Employment contracts for new businesses

Recent news coverage of Uber and Deliveroo has shone a spotlight on the ‘gig economy’ and its use of self-employed contractors rather than full-time staff.

How should a new or growing business decide what type of contract to give staff and the employment status associated with each?

On 20 November 2017 the Work and Pensions Committee published a report which endorsed findings within Matthew Taylor’s recent Review of Modern Employment Practises that there is “an urgent and overwhelming case for increased clarity on employment status”.

The current employment framework means a person’s entitlement to employment rights is determined by their employment status:

  • Employee – entitled to a full range of employment rights;
  • Worker – entitled to a range but not all employment rights;
  • Self-employed – no entitlement to employment rights beyond basic health and safety and anti-discrimination framework.

    Anyone who is neither an employee nor a worker will be self-employed for employment law purposes.

    An employee will work to the terms specified within a contract of employment and carry out the work personally. A worker will also work to the terms specified within a contract of employment and will generally carry out the work personally however some workers may be entitled to send someone else to carry out the work. A self-employed person will run their own business and are more likely to be contracted to provide a service for a client.

    Providing new staff with a written statement of employment terms and rights on day one of a new job would help clarify what rights and entitlements are owed to them, but how should a business decide what those terms and rights should be?

    Firstly assess the work that needs completing. Is it a one off short term project that requires specialist expertise not found in-house? Is support needed to fill a temporary gap within the team or is it a permanent need due to business expansion or replacement of a worker who has recently left the business?

    The following information can be used to guide you on the requirements and entitlements owed under the different contract types:

    Full Time and Part Time Permanent Contracts

    Issuing employees with a full or part time contract allows them rights including holiday, rest breaks, SSP (Statutory Sick Pay) and certain types of other leave (maternity, paternity and adoption).

    The difference between full time and part time contracts comes down to the hours worked on a weekly / monthly basis, you can pro rata salary and holiday entitlements for a part time worker but you must not treat them unfavourably in comparison to a full time worker.

    These are permanent contracts which can be terminated by giving ‘notice’. Notice periods are usually specified within the contract but must be statutory at a minimum.

    Employers should give the employee one weeks’ notice if the employee has been employed for more than one month but for less than two years and two weeks’ notice if the employee has been employed by the employer continuously for two years plus one weeks’ notice for each further year of continuous service up to a maximum of 12 weeks.

    Employees must give their employer a minimum of one weeks’ notice once they have worked for one month, this does not change with length of service.

    Fixed Term Contracts

    Fixed term contracts are contracts that are specified to last for a certain length of time. This is usually set in advance with a specified end date. The contract will normally end automatically when it reaches the agreed end date, the employer doesn’t have to give any notice. However if the contract is terminated before its expiry date, the minimum amount of statutory notice should be given.

    Fixed term employees must receive the same treatment as full time permanent staff during the course of their contract of employment including holiday, rest breaks and pay. Holiday entitlement and pay should be pro-rated according to the length of the contract.

    Zero Hour Contracts

    Zero hour contracts are also called casual contracts. Under this type of contract, workers are on call when you need them, you don’t have to give them work and they also don’t have to do work when asked.

    They are entitled to annual leave and National Minimum Wage in the same way as permanent and fixed term workers.

    In most cases zero hour contracts mean that an employer recruits a ‘worker’. However, developments within the relationship may enhance the employment status to that of an ‘employee’, for example subjecting the worker to disciplinary procedures or punishing them in some way for not accepting all of the hours offered.

    Agency Staff

    Another option available to employers is to hire temporary staff through an agency. This means you pay the agency and the agency pays the staff. This option can be appealing when you need a quick turnaround and want flexibility, agencies will usually have a bank of staff available.

    After 12 weeks continuous employment in the same role, agency staff are entitled to receive the same terms and conditions as permanent employees in a comparable role. This includes pay, working hours, rest breaks and annual leave. You must also allow the use of shared facilities.

    Freelancers, consultants and contractors

    If you use one of these, they are self-employed or are part of other companies meaning they will look after their own tax and NI and will not necessarily be entitled to the same rights as workers. However, you are still responsible for their Health and Safety while carrying out work for you or on your premises.

    Many businesses turn to consultants for specialist expertise on a flexible, as needed basis. KentHR are specialist HR Consultants that will work with you in the way that you need, when you need us.

    KentHR can provide advice and guidance on contracts of employment, holiday pay, notice periods and other information mentioned in this article 01622 776445.

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