Employment Types & Contracts

There are different types of employment agreements, all of which are have legal requirements. Not only this but contracts are very beneficial for both the employee and the employer. There are four main types of contracts that you can use to hire employees, these being permanent, freelance, self-employed and zero-hour contracts. Each of these contract types come with different benefits for your business, so it’s important to understand each of them properly.

What is an employment contract? 

A contract of employment is a legally binding document between an employer and an employee that outlines conditions and legal requirements of your employment, this usually includes but isn’t limited to responsibilities, benefits you could be entitled to and your salary amongst others. If any information changes throughout employment, an updated contract must be issued siting these changes.

Permanent 

This is probably the most common employment contract in the UK. The definition of a permanent contract is one that does not expire and will remain valid until either the employer or often the employee chooses to end the contract. If you’re looking for an employee who is working full time and on regular hours for your business, then this is the contract for you to use.
Full time permanent employees usually work between 35 and 40 hours per week while part time permanent employees will usually work under 35 hours per week. Permanent contracts also cover those people who are salaried or who work for an hourly rate and also entitles the employee to the full range of benefits and employment rights as well as their working hours, terms of payment and their responsibilities.
Advantages 
Disadvantages 
Dedicated team
More administrative work
Easier to plan out future
Increased liability
Potentially higher costs if you offer benefits

Freelance 

If you’re looking to hire freelancers or people who you only need for a set period of time, then you’ll be looking to hire someone on a fixed term contract. Freelancers are ideal if you need temporary and want to avoid potential issues such as training, hiring and employee benefits. Freelance workers frequently work for more than one company at a time although individual contracts may specify sole employment for a time period agreed upon.
Advantages 
Disadvantages 
Cost
Lack of understanding your business
Usually quick and easy to find
Can not invest in freelancers eg. training
Knowledgeable with experience
Uncertain quality of work

Self-employed 

Although freelancers are considered to be self-employed, they offer their services under contract for other people. In the UK, being self-employed is a person working for themselves and often running their own business as a sole trader or as part of a partnership or limited company. Employing self-employed people to work for your business is like hiring freelancers and comes with the same advantages and disadvantages.

Zero hour contract 

Zero hour contracts is a non-legal term which is used to describe different types of casual agreements between an employer and an individual. These are also known as casual contracts and are usually for ‘on call’ work or ‘piece work’ meaning that they are usually on call when you need them, however you are not contracted to give them work nor do they have to accept the work when offered and asked of them. Zero-hour contract workers are entitled to statutory employment rights, including paid annual leave, rest breaks, protection from discrimination and must also be paid at least the national minimum wage regardless of how many hours they work. Zero hour workers are also able to work elsewhere and they are by law able to ignore clauses in their contracts if it bans them from either looking for work or accepting work from another employers.
Appropriate use of zero hour contracts can include:
Seasonal work
New businesses
Special events
Advantages 
Disadvantages 
Easy access to workers when needed
Zero Hour Workers aren’t always available
No need to train new people
Likely high turnover
Lower costs than having permanent staff

What Should I get Legal Advice on as a Small Business Owner?

We’ve consulted our legal experts and complied the 5 areas of what the essentials are for business owners when it comes to legal compliance and safeguarding.  

There are other areas you may look into depending on your particular industry but this covers the fundamentals.

1. Intellectual Property (IP) protection 

Protecting your businesses intellectual property can come in many different forms and should be done as early as possible when setting up your venture. It’s also essential you check you’re not infringing on anyone else’s IP accidentally. Types of IP protection include:
Business name protection – when another business copies your name or has a similar name and / or branding to you, even if your company isn’t limited, this falls under common law and is called ‘Passing Off’. You can take action against the other business if you have prove they have caused you financial lose.
Limited Formations – by forming a limited company no one can form a limited company with the exact same name as you after you have registered. However they can register a company with a very similar name, still causing confusion with customers and therefore you can take out business name protection for your limited company to assist you in this case.
Trade marks – can be words, names, initials, logos, monograms, shapes or signatures, numerals and designs customers associate with your business.
Watching services – these are conducted once you have taken out a trade mark and contest any new trade mark applications that may infringe on your registered mark. Without a watching service your trade mark may become compromised and end up invalid.
Registered design – protects the appearance, physical shape, configuration and the decoration of products whereas trade mark registration protects the names of your products or brands.
National Business Register, as part of Start.biz, offers services that cover all of the above. We have more than 35 years experience protecting businesses and brands. Click on each service to apply or contact us today for advice.

2. HR 

Setting clear guidelines and rules between yourself and any employees from the out set will help keep you both on the same page. Please note the below is based on an employer/employee PAYE agreement, not when instructing freelancers, contracts, sub-contractors etc. We will cover those separately.
This process will not only manages expectations, on both sides, but can legally protect you in the future. You’re wording and ethos should be consistent throughout these documents alongside adhering to statutory employment law. You can find templates for most of these documents online, and some of them are free, we’ve liked to a few sites for you. Alternatively you can hire HR freelancers to help you set everything up or advise on a particular issue.
Job Description – this can be written for advertising the role you’re employing for but the internal one will be more detailed. When writing this to attract applicants you may keep it top line and add some extras about company ethos however the internal job description will go into a lot more depth about the role and not include things like the applicant must love dogs or make an amazing cup of tea!
Offer Letter – this should clearly state title of the role, company name, salary or pay, bonus scheme if applicable, basic holiday allowance, required start date and notice period. This should be sent as soon as the decision has been made to employee an individual.
Employment Contract – this should be drawn up and given to the employee whilst they are waiting to start with you or on their first day. It’s good practice to let them have a few days to read through it and discuss any questions. This is where you need to make sure you are compliant with the law so having a template and doing a little bit of research is good.
Disciplinaries / settlement agreements – these should be covered in the above but we wanted to mention them separately as they are important. Of course, you don’t want to think the worst and wouldn’t employ someone you thought you would have disagreements with but it happens. Having clear steps set up for bringing grievances and disciplinaries will make awkward situations easier to navigate. Also informing the employee and knowing the law when it comes to letting people go is essential.
Company handbook – this is where you can go into more detail about your policies and terms within the contract.
Template resources – 

3. Shareholder agreements comprising of Shareholders Agreements, Memorandum and Articles of Association 

This is clearly setting out what each partner can and can’t do. Again, like when employing someone, you wouldn’t go into business with someone that you envision having problems with but having clear guidelines make situations easier to navigate for everyone. There are many subjects that can be covered in these agreements, some examples are:
Perimeters of how you value shares.
Permissions on spends. For example, one shareholder can’t spend £15,000 of the businesses money without it being signed off with the other shareholders.
What happens when sell business, also what happens when one of you wants out.
On top of the headache of trying to negotiate when in a tense situation, if you don’t have a shareholders agreement it may cause problems when selling to someone else, they may even ask for one to be drawn up. If you go through formation agent, you’ll get standard memorandum and articles but a shareholders agreement is a bespoke piece that you can go more into detail.

4. Business Documents – Terms and Conditions (T&C’s), Privacy Policy, Partner Agreements 

All of the above have been focused on internal affairs of the business but now it’s time to think about your customers.
Terms and conditions – are obviously really important, especially if you are a sole trader providing service. We don’t recommend writing a get out of jail free clause for everything but be honest about the limitations of the service or product your providing. Keep it in plain language and reasonable; this will help with customer disagreements. A rule book of what you are providing so you and the customer are on the same page.
Privacy/cookie policy – it’s important if you store any customer information you have a privacy policy on your website. Standard templates are easy to download and need to be displayed where users can easily find them. They also need to include a clear way to contact you.
Partner agreements – if you want to set up networks, referrals, kick-backs, commercial arrangements you will need partner agreements. These are pretty straightforward and not everyone will ask for one however we advise drawing up a short agreement for both parties to sign so everyone is on the same page.

5. Buying and Selling Businesses 

If you’re not setting up your own business but rather buying one, you will have to cover the above but what about the legal element of the buying / selling process? Best practice includes:
Offer Letter – this is the ‘heads of terms’, it should include the top line details of the transaction and shows your serious intent to buy the business.
Due Diligence – this is when you get into the business to find the skeletons! Share holder agreements, current employment contracts, T&C’s, the money structure of the business will all be gone through.
SPA (Sale and Purchase Agreement) – this is the most detailed, legally binding document that is agreeing to the transaction, once this is signed the sale in final.