Understanding employment contracts
The information below has been provided by the Money Advice Service.
An employment contract establishes the respective rights, responsibilities and duties of an employer and an employee. You should check any employment contract terms carefully before agreeing to them, and, if in doubt, seek professional help.
Any rights you have under a contract of employment, such as medical insurance for example, are in addition to the rights you have in law. In addition, certain employment contracts may seek to limit certain rights you have in law.
Legal rights include the right to be paid the National Minimum Wage, the right to paid holidays and, for most people, once your employer is covered by rules that are being phased in from October 2012, the obligation for an employer to enrol you in a pension scheme.
You and your employer can agree to any terms you want, but certain terms seeking to limit your legal rights may be ineffective.
So, for example, agreements to be paid less than minimum wage will be ineffective.
Most employment contracts are in writing – but they don’t have to be. An oral contract is just as binding but is much harder to prove. Having a written contract provides better certainty and can help prevent or resolve disputes with your employer in the future.
To protect employees who are not given a written contract, you are entitled to a written statement of your main employment terms within two months of starting work, no matter how few hours you work per week.
The statement must give details about:
- employee and employer names
- employment start date
- job title
- pay details
- hours of work and place of work
- holiday entitlement and holiday pay
- sick pay
- pension schemes
- notice periods
- grievance, dismissal and disciplinary procedures
Express terms and implied terms in a contract of employment
A written contract is usually made up of a mix of two types of contractual terms:
- express terms
- implied terms
Express terms are elements of your contract that have been specifically mentioned, either in writing or agreed orally, by both employer and employee. These may include:
- how much you will be paid (including overtime and bonus pay)
- hours of work, including overtime hours
- holiday pay, as well as how much time you are entitled to take off (most full-time workers are entitled to 28 days and part-time workers get the same amount, in proportion to the number of days/hours they work)
- sick pay
- redundancy pay
- how much notice is needed to end the contract
Express terms won’t be in just the contract, but may also be found in:
- the job advert
- any letters you receive from your employer
- documents you were asked to sign, such as a staff handbook or manual
Make sure you keep copies of all documents given to you by your employer.
Implied terms are not written, but can be implied into most contracts of employment, for example that you won’t steal from your employer or that you won’t give away confidential information.
Your employer must, in turn, provide a safe working environment and shouldn’t ask you to do anything illegal, such as drive a vehicle that is uninsured. An important element in an employment contract is this concept of mutual trust and confidence between employer and employee.
Terms may also be implied through custom and practice. This is where arrangements have never clearly been agreed but over time have become part of the contract. Examples of this might include finishing early on a Friday, or a Christmas bonus. For an entitlement to become established by custom and practice it must usually be automatically received, uninterrupted, long-standing, expected and well-known.
Your employment status
There are three kinds of employment status – employee, worker or self-employed. It is very important that you understand your employment status as you have different legal rights depending on which category you fall into.
There is no clear definition between workers and employees, but here is a rough guide.
- A worker will have, as a minimum, core employment rights like rest breaks and minimum wage, may be entitled to sick pay and maternity leave, and the employer will be responsible for deducting tax and National Insurance. The work could, nevertheless, be casual.
- Employees are workers who have more than just basic rights and more responsibilities: such as a requirement to give notice if you want to leave. If your employer tells you when and where the work has to be done, supplies the tools and equipment, and can subject you to a disciplinary procedure, then you are likely to be an employee and will have an employment contract.
- If you can decide when you want to work, and can substitute yourself with a replacement, make your own sickness and holiday arrangements, pay your own tax and National Insurance, you are more likely to be a self-employed person contracted to provide a service to your clients or customers. Your contract will be a contract for services.
You need to be clear about your status to know what your entitlements are.
Employment status is different from your working pattern. You can be an employee or a worker but be working part time, fixed term, casual, zero hours, seasonal or as a temp. Fixed-term employees should be no less favourably treated than comparable permanent employees, unless the employer can objectively justify less favourable treatment.
Find out more about types of employment status on GOV.UK.
See more about pay and benefits for temps and agency workers.
If there is a dispute, only a court or employment tribunal can make a final decision as to your employment status.
When you get your contract you should read it carefully before signing it, because by signing it you are agreeing to the terms of the contract.
If there is something in the contract you don’t agree with or think is unfair, you can discuss it with your employer and ask whether they will change it or leave it out of the contract. You may also be able to get advice from a solicitor, your trade union (if you are a member), ACAS (the Advisory, Conciliation and Arbitration Service) in England, Scotland and Wales or the Labour Relations Agency (LRA) in Northern Ireland.
If the contract with your employer is broken, for example they don’t pay you for something which they should, you should first try to sort it out informally with your employer. If you aren’t successful you could try raising a grievance. If the issue is still not resolved you can try mediation through ACAS or the LRA, if your employer agrees.
You can contact the ACAS helpline on 0300 123 1100 and the LRA helpline on 028 9032 1442.
If you can’t sort out the problem, you could use an employment tribunal (industrial tribunal in Northern Ireland). While typically there are no legal costs, you will have to pay a fee which will depend on the type of claim you are making. If you are on a very low income, you may not have to pay the fee. There’s more information about tribunal fees on GOV.UK. You will only be able to get a payment for damages if you can prove real financial loss – there is no compensation for hurt feelings or being upset unless there is evidence of discrimination.
Some special contract concerns
Zero hours contracts and key time contracts
Zero hours contracts don’t specify the number of hours that an employee will be required to work. They affect mostly hotel, catering and shop staff, and apply to roughly one in twenty workers. Contracts will often say that you must be ready to work when asked. If you are on call to take on extra shifts in addition to your minimum number of guaranteed contractual hours, then you are not necessarily on a zero hours contract. Check with your employer if you are unsure.
Key time contracts guarantee you some work, but not regular hours each week.
The difficulty with both these kinds of contracts is that you aren’t paid for any time spent waiting around. However, legally, if you’re on a zero hours contract you are entitled to be paid for any time you have to be on work premises unless your contract says otherwise, even waiting for work to start. You should be paid your normal hourly rate, or at least the minimum wage.
Unauthorised deductions from wages
If an employer is going to make deductions from your wages, then they should be authorised by legislation, for example tax and National Insurance, and put into your contract with a written explanation or agreed in writing before they are made.
There are some exceptions, for example if you have been overpaid by mistake or have not worked because you have taken part in industrial action.
There is special protection for retail employees that means it’s illegal for an employer to deduct more than 10% of their gross wages for cash shortages or stock shortfalls.
Employers sometimes give new employees a probationary period. Your contract can contain terms that apply only during your probationary period, but these terms cannot take away your statutory rights.
For example, during a probationary period, you might not have all of the rights you’ll have once the period is over, but there can be no reduction in your statutory rights, for example to paid holiday, statutory maternity leave or sick pay. And, your full contractual rights start on your first day of work, unless your contract says otherwise.
Changes to contracts
Your employer may want to change the terms of your contract, for example:
- change the work you do
- change your pay
- cut or change the hours you work
- change your place of work
In theory, your employer can’t change the terms of your contract without your agreement. However, in reality, you may be faced with the choice of accepting the change or being made redundant.
This article is provided by the Money Advice Service.