HR · 13 November 2019

The employer’s guide to employment contracts


Business Advice recently teamed up with HR and employment law consultancy Peninsula to create a short series on a range of HR-related issues. This second article seeks to answer any questions you, as an SME employer, might have on employment contracts.

But first, what is a contract of employment?

An employment contract is a legally binding agreement between you, as the employer, and an employee. It defines your relationship through terms that are both explicit and implied.

As such, you are legally required to provide all staff with a written statement of main terms. A physical document, this statement of main terms is often accompanied by an employee handbook.

The handbook is where you can include more detailed rules of employment, plus any other important information your employees need to know.

However, a contract of employment also covers verbal agreements and implied terms. You don’t need to present these in a formal written document in order for them to be legally valid.

Why are they important?

Employment contracts describe the nature of your working relationship with each member of staff. So they’re the kind of thing you want to get right.

Well, firstly, because you’re employees are probably one of your greatest assets – and you’ll want to make sure their relationship with your business is clear.

Good communication is essential if you are to avoid disputes with employees.

Your statement of main terms and conditions of employment is, therefore, probably your most important message.

You can refer to the statement of main terms (plus your employee handbook) if an employee has allegedly broken a rule – or is in breach of contract.

What’s more, the law requires certain details in an employment contract that, as a responsible employer, you cannot omit.

If you follow Acas guidelines on employment contracts, you’ll ensure you cover all possibilities and provide a clear agreement that serves the interests of both parties.

What is the statement of main terms?

The statement explains, in plain English, the important details of the agreement between you and each employee.

It ensures that each party knows what to expect from the other, helping to avoid disputes between you and employees.

Along with the employee handbook, the statement of main terms and conditions of employment should form a clear framework for the employment relationship.

Together they explain important procedures for you and your employees to follow, such as raising grievances.

They also allow you to explain what each job role entails, and are an opportunity to run through any employment benefits that apply.

What should the statement of main terms include?

According to the law, the statement of main terms and conditions must include – at the very least – the following information:

  • The name of the employer and employee
  • The employee’s start date
  • The place of work
  • Payment details
  • Holiday entitlement
  • Pension entitlement

What’s the law around employment contracts?

There are two important laws to be aware of concerning contracts of employment. The first is the Employment Rights Act 1996, which requires you, as an employer, to provide each employee with a statement of main terms.

The act also details the essential elements you must include within the statement.

The second is the Employment Act 2002. This sets out what compensation employees can receive if you do not provide them with a statement of main terms.

In order to receive this compensation, however, they must first win another, existing claim – such as discrimination or unfair dismissal – upon which the second claim sits.

When should you issue a contract of employment?

The overall employment contract is not tangible. However, you must provide your employees with a physical statement of main terms once (or before) they have completed one month’s service, and within two months of their start date.

Still have questions?

Get expert advice on employment contracts from leading HR, employment law and health & safety consultancy Peninsula, who can help guide you through any employee disputes. Arrange a free consultation with one of their local advisers today.

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Olly Goodall is an editor at Business Advice. He researches, creates and delivers diverse content types such as blogs, SlideShares, eGuides, interviews and more. Working with clients to tailor content to each target audience, he is involved throughout the creative process, from content brainstorming through to keyword research and content creation. With experience client side and agency side, he has written online and offline content for a range of sectors, including tech, education, transport and finance.