What is a contract of employment and what does it need to include?

Authored by Hiscox Experts.
6 min read
Person signing a contract
Hiring your first employees is an exciting prospect for any small business owner. Before you get started, considering the rules and definitions surrounding a contract of employment could help you identify what should be included. Creating your employment contract allows you to set out what you expect from your staff and the terms of their work for you.

What is a contract of employment?

A contract of employment is a written agreement used to determine the terms and conditions between employee and employer. It is signed by both parties and outlines what each needs to do to fulfil these set-out terms.

It is a type of contract that sets out the contractual obligations that can be used as legal evidence if either party does not fulfil the written terms and conditions of employment. These terms include information on:

  • Employee and employer responsibilities
  • Employee rights
  • Necessary duties
  • Conditions of employment – including reasons the contract could be terminated.


Do all employees need a contract of employment?

By law, you do not have to provide your employees with an employment contract, but you do legally have to give a written statement of employment particulars (external link). This written statement includes many of the same terms as an employment contract, though does not include information regarding pension entitlements and disciplinary procedures.

However, providing your employees with a contract of employment can help to clarify expectations for both parties. It sets the groundwork for a strong relationship between you and your employees.

Some small business owners find written employment contracts give them a degree of protection if disputes arise, since clear terms can reduce ambiguity.


What should be included in a contract of employment?

If you decide to provide a contract of employment, there are a few key things that should usually be included to provide clarity for employees.


The principal statement

The employment contract’s principal statement is the main employment document containing significant employment details for new starters.

This includes:

  • Names of both the employer and employee
  • Job title and description
  • Salary and hours of work
  • Holiday entitlements
  • Start date (and end date if applicable)
  • Location of work

On your employee’s first day of employment, you can also provide further information. Include this in the principal statement or within another document, if you prefer.

It includes:

  • Paid leave procedures (maternity, paternity, and grievance leave)
  • Sick pay information and absence procedures
  • Notice period


Terms of employment

Terms of employment outline what is expected of an employee in terms of the role they are fulfilling and their responsibility within that role. It also includes the benefits they receive for fulfilling those responsibilities, which can be combined with the above principal statement.

These terms may include:

  • Salary
  • Benefits such as pension schemes, healthcare, and holidays
  • Reasons for termination
  • Company policies and expectations


The wider written statement

The wider written statement includes the ‘final touches’ to the employment contract. It is a partner document to the principal statement and features more detail about obligations, agreements and entitlements.


Disciplinary and grievance information

An employment contract also includes information on disciplinary rules – for example, what will warrant disciplinary action. It features dismissal procedures, including how many weeks’ notice an employee will be given and what will happen in such an event.

It also supplies information on who they should appeal to if they are unhappy with disciplinary decisions.


Pension and healthcare entitlements

Not every company offers healthcare benefits, but it is a legal requirement to enrol employees in a workplace pension scheme (external link). Detail any company contributions into said schemes. For example, will you match employee contributions or subsidise a monthly amount?

Your new employee will also need to know the entity each scheme is with and who to contact if they have any issues, want to claim healthcare benefits, or access their pension funds.

Finally, inform them when the schemes will begin – for example, if they will launch straight away or after a probation period.


Any compulsory training

There are two types of training required in most roles – statutory and mandatory.

If statutory bodies decide companies need to provide Health and Safety training based on regulations, statutory training is required. Employees complete this to gain accreditation to do their jobs safely.

This might include machine and equipment training for engineers or infection control training for dentists.

Mandatory training, on the other hand, is required by law for the same reasons stated above. It also covers more general, cross-sector knowledge and includes things like fire safety, confidentiality and GDPR training.

An employment contract’s wider written statement includes information on what training employees will receive, when this will happen, and whether they will receive payment.

Guide to health and safety for small businesses


Collective agreements

Collective agreements are agreements made with trade unions or agencies that allow the employee to negotiate contract benefits and terms. Employment contracts also make employees aware of how they can negotiate terms, the parties involved in negotiations, and what and who is covered by said agreements.


How to write an employment contract

To write an employment contract, you can follow a basic template that breaks down each section of the principal statement, terms of employment, and the wider written statement. This is often how employers approach the process if they want everything in one place, rather than providing the ‘day one’ information as a separate document.

You might break each aspect down into its own individual section, adding references where required and keeping the language as straightforward as possible. Ensure everything is covered so your employees feel reassured and confident when signing.

If you are not sure how to write the contract yourself, it may be best to consult a solicitor or legal adviser. You might write an initial draft and then hand this over to the experts to reassure you everything is covered.


Additional clauses

Additional clauses should sometimes be included in a contract of employment – these outline what isn’t covered in the principal or wider statement.

These clauses provide extra information that might safeguard employers and employees from possible legal implications. They could also make employees aware of what is and isn’t acceptable in the workplace.

What you include here depends on your business priorities and company culture, though it could be wise to seek legal advice if you think this is necessary.

Additional clauses may include:

  • Dress code regulations
  • Intellectual property rights
  • Workplace conduct and relationships
  • Giving and accepting gifts and monetary incentives
  • Any workplace perks offered
  • If employees are allowed second jobs


Can you change a contract of employment?

You can change any of the terms of a contract of employment after it has been signed by the employee. However, alterations cannot legally be changed without the employee agreeing to these changes beforehand.

An employment contract is a legally binding document between two parties. After it has been signed nothing can be changed without the signatures of everyone involved.

Creating an employment contract is a central part of the hiring process, marking an exciting step as you welcome more people into your business.


What about employers’ liability?

When you hire your first employee or employees you are in most cases required by law to arrange employers’ liability insurance. This can offer protection if one of your contracted employees is injured or falls ill as a result of their work for you.

Learn more with our introduction to the Employers’ Liability Act, which underpins employers’ liability, and the Employers’ Liability Certificate, which you are required by law to display.

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.

Hiscox Experts

The Hiscox Experts are leaders valued for their experience within the insurance industry. Their specialisms include areas such as professional indemnity and public liability, across industries including media, technology, and broader professional services. All content authored by the Hiscox Experts is in line with our editorial guidelines.