An employment contract may seem to be just one more legal document, but it can also form the basis for attracting, motivating and retaining the best people for your business. So, in preparing permanent employment contracts, it’s important to focus on both aspects. 

A permanent employment contract is a document that is intended to have a long life. Its terms remain in place until the employment ends, so it’s essential to prepare it carefully. 

Your employment contract must communicate essential information required by law — that’s a minimum requirement.  Beyond that, you have the opportunity to include information that establishes a framework for the future working relationship between your business and individual employees.

This article describes scope and benefits of permanent employment contracts and briefly outlines the differences between them and other types of employment contract. 

Permanent employment contract meaning

Before preparing your contract, it’s important to understand the meaning of ‘permanent contract’ and recognise the difference between permanent and other types of employment contract. 

There are three main types of contract that reflect the employment status of different employees:

• Permanent contracts - Permanent contracts are for employees who work regular hours and hold a permanent position. Although a permanent contract has no fixed end date, it does not offer guaranteed employment — the contract can be terminated by either party.

• Part-time contracts – Part-time employment contracts are suitable for employees who hold a permanent position, but work fewer hours than their full-time colleagues. 

• Fixed-term contracts - Fixed-term contracts are suitable for employees who are hired for a specific period of time, typically to complete a project, meet seasonal demand or provide cover for another employee who is on sickness, maternity or paternity leave. 

Why offer permanent employment contracts?

A permanent employment contract is a legal document that you are required to provide to any employees that have permanent employment status.

The contract ensures that both parties understand their rights under employment law by covering all the terms of employment between you and your employees. 

The contract also ensures that you meet the legal requirements set out by the Employment Rights Act 1996. 

By offering a permanent employment contract, you are offering your employees a degree of certainty and security. At the same time, you are improving long-term business continuity through access to a permanent workforce. 

Including permanent employment contracts as well as other types of contract gives you the opportunity to build a more flexible employment strategy that helps meet long-term business goals as well as dealing with short-term contingencies or changes in demand.

Related: A List Of Key Points Of Legislation That Affect Employers In A Business Environment

Related: What is the difference between an employee and a contractor?

Scope of permanent employment contracts

A permanent employment contract must include all the terms set out in the Employment Rights Act 1996, in addition to other information relevant to your business. The contract can be broken down into a number of different sections, which are outlined below.

Preliminary content 

This section introduces the contract and covers the general terms of employment. It should include:

• Name of the business and the employee 

• Commencement date for the employment 

• Location of the workplace 

• Expectations for essential business travel 

• Normal hours of work 

• Flexible and home working arrangements

• Working arrangements in the event of government lockdown 

• Confirmation of the employee’s right to work in the UK, including provision of relevant visas or work permits

• Restrictions on holding other employment or outside business interests

• Disciplinary procedures

Job description

This is the most detailed and specific section of the contract. It should cover:

• Job title 

• Main duties and responsibilities 

• Reporting lines

• Performance review procedures 

• Requirements to take on additional duties to meet changing business needs

Pay and expenses 

In this section, you provide the employee with information on their salary and any other payments. It should cover:

• Amount of annual salary

• Bonuses and supplementary payments

• Commission structure  

• Payment timing and method 

• Overtime payment

• Salary review process 

• Payment of necessary business expenses 

• Deductions for tax, National Insurance and pension contributions

Pensions and benefits 

This section sets out the employee’s entitlement to non-salary benefits such as pensions or other ‘perks’. It should provide an explanation of:

• Participation in workplace pension scheme 

• Contributions to other company pension schemes 

• Summary of company-wide and individual employee benefits 

• Taxation of employee benefits 

Holiday and paid leave entitlement  

In this section you set out the policies on holiday entitlement and paid leave, including:

• Annual holiday entitlement, including public holidays 

• Payment for holidays 

• Increase in holiday entitlement

• Carry-over of unused holidays 

• Payment in lieu for unused holidays at the end of employment 

• Paid leave for maternity/paternity absence and other scenarios

• Unpaid leave 

Sickness absence 

This section explains the employee’s rights and procedures to follow in the event of sickness. It should cover:

• Timelines for reporting sickness, including emergencies

• Self-certification for the first seven working days of sickness absence

• Requirements for a doctor’s certificate after seven days’ absence

• Requirements for medical examination for longer periods of absence 

• Payment of Statutory Sick Pay (SSP) 

• Absence due to injuries or illness caused by a third party

Related: How To Handle An Employee Off With Work Related Stress

Intellectual property 

It’s essential to protect your company’s intellectual property. This section sets out the employee’s responsibilities for creating as well as protecting intellectual property, including:

• Employer’s ownership of intellectual property 

• Employee’s responsibility for protecting the company’s intellectual property

• Employee’s duties for developing new intellectual property 

• Employer’s ownership of any new intellectual property developed by employee

Confidentiality 

• Definition and scope of confidential business information

• Employee’s access to confidential business information

• Employee’s responsibility for protecting confidential information and intellectual property 

• Breaches of confidentiality 

Data protection 

This section outlines the employer’s responsibilities for processing and protecting the employee’s personal data, covering:

• Personal data held by the employer 

• Use of employee’s personal data 

• Company data protection policy 

• Employer’s responsibilities under GDPR

• Employee’s responsibilities under the company’s data protection policy 

• Transfer of employee’s data outside the UK

Grievance and disciplinary procedures

In the event of a breach of discipline or responsibility, it’s important that employees understand their rights and procedures, including:

• Disciplinary and grievance policies

• Disciplinary and grievance procedures

• Escalation of grievances 

• Redress for grievances 

Termination and notice periods 

Either party can give notice of termination. This section explains the procedures and notice periods, including:

• Notifying termination in writing

• Notice period

• Options for payment in lieu of completing the notice period

• Termination for breaches of conduct or responsibilities 

• Procedures for ‘garden leave’  

Read More: Redundancy: how to avoid an unfair dismissal claim

Changes to the contract 

Although a permanent employment contract is a long-term document, circumstances may require changes to the contract from time to time. This section sets out:

• Employer’s right to amend contract 

• Procedure for notifying changes 

Related: Changes to written statement of employment particulars. What Employers need to know

Customising the contract 

The previous section outlined the standard terms that should be included in the contract to maintain compliance with employment law. This can provide a useful template for company-wide permanent contracts. However, you can also include other information for individual employees that demonstrates you value their skills and services. 

For example, this might include performance-related bonuses or other forms of incentive. You may decide to offer rewards for contributions to suggestion programmes or invite key employees to take part in employee share programmes. You can also offer selected employees ‘perks’ such as a company car, gym membership, health insurance or other attractive benefits. 

Support from Accounts and Legal

This is a brief outline of the requirements for preparing a permanent employment contract. As this contract is a legal document, you may need to take professional advice to ensure your contract is compliant. If you would like to discuss your contract or would like professional help in preparing a new contract, our team of experienced small business lawyers have extensive experience in employment law and will be glad to help. 

To find out more, please contact us on 0207 043 4000 or info@accountsandlegal.co.uk. 

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