How to write an employment contract for your business

An employment contract is a must when hiring staff for your team, no matter how big or small your business is.

After all, it sets clear expectations, outlines the role responsibilities, and protects both you and your employees legally.

But while a good payroll software can take care of the numbers, actually writing the contract itself can be tricky as it needs to cover the right legal details, set clear terms and make sure both sides are protected.

In this article, we’ll cover the essential steps of writing a strong employment contract, the types of employment contracts you can write and the best practices, as well as looking at common mistakes to avoid.

What is an employment contract?

An employment contract is a legally binding agreement between an employer and employee that sets out the terms and conditions of the working relationship. This includes:

• The responsibilities of the role
• Pay rate and frequency of pay
• Expected working hours
• Company benefits (e.g. annual leave and sick leave)
• Workplace pensions and notice periods

Having an employment contract is essential for specifying the expectations and responsibilities of an employee, ensuring both parties understand their rights and obligations from the start. 

Moreover, they help prevent disputes (such as going to an employment tribunal), ensure compliance with employment laws and protect both parties if disagreements arise.

What types of employment contracts are there?

There are 10 common types of employment contracts in the UK — each with different terms and conditions around hours, duration, pay and employee rights. 

Here’s a breakdown of what they are and what they include:

• Permanent contract: the most common type of employment contract that lasts for an indefinite period (until the employee resigns or is terminated).
• Fixed-term contract: usually lasts for a predetermined length of time (e.g. 15 months) and is often used to cover other employees on long-term leave, such as sabbatical leave or maternity leave.
• Full-time contract: an employee works the standard number of hours set by their employer — typically around 35-40 per week. 
• Part-time contract: an employment agreement where an employee works fewer hours than a full-time employee (usually less than 35 hours per week).
• Zero-hour contract: the employer doesn’t guarantee a minimum number of working hours to the employee, meaning the employee’s income isn’t guaranteed, and they are not obliged to accept work when it’s available.
• Internship contract: an agreement between an employer and intern that sets out the terms of a temporary work placement — usually designed to give the intern hands-on experience in a particular field.
• Apprenticeship contract: outlines the terms of the apprenticeship, including the duration, pay and the specific training that will be provided.
• Freelance/contractor agreement: a contract between a business and a self-employed individual that outlines what work will be done, deadlines, deliverables and payment terms.
• Director’s agreement: a formal agreement between a limited company and one of its directors, outlining the terms of their role, responsibilities and compensation.
• Founders’ contract (founders’ agreement): a legal agreement between the co-founders of a startup that details their roles, responsibilities and ownership stakes in the business.

7 steps to writing an employment contract

A well-structured employment contract is a crucial part of building a professional relationship with your employees. As well as giving the employee a clear understanding of the role and responsibilities, it also protects both you and your staff by ensuring compliance with employment law.

Below are the key elements you should include in your contract, so that you can create one that’s clear, fair and legally sound.

1. Name your contract

You should give your contract a title so that the person you’re hiring understands what it is. 

Something simple like “Employment Contract”, “Contract of Employment”, “Freelance Agreement” or “Internship Agreement” will do — as long as the employee or contractor immediately knows what the document is about.

2. Identify relevant parties

Employment contracts usually start with which parties are entering into the contract, which is typically the employer (the company or organisation) and the employee. 

This section should also include the full legal names and addresses of both parties, and the start date of employment. This will make it clear exactly who is bound by the terms and from when.

3. Outline the working conditions

This part of the contract should include the main place of work (and noting that it may be subject to change), defining the hours and days of work (including any overtime), and details of the probationary period (e.g. its length and conditions).

It should also cover any flexible working arrangements and remote work options, as well as how changes to hours or location will be communicated and agreed upon. This will help set clear expectations and avoid misunderstandings later on.

4. Describe the role responsibilities

Here, you’ll need to outline the job responsibilities so that the employee understands what’s expected of them. 

You should clearly list key tasks, duties and reporting lines. You could also include performance expectations, targets or any specific standards the employee needs to meet. 

Some companies go further by assigning responsibility percentages to each task. For example, a marketing coordinator’s contract might be:

• 50% managing social media campaigns
• 30% creating content
• 20% analysing performance metrics

Doing this will make it clear to the employee where they should focus most of their time and effort.

5. Specify compensation and benefits

Next, you should list the benefits your company offers and the salary your employee will receive. 

You should clearly outline the rate of pay and how often it will be paid (e.g. monthly), annual leave entitlement (including public holidays) and any additional perks, such as pension contributions, bonus schemes, health insurance or flexible working options. 

6. Include sections on termination and other terms

The contract should state the notice period required for when an employee wishes to resign, as well as the notice period the employer must give if terminating employment.

This section should also outline conditions of early termination, such as pay in lieu of notice or obligations during the notice period. This will help ensure that both parties understand their responsibilities if the employment comes to an end.

7. Review and finalise the contract

Once you have the contract written up, thoroughly review its content to look for any spelling or grammatical errors and ensure it complies with employment laws (this is where a legal professional steps in, if needed).

Additionally, make sure to double-check that all the key information is included, such as job responsibilities, working hours, pay, benefits, probationary period and notice period.

Also, make sure to include a section at the end where both you and the employee can sign and date the contract, confirming that both parties have read, understood and agreed to the terms. 

Conclusion

All in all, employment contracts are crucial for establishing terms with an employee and protecting both parties, legally. They also prevent misunderstandings and disputes by giving the employee a clear understanding of their rights, responsibilities and expectations.

It’s important to take the time to create a well-structured contract, as this shows professionalism and helps build trust from day one. That way, everyone starts on the same page, and you’ll have a smooth and compliant recruitment process.

And, if you’re ever unsure about the wording or legal requirements, getting professional legal advice can give you peace of mind that your contract covers everything it should.