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How to draft an employment contract

Preparing an employment contract is an essential step in hiring staff. Employment law requires that you give all employees a written statement of their terms of employment within two months after their employment commences. Here’s some guidance on how to draft an employment contract.

You can also find out how to draft a consultancy agreement for self-employed people here. And if you’re unsure of the difference between hiring employees and self-employed staff, read this guide.

You can obtain standard employment documents from various sources, including certain websites that (for a fee) will supply you with various standard documents, but it’s generally preferable to ask a solicitor to draft an employment contract that is tailored to the particular requirements of your business and explicitly spells out all the rights and obligations of the company and the employee.

Here is a list of the key provisions you normally see in each type of contract:

  • Employee’s start date / continuity of employment: Any previous employment before the contract commenced should be clarified and defined.
  • Job title and duties: An employer should reserve as much flexibility as possible so that (within reason) it can move the employee to other suitable roles and ask them to take on additional or different responsibilities.
  • Hours of work: The contract should state that the employee can be required to work extra hours where the business requires it. The contract should state whether overtime is paid or not. Consider if an opt-out agreement is needed where employees may work in excess of 48 hours per week.
  • Place of work / mobility clauses: In case the business moves premises, the employer should reserve the right to require the employee to move to another location within a specified area (eg Central or Greater London). Care is needed where mobility clauses may require a female employee to relocate due to possible sex discrimination issues.
  • Salary: State dates of payment, any annual reviews and if employee is entitled to an increase or is it discretionary.
  • Details of pension arrangements and other fringe benefits (life cover, car, medical insurance etc): The contract needs to specify the terms and conditions on which fringe benefits are provided and should reserve the employer the right to amend those terms and conditions from time to time. Specify whether of not a contracting out certificate is in force.
  • Holiday entitlement: The contract should specify how much holiday the employee is entitled to take and whether there are any restrictions on when holiday may be taken. Ensure minimum Working Time Regulations requirements are met.
  • Sick pay entitlement (ie the maximum number of days sickness absence a year for which they will be paid): We recommend that the employment contract should state quite a low number of days sick pay (eg ten working days per year) and that any sick pay above that limit is discretionary. Entitlement can be graduated for longer service.
  • Notice entitlement: The contract should specify how much notice each party has to give the other to terminate the contract. The employee is statutorily entitled to receive not less than one week’s notice per year of service (up to a maximum of 12 weeks), except in the case of gross misconduct. Consider tax issues including a PILON clause pay in lieu of notice and include garden leave provisions for senior employees.
  • Details of any post-termination restrictions (eg preventing poaching of clients after leaving): In the case of employees who could poach clients or employees if they leave to join or start-up a competing business, you should consider including post-termination restrictions in their contract. Such restrictions are only enforceable if reasonable so great care needs to be taken in their drafting.
  • Details of where the employee can find copies of the company’s disciplinary, grievance and other procedures: Staff handbooks become out of date almost as soon as they are printed. For that reason it is better to put employment policies and procedures on an intranet provided all staff have access to it.

It’s important to comply with employment law and to understand the rights an employee has. If general advice is not sufficient then you might consider consulting an employment solicitor or an HR professional. It can be very time consuming dealing with employees and once you employ a significant number of people you might consider taking on an HR manager on a full or a part time basis.

It’s much better to avoid employment problems than find yourself on the receiving end of an employment tribunal claim!

Andrew Fishleigh is an experienced employment lawyer at Keystone Law advising employers and employees in contentious and non-contentious matters. Having initially commenced his legal career with the Treasury Solicitor, Andrew subsequently practiced with DJ Freeman and Garretts in London and Reading. You can email him here.

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