Helpful advice for small business owners when preparing an employment contract. Clause by clause commentary and tips.
Employment contracts vary in length and complexity. It's important to spend some time at the start to get them right and to adapt them to your own organisation.
For senior hires, you may want to get specific legal advice to ensure that the contract covers you in case of a dispute.
Here is a list of common clauses and a few pointers as to what to include:
| Start Date / Continuous Employment | Employee Obligations |
| Job Title / Duties | Grievance / Disciplinary Rules and Procedures |
| Pay | Collective Agreements |
| Place of Work | Data Protection |
| Hours of Work | Company Property |
| Holiday Entitlement | IT |
| Absence / Sick Pay arrangements | Confidentiality |
| Other Paid Leave | Expenses |
| Pension Entitlement | Post-termination restrictions |
| Probationary Period | Company Rules |
| Deductions from Wages | Right to vary terms |
| Notice Period | Entire Agreement |
Place of Work
The contract must state the normal place of work
Employees may have more than one 'normal place of work' if they regularly spend more than 40% of their time (2 days per week) on another site.
Home-based workers may be entitled to travel expenses if they are usually based from home, and are required to attend the main office from time to time.
Mobility clauses: Some contracts allow for a change of premises so that if the business moves in future, you would not have to renegotiate contracts with all your employees.
For example: Your normal place of work is XXX, but you may be required to work at XXX or any other site within a XX-mile radius as reasonably required by the company. You agree to comply with this requirement unless exceptional circumstances prevail.
Holiday Entitlement
UK employees who work a 5-day week must receive at least 28 days’ paid annual leave a year. This is the equivalent of 5.6 weeks of holiday and can include bank holidays. It is sometimes described as 20 days plus public holidays.
- Increasingly even small employers offer more than the statutory minimum - e.g. 25 days plus public holidays - and this can make the company seem attractive to prospective candidates.
- Some companies reward long service and increase the holiday allowance year on year - for example, by one day per year up to a maximum of 25 days plus public holidays.
Employees don't have an automatic entitlement to take bank holidays off. If your business operates 7 days a week, your contract needs to state this.
For example: The company operates as usual on public holidays and weekends and if you would like to take a public holiday as part of your annual leave you must follow the appropriate procedure to request this.
The contract must outline when your holiday year starts and ends; how the holiday is accrued (e.g. monthly / daily) and how it is calculated on termination.
You might also want to consider other holiday arrangements - which can either go into the contract or a separate handbook. (In general, if your handbook is non-contractual you can make changes more easily to your working practices.)
- What is your procedure for requesting and approving holiday dates?
- How many days can you take in one go?
- How much notice do you need to give?
- Is the company closed for a set period (e.g. do you need to hold holiday back for closure over the Christmas period)?
- Are there are restrictions on when holiday should not be taken? (e.g. do you have a particularly busy period)?
- Do you allow any days to be carried over into the following year? (This is only applicable where employees have entitlement in excess of the statutory minimum)
Probationary Periods
Probation periods are used at the start of employment to give both the employer and employee an initial period of time to assess the suitability of the role firsthand. Notice periods are often shorter during the probationary period and you may choose not to give certain benefits to employees until they have passed their probation period (e.g. access to company sick pay, enhanced medical benefits etc).
The length of the probation period will depend on the time you need to reasonably assess your employee's performance and their fit for the role. Often this will be between 3-6 months and the terms will be laid out in the contract of employment.
It's a good idea to include the circumstances under which the probationary period comes to an end.
- Do you want an option to extend the period, for example?
- Stating that it must be confirmed in writing prevents a probation period automatically ending on a set date, regardless of an employee's performance.
For example: The first [XX months/weeks] of your employment will be a probationary period, during which your suitability for employment with the company will be assessed. During your probationary period, your notice period will be one week. At the end of the initial probation period, we may extend your probation by up to a further [xxx months/weeks. Your probationary period will not be considered to have been successfully completed until you have received written notification from the company.