Working in HR for many years means I have come across all sorts of situations so am not easily surprised by things that can happen in the workplace... but one thing that did surprise me when I started working with smaller businesses was that many firms don’t give their employees contracts.

Sometimes owner managed businesses grow by employing people friends and family, then expanding further but without necessarily having all the right HR processes in place. With business owners juggling lots of hats, it’s understandable how this happens, but how important is it to have terms and conditions of employment agreed in writing? 

What is a contract?
When you think of a contract, a written document springs to mind, however in law, a contract is an agreement between two (or more) parties and can be verbal or in writing. But basing employment contracts on an informal conversation is a big risk and it’s difficult to prove whether or not you said your staff could have time and a half on weekends if you did not agree things in writing.

In addition, there is a legal requirement to provide staff with a written statement of particulars covering the main terms and conditions of their employment within 8 weeks of their start date. These terms and conditions mainly protect employees, which is why many employers wrap this up into a larger written contract of employment (often with an accompanying staff handbook), specifying additional clauses to protect the business and where you differ from the statutory minimum (for example requiring employees to give longer than the 1 week statutory notice period, particularly for longer serving and senior staff).

If you don’t provide written terms and conditions, there would be a lack of clarity about what the employer and employee can expect and you would only be able to fall back on statutory minimum provisions. It could also lead to problems in disputes: imagine an employee has taken you to an employment tribunal. One of the first documents the judge would ask for is the written terms and conditions of employment. If you’re unable to provide one, it would not get you off to a very good start and the judge would have the right to increase any fines if you have not followed the law by providing written terms and conditions.

What should be in written terms and conditions?
There are fourteen key pieces of information which must be included in a written statement, including names of both parties, start date (and end date if fixed term) and continuous employment date, pay rate and intervals, hours, location, job title, information about disciplinary and grievance procedures, holiday entitlements, sick leave and pay, notice periods and pensions. It should also include details of any collective agreements and information about whether the employee is required to work outside of the UK.

However, it’s some of the additional terms which may be included that really help to protect your business. When an employee starts a new job, they immediately have dozens of statutory rights about all sorts of things from pay levels and annual leave to not being discriminated against. The employer, on the other hand, does not benefit from any statutory rights from day one. However, a business can protect itself by putting certain contractual obligations in the terms and conditions. This could cover things like flexibility clauses, use of company vehicles, confidential information and other property, ability to make deductions from salary (for example in relation to damaged company property or repaying a proportion of training costs on leaving), restrictive covenants (which, if worded carefully, can limit what an employee does after they live, preventing them from working in competition to you and taking your clients for a specified period) and other things to do with when an employee leaves, such as enhanced notice periods and the ability to put someone on garden leave or pay in lieu of notice.

You also need to ensure what is in your contract reflects what happens in reality. For example, if your contract states that you only pay Statutory Sick Pay (SSP) but in reality, people still get full pay when off sick, it will be difficult to just pay SSP on specific occasions, even if this is what the contract says. This is because by paying discretionary company sick pay consistently, it becomes “custom and practice” and this overrules what is in the contract. If you word the contract carefully, you may be able to specify examples of situations where the company would use its discretion not to pay enhanced sick pay (for example for self-inflicted injuries/illnesses (from skiing accidents to hangovers!) or where proper reporting procedures have not been followed.

What if I need to change terms and conditions?
Generally speaking, changes to terms and conditions would require consultation and you would need to be seen as “reasonable” to avoid risking claims for breach of contract. There are all sorts of reasons you may need to make changes, for example relocation, changes to pension schemes or working patterns and it's always worth taking advice before going ahead with a consultation process.

Sometimes you will have no choice but to change terms and conditions and you should always have provision to ensure you have the right to make amendments to comply with any changes to employment law. With employment law changes typically coming into force every April, it’s worth having an annual review of your contracts and policies to ensure they remain compliant and fit for purpose.

We hope you have found this guide helpful. For further information or assistance with ensuring your business is compliant, contact Kathryn Roynon HR & Training Consultancy on 01249 701486.

A HR Health Check from Kathryn Roynon HR & Training Consultancy will provide you with a detailed overview of whether your contracts, processes and policies are legally compliant, whether they protect your business sufficiently and whether you have the right people practices in place to meet your business goals, including recruiting, training and managing the performance of your people effectively. At the end of the review, you will receive a detailed report and action plan to get your people practices into the best shape for 2017 and beyond.