A comprehensive guide to creating an employment contract - including an employment contract example

What is an employment contract?

An employment contract is a written document outlining the terms of employment between an employer and an employee. An employment contract sets out the terms under which a new employee is being employed, their responsibilities in respect of their job role and their rights against the employer.

Why does my business need to use employment contracts?

Employment contacts are a key legal document for every business that has employees - they provide protection to employers, whilst also enabling employers to comply with the law. Find out below some of the main reasons that employment contract can bring benefits to your business:

1. Legal Protection - Employment contracts provide a legal framework that protects the rights and interests of both employers and employees. They define the terms and conditions of employment, such as job responsibilities, compensation, benefits, working hours, leave policies, confidentiality, non-compete agreements, and dispute resolution procedures. By having a written contract, both parties have a clear understanding of their rights and obligations, which reduces the risk of legal disputes and ensures compliance with employment laws.

2. Transparency - Employment contracts help establish clear expectations and guidelines for the employment relationship, from the very outset. They outline the roles and responsibilities of the employee, the company's policies and procedures, and any specific conditions or requirements related to the job. An employment contract also provides a reference point for both parties to refer back to if there are any misunderstandings or disagreements in the future.

3. Protect your business’s intellectual property and confidential information - Employment contracts can include provisions that protect the company's intellectual property, which can be a business’s key asset. These provisions can help safeguard valuable company information and ensure that employees understand their obligations to maintain confidentiality and not disclose or misuse these rights.

4. Professional impression - Having in place a well-drafted employment contract demonstrates professionalism and creates a positive image for your business, during recruitment negotiations. It shows potential employees that your business takes employment relationships seriously and is committed to maintaining clear and fair terms of employment. This can enhance your reputation and attract top talent who value transparency and clear expectations.

5. Clear route to termination - Although not envisaged when taking on employees, there are times when employment relationships break down and you want to terminate an employee’s contract. A well-drafted employment contract can provide clarity on the process and conditions for terminating the employment relationship. This includes a disciplinary process that can be followed prior to termination.

Use Docue’s employment contract to protect your business and boost employee relationships.

What are the key terms an employment contract should include?

When drafting your employment contract or investigating employment contract templates, you’re likely to come across the phrases “express terms” and “implied terms”. But what do these mean?

Express terms are the terms expressly set out and included in the contract of employment. Implied terms, as the name suggests, are not expressly set out in an employment contract but automatically arise as a consequence of the circumstances in which the employment contract is entered into. All employment contracts, however comprehensively drafted, will have implied terms. Examples of implied terms within employment contracts include:

• Duty of mutual trust and confidence;

• Duty of fidelity (i.e. the employee will complete work and “serve” the employer with good faith and fidelity); and

• Duty not to disclose confidential information.

The exact terms of an employment contract will vary depending on the employment status and job role, but the key terms in a standard employment contract include:

1. Salary/ Wages/ Compensation - These are the details of the employee’s salary or wage for a set duration and circumstances under which their salary or wages may be revised upwards or downwards;

2. Confidentiality clause - This is a key feature of an employment contract that employers use to keep employees from intentionally disclosing trade secrets or important company data. It is also called a non-disclosure agreement;

3. Responsibilities - This is the general framework outlining the tasks or responsibilities of the employee to the company.

4. Contract duration - This specifies the length of time the employee is expected or agrees to work with the organisation or company. Depending on the type of contract, the contract duration could be set for a specific period of time or set as “ongoing”. For more information on different types of contracts, read this guide. The contract should also set out the applicable notice periods for bringing the contract to an end.

5. Schedule - Basically, this specifies the number of days and hours an employee is expected to work

6. Other benefits - In addition to salaries and wages, employment contracts contain the details of other benefits an employee may be entitled to during the contract. These include but are not limited to holiday entitlement, pensions, allowances, and health insurance, among others.

7. Non-compete clause - This is not included in all employment contracts but can still be very important, particularly for senior employees. It limits an employee from starting a similar business to that of the employer or working for a competing company for a specific duration after the termination or expiry of an employment contract.

For more information about terms that needed to be included in an employment contract to comply with UK employment law, use this handy checklist .

What is the difference between an employment contract and a contract with an independent contractor?

Contracts with independent contractors are often referred to as consultancy agreements or freelance agreements, and should only be used when the person providing services is genuinely self-employed - as opposed to being an employee or worker within your business. In contrast, contracts with employees or workers are often referred to as employment contracts.

It’s particularly important for businesses to be certain about the employment status of each new hire, as it will impact employment rights, tax implications (e.g. IR35/off-payroll working rules), and wages.

What other documents do I need to use when hiring employees?

During the recruitment process, you will need to provide certain documents to job candidates. This will include a recruitment privacy notice and a job offer letter.

After you have hired someone, as well as putting in place an employment contract, you should also consider the following documents:

1. Employee privacy notice - when you collect an individual’s personal data, it is a legal requirement of data protection laws that you provide them with a privacy notice that tells them how you are using that personal data. You should therefore provide a privacy notice to employees to tell them how you collect and use their personal data during their employment (e.g. to administer payroll and manage sick leave and absences);

2. Disciplinary and grievance policies - you should have a clear grievance policy in place to enable employees to raise complaints and issues in a safe and effective manner. Likewise, a well-drafted disciplinary policy can be key to managing issues with employees prior to potentially terminating their contract;

3. Data protection policies - if your employees handle personal data, you should have clear policies in place to ensure that they know how to handle that personal data in accordance with data protection laws;

4. Health and safety policy - so that employees are clear on their health and safety responsibilities and the process for reporting any issues; and

5. Other internal policies - you may want to implement other internal policies that your staff are trained on e.g. whistleblowing policy, anti-bribery policy.

How can Docue help?

Docue’s employment contract and other HR documents have been drafted by lawyers. Our cutting-edge technology combined with our lawyer-made document content allows you to create, customise, e-sign, store and manage your employment contracts all in one place with just a few clicks.

Our lawyer-crafted guidelines provide straightforward support to guide you through every stage of the drafting process. So if you need to make that key hire but don’t want the delays or dents in your bank balance that come with traditional legal services, give Docue a try now to create your own employment contract!

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