Types of Employment Contracts

An employment contract is an agreement outlining the conditions of an individual’s working relationship and arrangements, including rights, responsibilities, working hours, salary, any benefits, and holiday entitlement.

It should preferably be in a written format and signed by both the employer and employee to act as a binding agreement and setting out the legal obligations of each party, however, verbal contracts may still be valid. Even where there is no written contract, or it has not been signed by both parties, the employee may be entitled to certain rights, such as being paid for their work and accruing annual leave, depending on their employment status and the type of employment contract they have.

The terms of the contract should be agreed before the individual starts working for the organisation. Should the terms of the contract change during the employment relationship, for example if flexible working is adopted or the job role or location changes, any changes should generally be agreed between the parties and the changes reflected in an updated contract.

In this guide for employers, we outline the different types of employment contracts and what they mean in respect of your legal obligations and your employees’ rights.

 

Types of employment contract

 

There are many different employment contract types, including:

 

• Full-time and part-time contracts
• Permanent or casual
• Fixed-term contracts
• Agency workers, temporary staff
• Freelancers, consultants, and contractors
• Zero-hours contracts

 

Full-time contracts

 

This is the most common type of employment contract. They tend to be offered for permanent positions, and set out the employee’s hourly wage or salary, holiday entitlements, any pension benefits, the statutory minimum length of rest breaks, parental leave allowances (maternity, paternity and adoption leave), and details on statutory sick pay (SSP).

There are no rigid number of hours that must be worked on a full-time contract, although most employers view full-time work as over 35 hours per week. The employer must also provide the employee with a payslip showing all deductions, such as National Insurance Contributions (NICs) and PAYE (income tax).

 

Part-time contracts

 

Someone who works on a part-time basis works fewer hours than those contracted full-time. These positions also tend to be permanent, and the contracts of employment contain similar terms as their full-time counterpart. The contract for a part-time worker should clearly set out the minimum number of hours they are expected to work each week. This gives them the opportunity to work overtime hours if and when available.

Benefits of part-time employment include its flexibility to allow employees to work around family commitments, for example. It also gives someone the chance to “try-out” new roles.

For both full-time and part-time contracts, an employer must:

 

• Ensure employees do not work longer than the allowed maximum
• Provide a payslip showing deductions for tax and NICs
• Pay employees at least the minimum wage
• Have appropriate employer’s liability insurance
• Provide a safe and secure working environment
• Register with HM Revenue and Customs (HMRC) in order to deal with payroll, PAYE, and NICs
• Avoid discrimination in the workplace
• Ensure they make reasonable adjustments to the business premises if the employee is disabled.

 

Permanent contracts

 

As stated above, these tend to be for full and part-time roles and given to those employees who will work regular hours for their employer. This covers both salaried, and those paid on an hourly rate, which continues until the point at which the employee leaves the company.

The benefit of a permanent contract is that it entitles the employee to the full range of employment rights, outlines their working hours, responsibilities, and terms of payment.

 

Employment rights

 

Full-time, part-time permanent employees are entitled to certain rights, including:

 

• Receiving the national minimum wage
• Protection against unlawful deduction from wages
• The statutory minimum level of paid holiday entitlement
• The statutory minimum length of rest breaks
• To not work for more than 48 hours (on average) per week or the right to opt out of this if they choose
• Protection against unlawful discrimination
• Protection for “whistleblowing” – reporting wrongdoing in the workplace
• To not be treated unfavourably if they work part-time
• They may also be entitled to SSP, statutory maternity pay, statutory paternity pay, statutory adoption pay, shared parental pay.

 

Casual employment contracts

 

Casual contracts of employment are used for those who want job security. Some employers want the individual to commit to their business, and the employee wants to guarantee their working hours. That said, casual contracts do not offer fixed hours like a permanent contract does. What generally happens is that the employer decides roughly how many hours the employee will be guaranteed each week or month, and any hours available beyond that is up to the employees discretion whether to make themselves available to work.

For example, a casual contract could set out 16 guaranteed hours per week or month, however it does not have to state when these hours will be. This means that shift patterns can differ from week to week.

A casual contract entitles an employee to statutory sick pay, and other benefits, and allows them to accrue holiday depending on the number of hours they work.

 

Fixed-term contracts

 

Fixed-term contracts tend to be more popular with freelancers and contractors because they set a date when the employment will end and can last anything from three months to a year. And there is scope for a contract to be extended. Generally, they are put in place to ensure that temporary or contracted employees are given the same employment rights as those with a permanent contract.

A fixed-term contract outlines the start and end dates of the employment, together with details of the salary and rights detailed above. Those who remain after their contract has ended without formally extending it will be considered having become permanent employees and must hand in their notice when they want to leave the company. Otherwise they are free to leave on the agreed end date of the contract.

Fixed-term contracts:

 

• Last for a certain length of time
• The duration and end date are set in advance
• End when a specific task is completed
• End when a specific event takes place

 

Fixed-term contracted employees must receive the same treatment as full-time permanent members of staff, such as:

 

• The same pay and conditions as permanent employees
• The same or equivalent benefits package
• Information about permanent vacancies within the company
• Protection against redundancy or dismissal.

 

Agency workers / Temporary staff

 

An employer can hire temporary staff from agencies. These agency workers have their contracts agreed and managed either by a recruitment or employment agency. Generally, these types of employees work on a temporary basis with the length of their contract depending on demand from the employer.

It is an agency’s responsibility to ensure their employees’ rights are protected. Although, NICs and statutory sick pay are paid by the employer to the agency the employee works for.

After 12 weeks’ continuous employment within the same role, agency workers are entitled to the same rights as permanent members of staff of the company.

The following applies when an employer hires agency or temporary staff:

 

• The employer pays the agency, including NICs, and statutory sick pay
• The agency is responsible for ensuring workers get their rights under working time regulations
• Following 12 weeks’ continuous employment in the same role, agency workers obtain the same terms and conditions as permanent employees. This includes pay, rest periods, working time, breaks, annual leave, and night work.
• An employer must provide the agency with information about the terms and conditions of their business so they can ensure the worker receives equal treatment after 12 weeks in the same role
• An employer must allow an agency worker to use any shared facilities (such as childcare, or a staff canteen), and provide them with information about any permanent job vacancies from their first day of work
• The employer remains responsible for the worker’s health and safety

 

Freelancers, consultants & contractors

 

Contracts may vary from job to job when working on a freelance, consultancy, or contractor basis. Individuals who work in this way are considered self-employed, meaning that it is their responsibility to pay their own NICs and tax contributions. Contracts may sometimes include commencement and end dates, or salary or payment may be based on set projects or pieces of work. Such contracts end upon delivery of the project or work.

Freelancers and contractors are generally not entitled to the same rights as permanent staff members, and the pay-off for this is that they get to manage their own schedule and negotiate their own terms per project.

It has become more common for those employers working with self-employed contractors, consultants or freelancers to have a written document setting out expectations, and work to be completed under the contract, etc. These are generally referred to as “consultancy agreements”.

Being a freelancer, consultant, or contractor means that:

 

• They are self-employed or part of outside companies
• They typically take care of their own tax and NICs
• They may not be entitled to the same rights as more permanent workers, such as minimum wage
• The employer remains responsible for their health and safety

 

Zero hours contracts

 

The distinguishing feature of a zero hours contract is that there is no obligation on the employer to offer a minimum number of hours’ work, or for the worker to accept them when they are offered. This is known as a mutuality of obligation.

Those on zero hours contracts are entitled to some statutory employment rights, including the national minimum wage and the statutory minimum level of paid annual leave. It is also illegal to require a worker on a zero hours contract to work only for one employer, so an exclusivity clause, if included in a worker’s contract, would be unenforceable.

Working on a zero hours contract means:

 

• They are on call to work when an employer needs them
• An employer does not have to give them work
• The worker is not compelled to do the work offered
• A worker is entitled to statutory holiday, and the national minimum wage
• An employer cannot prevent the worker looking for other work or accepting work from another employer
• An employer is responsible for the workers’ health and safety

 

Employing family

 

If family members are employed, an employer must:

 

• Avoid special or favourable treatment, in terms of pay, promotion, working hours or conditions.
• Ensure tax and NICs are paid.
• Follow working time regulations for younger family members – for example, the youngest age a child can work part-time is 13, although there is an exception in the areas of television, theatre or modelling.
• Find out whether they are eligible for a workplace pension, and if so make the necessary provisions.

 

Employing volunteers

 

An employer is responsible for:

 

• The volunteer’s health and safety
• Ensuring necessary induction and/or training is given in the tasks they are assigned

 

Employing young people

 

People who are over the age of 13 can be employed, but there are special rules about how long they can work and the jobs they can do. Once someone reaches the age of 18, they are classed as an “adult worker” and different rules apply.

As well as following the special rules, an employer must do a risk assessment before employing a young person.

Young people may also have certain employment rights, such as:

 

• Statutory maternity pay and ordinary statutory paternity pay providing they qualify as a result of their continuous employment
• Paid time off for study, exams, or training
• Redundancy pay
  Entitlement to receive the national minimum wage according to that prescribed by their age.

 

Need assistance?

 

DavidsonMorris are employment law specialists. We work with employers to support with compliant and effective workforce management through use of effective documentation to support different types of employment contracts and working arrangements. We provide advice on specific issues, or through our fixed-fee employment law advisory service Triple A, employers gain access to unlimited employment law advice for a low monthly fee. For expert employment advice, speak to us.