Thinking of hiring? Here are the different types of employment contracts you should consider

You can’t do everything in your business all on your own. Hiring your first employees is one of the most important and exciting moments that you will experience as a company because you can see how your business is growing and in which direction it is going. When you start thinking about hiring someone there are a few things you need to consider in order to find the best contract option for your employee and your growing business. In this blog, our expert lawyer Ashley Gurr will talk about the most common types of employment contracts. Whether you have to consider these issues for the first time, or you are simply looking to mix things up in order to maximise the benefits of the modern, fluid labour-market, continue to read about your various options and learn about the pros and cons of each contract type.   

This is the most common contract type.  It is designed to cover the typical ongoing arrangement, in which employees have the benefit of certainty of income, usually in exchange for agreed hours and an agreed working pattern. Therefore, from an employee’s point of view, they are the most secure form of contract, whilst from the employer’s point of view, permanent contracts can sometimes be regarded as burdensome. Although this has been the preferred contract type for many years, we have seen recent evidence that many businesses are moving away from this contract type towards more agile arrangements. Read more: Permanent Employment Contract: What you need to know.

This contract is generally used when a particular project of fixed duration needs to be fulfilled, or if there is some other good reason for limiting the term of employment. If you are an employer you should be aware that many of the employment rights remain the same as for a permanent contract: after two years of service, employees who have at least two years service will still qualify for an unfair dismissal claim whereby a fixed-term contract is not renewed; this is still regarded as a ‘dismissal’. Read more: Fixed-term employment contracts: Best of both worlds?

This contract has been reported much in the news of late, and is one of the contract types that have seen a surge in usage as part of the new ‘gig economy’. Businesses (and occasionally workers) are increasingly seeking non-standard working arrangements. A zero-hours contract works on the premise that the employee is guaranteed nothing more than zero hours, and that the amount of available work will fluctuate on a periodic (usually weekly or monthly) basis. It is generally (although not exclusively) utilised in sectors that employ predominantly low-skilled staff, where the customer demand is seasonal or fluctuating, and whereshifts or rotas are more common. In recent years,  it has been the centre of a lot of controversy, as by the nature of the contract, employees are not guaranteed any minimum amount of paid work, which can lead to financial difficulties for employees, particularly when they earn a low hourly rate.Read more: Zero Hours Contracts – A Business Benefit Or A Risk?

As the name suggests, these contracts are usually awarded to company directors and they are commonly designed to cover a fixed duration. As directors are the most senior type of employees, such contract often includes enhancements and clauses that are less commonly found in standard employment contracts, such as lucrative bonus arrangements based on overall company performance, share options, enhanced pensions, private healthcare funding, and car allowances. They often include more extensive and subsequently more stringent post-termination restrictive covenants in order to protect the business, since generally an outgoing director can prove to be more of a threat to a business than a more junior member of staff.Read more: Director Service Agreement.

The above represents an overview of the most common types of employment contracts. Of course, there are other non-employee contracts (such as consultancy agreements) which are equally important to many businesses. It is important when hiring staff to select and agree on the correct contract type with each employee, to ensure that appropriate security and commitment are in place for both parties, and so that everybody knows where they stand and that the agreed terms are suitable for employer and employee alike. If you need help with the selection of the right contract type for your business, please feel free to speak to our employment lawyers who will provide you with expert advice with regard to all employment contracts.

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Prices start at £149+VAT for contracts up to 20 pages.  The author of this article is LawBrief Ashley Gurr. Ashley Gurr is an experienced Solicitor who has represented SME clients for many years in the fields of Commercial Property, General Commercial and Employment Law.   

Permanent Employment Contracts: What you need to know Fixed-term employment contracts: Best of both worlds? Zero Hours Contracts – A Business Benefit Or A Risk? Directors Service Agreements