘custom and practice’. Those terms and conditions might not evolve exactly how you want them to and will be very much open to dispute and confusion.

2. Define the relationship you want from the start.

The contract (written or otherwise) will govern the relationship between you and your employees. If you draft it right to start with, you get to set the tone of that relationship exactly how you want it to be. You get to decide how you want things to work and you get to think ahead in terms of how a contract could work for you in the future, rather than just ticking a box.

3. Just because you can download something free doesn’t mean it’s a good idea to do so.

In the Google world we now live in it’s perfectly possible to get free templates for contracts from the internet. But you have no idea of the quality of them, how up to date they are or how relevant the terms are to your business meaning it’s very much a false economy.

4. A well-drafted contract will enable, not restrict you.

Many people think writing lots down will constrain you. In fact it will enable you to manage staff in the way you see fit and with clarity of expectations on both sides. It will support you when you need to make tough decisions by building your right to make those decisions into the contract.

5. Look to the future

Your staff might be with you a long time and you don’t know at the start how your relationship with them is going to develop or how the business might grow and change. The contract you issue at the start will remain in force for the duration of the employment and amending terms and conditions or imposing new ones isn’t straightforward and risks souring relationships with valued staff. A little forethought and some decent drafting at the beginning saves all that.

So what do you need to include?

There’s no ‘one size fits all’, there really isn’t. Every business is different and the culture, the sector, the kind of employees there are, the kind of jobs they do, the management style of the owner, likely previous employers of new recruits, client culture and expectations are just some of the things that impact on what terms would suit you best and in what language they need to be drafted. All small businesses are not the same!

Having said that some of the most common things I’ve found small business owners really wish they’d had in their original contract are:

  • Probationary period
  • Right to vary terms and conditions. It’s not foolproof, it doesn’t allow you to change whatever you like but it certainly makes things a lot easier, and some recent case law in this area has emphasised that, which is good
  • Right to make deductions from pay in certain situations
  • Right to vary hours of work and location
  • Right to terminate immediately and pay in lieu of notice
  • A suitable confidentiality clause
  • Something on Data Protection
  • Something on Health and Safety

What you don’t need

As a small employer you probably (although not necessarily) want to keep things reasonably informal, and need something that meets your requirements without comprising the ‘feel’ and culture of your business. You don’t need anything lengthy, or anything that feels over-restrictive or heavy-handed.

To be a really effective management tool you need a contract that is readily understood by both employer and employee, in user-friendly, easy-to-understand plain English, but also ensuring that you as the employer are legally well-protected.

It’s perfectly possible to do this – you don’t need complicated and incomprehensible legal language to ensure robust protection. But to achieve that you do need it drafted by someone with an excellent working knowledge of employment law and other law governing employment contracts. Simplifying legal language whilst maintaining its legal effectiveness is a skill that only comes with significant knowledge and experience.

Getting it done and afterwards

It’s really worth a little bit of time and what doesn’t need to be great expense to get your contract drafted for you by a professional – any law firm with an employment law department will do something for you, as will an HR consultancy working with small businesses.

Whoever you use, make sure the person doing it takes the time to understand your business and identify what key issues are or might be in the future. Make sure they can suggest what terms and conditions you may want to consider (and why), and can advise on their enforceability.

Once you’ve got one drafted that you are happy with, make sure you know how you need to adjust it when issuing one to a new employee (for things like holiday for part timers), and make sure you get it reviewed regularly, both for legal changes and also to ensure it remains appropriate for your business as it grows. If you have an HR provider or employment lawyer working with you they should do this, but ask them to if it’s not happening automatically.

If it’s a good one, you are less likely to have problems arise, and if you do, they are likely to be resolved more quickly, more easily and with less of a negative impact on the relationship between you and your staff member. In a small business that’s absolutely fundamental and for that reason a decent contract is as important for you as it is for a bigger business.