Employment contract types explained
Learn what each of the different employment contract types involves.
Full-time contracts vs. part-time contracts
The key difference between full-time and part-time contracts is the number of hours worked each week. Full-time staff are expected to work all the hours in a company’s standard working week.
In contrast, part-time employees work fewer hours per week. Their exact hours and working days differ depending on their circumstances and the company’s policies.
What is a full-time contract?
A full-time contract defines the minimum number of hours an employee has to work, and their salary for working those hours. Full-time contracted hours are usually 35 per week or more (external link).
Advantages of a full-time contract
- For an employee: Includes holiday, pension and sick pay entitlements
- For an employee: Reliable income and hours.
Disadvantages of a full-time contract
- For an employer: Full salary has to be paid, even if hours are not needed
- For an employee: Less time to work a second job.
What is a part-time contract?
A part-time contract is similar, in most ways, to a full-time contract. The main difference is that ‘part-time’ is usually defined as working less than 35 hours (external link) . The number of hours the employee should work every week needs to be defined in the contract, as should any pay or company benefits.
Advantages of a part-time contract
- For both an employer and employee: Gives both parties more flexibility
- For an employee: Includes similar workplace benefits to a full-time contract.
Disadvantages of a part-time contract
- For an employee: The employer may reduce workplace benefits – e.g. holiday or sick pay entitlements
- For an employee: Working fewer hours means less pay
- For an employer: Meetings and workloads might prove harder to organise.
Fixed-term and temporary contracts vs. permanent contracts
Employers can choose to structure their contracts as fixed-term or temporary arrangements, or as permanent agreements. The main difference is that fixed-term and temporary contracts are short-term in nature, with the worker only employed for a particular period or project, as outlined by the UK Government (external link) .
Permanent contracts do the opposite. They’re not limited to a specific period and have no fixed end date.
What is a fixed-term contract?
A fixed-term contract is a type of temporary contract that sees someone employed for a fixed amount of time. The end date can either be flexible or included in the contract.
Fixed-term contracts are often used to cover maternity leave or short-term roles during the festive period. Minimum and maximum hours still apply.
Advantages of a fixed-term contract
- For an employer: Provides flexibility and reduces commitments
- For an employee: Receiving the same rights and responsibilities as permanent staff.
Disadvantages of a fixed-term contract
- For both an employer and employee: The end date is not always certain
- For an employee: May not include many workplace benefits – sick pay and holiday entitlement are decided by the employer.
What is a temporary contract?
Temporary contracts are similar to fixed-term contracts in that they have an agreed start and end date. But this can be changed and extended.
Advantages of a temporary contract
- For both an employer and employee: The end date can move to accommodate any changes
- For an employer: Temporary staff may be sourced by hiring agencies, cutting down costs for employers.
Disadvantages of a temporary contract
- For an employer: Motivation and performance may be limited if staff know they aren’t there permanently
- For an employee: It’s not a secure way of working as the contract is not permanent.
What is a permanent contract?
A permanent contract is given to an employee for a specific position. This contract type comes with no end date – the worker is employed on an ongoing basis.
Permanent employment removes the uncertainty of temporary contracts. However, it offers less flexibility to move between different jobs.
Advantages of a permanent contract
- For an employee: Stronger job security, since there is no fixed end date
- For an employer: Staff may prove more willing to buy into the company’s values since they’re employed for the long term.
Disadvantages of a permanent contract
- For an employee: Less flexibility, since employment continues indefinitely
- For an employer: A lack of pay progression or growth opportunities could hit staff morale.
Employment contracts vs self-employed contracts
It’s also important to understand the distinction between employment and self-employment when comparing contract types.
With an employment contract, an individual is contracted to a specific employer. It outlines their duties and responsibilities, along with the rights and benefits they can expect.
Meanwhile, a self-employed contract is an agreement between an external freelancer and a particular client. Although self-employed people work for themselves, they still require a contract with each business they provide services to.
What is an employment contract?
A person signs an employment contract to become an official employee of a company. These contracts apply to full-time, part-time, permanent and temporary staff.
Both the employer and employee agree to follow the terms and conditions in the document. These cover things like wages, hours, working conditions, rights and employee responsibilities, as outlined by the UK Government (external link) .
Advantages of an employment contract
- For both an employer and employee: Both parties have certainty about what is expected of them
- For both an employer and employee: Many contract terms are legally binding, offering employers and staff another layer of protection.
Disadvantages of an employment contract
- For an employee: Limited flexibility, as the terms of a contract cover specific tasks and responsibilities
- For an employee: Less say over how and where you work compared to those running their own businesses.
What is a self-employed contract?
A self-employed contract is an agreement provided by a company hiring a freelance worker or contractor to complete work for them.
The contractor or freelancer is responsible for the work they do (or do not) complete and takes full liability for any issues that may arise.
Advantages of a self-employed contract
- For an employer: Money can be saved and human resources can align with the demands of short-term projects
- For an employee: The freelancer usually sets the rate of pay and available hours.
Disadvantages of a self-employed contract
- For an employer: There is a need to ensure the contract is solid. For example, if work is not completed to the agreed standard, you may need to take things to court
- For an employee: Freelancers are not company employees, so they don’t receive workplace benefits.
Apprenticeship contracts vs intern contracts
Apprenticeship and intern contracts both offer people the chance to gain new skills and experience.
What is an apprenticeship contract?
An apprenticeship contract is between an employer and an employee aged 16-25 who has completed compulsory schooling or is taking on an apprenticeship as an alternative to post-secondary school education.
Contracts usually last one to three years and the employer is responsible for training and professional growth.
Advantages of an apprenticeship contract
- For an employer: There are public subsidy benefits since the role they’re training the apprentice for is considered a benefit to the economy
- For an employee: An apprenticeship provides in-depth training and progression into a career.
Disadvantages of an apprenticeship contract
- For an employer: Training someone from the ground up can be time-consuming
- For an employee: Employees do not have to receive the national minimum wage as standard.
What is an intern contract?
Internships are often confused with apprenticeships. But there is no age limit for internships, and they’re sometimes unpaid. An internship contract outlines much of the same as any other contract type, though it has a set end date.
Advantages of an intern contract
- For an employer: Internships may save the business money by hiring someone without pay
- For an employee: Internships provide valuable training and experience.
Disadvantages of an intern contract
- For an employer: These arrangements may attract people who plan to stay with the business for a short time
- For an employee: Unpaid positions may not be tenable for everyone.
Understanding the right contract option for you
When you’re a small business owner, deciding on the right contract type could be important before advertising a new role. The best fit for a small salon might not suit an accountancy firm, for example.
If you’re looking to start employing people, it may also help to be covered in the event any issues arise. Hiscox employers’ liability insurance helps businesses to stay protected against compensation claims and legal issues.
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.
GOV.UK, "Maximum weekly working hours".https://www.gov.uk/maximum-weekly-working-hours.
GOV.UK, "Part-time workers' rights".https://www.gov.uk/part-time-worker-rights.
GOV.UK, "Fixed-term employment contracts".https://www.gov.uk/fixed-term-contracts.
GOV.UK, "Contract types and employer responsibilities".https://www.gov.uk/contract-types-and-employer-responsibilities/fulltime-and-parttime-contracts.