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.
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.
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.
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.
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
This is the most detailed and specific section of the contract. It should cover:
Main duties and responsibilities
Performance review procedures
Requirements to take on additional duties to meet changing business needs
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
Payment timing and method
Salary review process
Payment of necessary business expenses
Deductions for tax, National Insurance and pension contributions
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
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
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
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
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
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
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
Either party can give notice of termination. This section explains the procedures and notice periods, including:
Notifying termination in writing
Options for payment in lieu of completing the notice period
Termination for breaches of conduct or responsibilities
Procedures for ‘garden leave’
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
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.
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 firstname.lastname@example.org.