Points to note when creating an Employment Contract
Here is a list of very important requirements that need to be included in a contract of employment. This checklist provides a series of questions which will help highlight important points required.
Parties
- Names and addresses of the employer and the employee.
- Is the employer part of a corporate group?
- Is the employer an employment business (that is, is the employee an agency worker)?
Commencement of employment
- Date when the employment began or will begin.
- Date on which the employee's period of continuous employment began or will begin (if different from above). Does any employment with a previous employer (or the same employer after a break) count towards the employee's period of continuous service for statutory purposes?
- If the employment is for a fixed term or is temporary, when does the fixed term or the temporary period expire? Is there any procedure for renewal of the employment?
- Should the employee be subject to a probationary period and, if so, for how long? Does the employer wish to have the right to extend the probationary period and, if so, for how long? What should the notice period be during the probationary period? Will the employer be required to write to the employee to confirm whether they have successfully completed the probationary period?
- For those starting employment on or after 6 April 2020: Are there any particular conditions applying to the probationary period? For example, will any period of sickness absence or holiday extend the length of the probationary period?
Job title
- The employee's job title and a brief job description (if appropriate for the particular case).
- Who should the employee report to?
- Will the job be performed jointly with other individuals (that is, is it a job share arrangement)?
- Does the employee require immigration permission to work in the UK?
Place of work
- Where is the employee to be employed? Will the employee spend any time working from home?
- Will the employee be required to work at different locations?
- Will the employee be required to live at a particular place in order to carry out the job?
- Will the employer need to be able to change the location of the employee's workplace and, if so, what is the relevant geographical area for such relocation? Will the employee be entitled to any relocation expenses?
- Is the employee required to work abroad for a period of more than one month? If so, for what period of time? In which currency will the employee be paid? Will the employee receive additional pay or benefits (for example, a living allowance or bonus)? What terms and conditions apply to the employee's return to the UK?
Pay
- How much is the employee paid? Are they paid an annual salary or an hourly rate?
- Is this payable weekly, monthly or over some other period? Is it payable in advance or arrears? On which date (or at what point in each period) will it be paid?
- In the case of an annual salary, does pay accrue day to day at a rate of 1/365 or 1/260 (or some other rate)? Should section 2 of the Apportionment Act 1870 be excluded?
- Will pay be reviewed and, if so, how often and by whom? Does the employer want to identify in the contract any factors to be taken into account in deciding whether to award a pay rise (for example, based on individual performance)? Will any pay rise be linked to an inflation index?
- Does the employer operate a grade system which will entitle the employee to an automatic salary increase on attaining a higher grade?
- What deductions, if any, might the employer wish to be able to make from the salary (for example, overpayments, loan repayments, overtaken holiday pay)?
Hours of work and rules
- What are the employee's normal hours and days of work (if any) and breaks?
- Will the employee have to work any overtime? What rates of pay, if any, are paid for overtime? Or will the employee be entitled to take time off in lieu of any overtime worked?
- Will the employee be working full-time or part-time? Will the employee work in any other way, such as term-time working or annualised hours?
- Does the employer operate a shift system and will the employee be required to work shifts?
- Is the employee likely to work more than an average of 48 hours each week over a 17-week reference period? If so, consider a separate opt-out agreement from the Working Time Regulations 1998.
- Is there an office manual or staff handbook or other rules and procedures which the employee is required to follow? Will a copy be given to the employee or where will it be available? Is it available on the employer's intranet?
- For those starting employment on or after 6 April 2020: On which days of the week is the employee required to work? Are the employee's hours and days of work variable? If so, how may they vary and how will that variation be determined?
Holidays
- Is there a holidays policy that should be referenced in the contract?
- What is the employer's holiday year?
- What is the employee's holiday entitlement? Will holiday entitlement in the first and last years of employment be rounded up to the nearest whole or half day? Will holiday be calculated in hours or days?
- Will employees be allowed to carry holiday into the next holiday year or will holiday which has not been taken in a particular holiday year be forfeited (unless legally required to be carried over)? What is the maximum number of days that may be carried forward?
- What rules apply with regard to taking holiday (for example, notice requirements, the maximum number of days that can be taken at one time and who must authorise it)?
- Will holiday entitlement increase with years of service?
- Will the employee be entitled to take holiday during a probationary period? (Note that holiday will continue to accrue in any event).
- Does the employer wish to reserve the right to require the employee to take any outstanding holiday during the notice period (including any garden leave period)?
- Will the employee be required to work on public holidays? If so, will the employee be entitled to a day off in lieu? If not, will public holidays be included within the employee's annual entitlement or be additional days' holiday? What will be the position regarding any exceptional public holidays that may be called in a particular year?
- Does the employer have any annual shut-down periods? Will the employee be required to take holiday during these periods?
- How will holiday pay, including on the termination of employment, be calculated? Is there any commission or regular overtime that should be included in the calculation?
- Does the employer wish to have the contractual right to recover payment for holiday taken in excess of the accrued entitlement upon termination?
- Does the employer wish to have the contractual right to withhold payment for untaken contractual holiday on termination, in the event of gross misconduct?
Incapacity
- Who must the employee inform of any sickness absence and by what time on the first day of absence?
- What is the proper procedure for certification of sickness absence? Is this set out in a sickness policy and, if so, where is this available?
- During periods of incapacity for work, will the employee be entitled to statutory sick pay (SSP) or enhanced sick pay? What are the employee's qualifying days for SSP purposes?
- If the employer operates an enhanced sick pay scheme:
Termination and notice period
- Are notice periods to be longer than the statutory minimum under section 86 of the Employment Rights Act 1996?
- Does the employer wish to have the right to terminate the employment by payment in lieu of notice? This will be particularly important if the employment contract contains restrictive covenants.
- Upon which grounds can the employment be terminated summarily?
- Is there a fixed retirement age? If so, it should be set out in the contract and will need to be objectively justified.
- Will the employee be required to repay any training costs on termination?
Disciplinary and grievance procedures
- Does the employer have any non-contractual disciplinary and grievance procedures? If so, where can they be found?
- To whom should the employee apply if they wish to appeal against a disciplinary decision?
- To whom should the employee raise a grievance?
Pensions
- Will the employer satisfy its employer pensions obligations by way of auto-enrolment or contractual enrolment?
- Will the employer operate an occupational pension scheme, group pension scheme or stakeholder pension scheme, or will it make payments into the employee's personal pension scheme?
- Will the employer make the minimum required level of contributions to the employee's pension or a greater amount? If a greater amount, will this be conditional upon the employee also making above-minimum contributions?
Data protection
- Is the required privacy notice appended to the contract or available somewhere else?
- Does the employer call the relevant policy a Privacy standard or Data protection policy?
- Does the employer require the employee to comply with any of the following policies: IT and communications systems policy, social media policy, bring your own device to work (BYOD) policy, or any other policy?
Collective agreement
- Are there any collective agreements in force? If so, who are the parties to such agreements and where are copies kept?
Confidential information
- Does the employer have specific types of confidential information which it would wish to protect after the employee's employment has been terminated?
Company property
- Will the employee have any company property (for example, car, phone, computer, pass, credit card, keys) which should be returned on the termination of employment? To whom should it be returned?
General benefits
For employees commencing employment on or after 6 April 2020, it is a requirement to include full details of all benefits. However, even for those employees starting work before 6 April 2020, the following information will be required if they are to be provided with any of these benefits.
- Will the employee be entitled to receive a bonus? If so, how will the bonus entitlement be calculated (for example, by reference to individual performance or company performance or a mixture of both)? Or will the employer have either absolute or partial discretion?
- Will the employee have a company car? If so, the following issues should be considered:
- Is there a car policy?
- Does the employer have its own fleet of cars or does it lease cars for employees from a leasing company?
- Will the employee be permitted to drive the car for personal use? Will the employee's spouse or partner be permitted to drive the car?
- What level of insurance cover is to be provided (comprehensive or third party only or a combination of both dependent on who is driving)?
- Is the ability to drive an essential part of the employee's job?
- Which costs are to be covered by the employer (for example, insurance, maintenance and repair) and which by the employee (for example, petrol for personal journeys and fines for traffic offences)?
- At what rate will fuel be reimbursed? Will fuel costs be reimbursed for private use, or only business use?
- How often will the car be replaced?
- Is there to be a cash alternative (a car allowance) on offer?
- Will the employee be entitled to be covered by any insurance (for example, private medical insurance, permanent health insurance or life assurance) and, if so, what are the relevant schemes? Will any family members be entitled to be covered under a private medical insurance scheme, and will this be at the employee's cost?
- Will the employee be entitled to relocation expenses?
Garden leave
- Does the employer wish to reserve the right not to provide the employee with any work and/or exclude the employee from the premises (that is, to put the employee on garden leave) during any notice period?
- Should the employee be entitled to participate in any bonus or commission arrangements while on garden leave?
- Are there any other requirements that the employee must follow while on garden leave, such as not contacting any business contacts or colleagues?
Restrictive covenants
- Is the employee sufficiently important to the employer's business to mean that the employer wishes to seek to restrict their activities after the termination of employment? If so, consider what types of post-termination restrictions would be appropriate. For further information.
Non-competition clause
- What is the nature of the employer's business in which the employee has been involved?
- Which geographical area has the employee operated in?
- What period of restraint would be necessary in order to protect the employer's legitimate business interests?
Non-solicitation and non-dealing clauses
- Will the employee be materially involved with employees of the business whose departure would materially affect the employer? If so, what period of restraint would be necessary in order to protect the employer's legitimate business interests? Which categories of employee should the employee be prohibited from poaching?
- Will the employee be materially involved with customers or clients of the business? If so, consider the nature of the goods and/or services supplied and the relevant period of restraint. Are there any particular customers or clients whom the employee should be prohibited from soliciting or having business dealings with?
- Will the employee be materially involved in negotiations with prospective customers or clients of the business? If so, consider a restriction on solicitation and dealing with prospective customers or clients of the business.