When hiring a new employee, choosing the right type of employment contract is an important decision for any employer. The contract should reflect the nature of the role, the organisation’s business needs and the level of flexibility required, while ensuring that the employee receives the rights and protections they are entitled to. From permanent and fixed-term contracts to temporary agency and zero-hours arrangements, each type of contract has its own advantages and considerations. Selecting the wrong arrangement can create uncertainty and may expose an employer to legal or financial risks.
This article outlines the main types of employment contracts, when each may be appropriate and the key factors employers should consider when deciding which arrangement best suits a particular role.
What Do Employment Contracts Have to Cover?
An employment contract should clearly outline the key terms of the working relationship between an employer and employee. At the very least, it should explain what the employee is being hired to do, including their job title, core duties and responsibilities. It should also specify how much they will be paid, when they will receive their salary and whether they are entitled to bonuses, commission or other benefits.
The contract should set out working hours, including normal working days and any requirements for overtime or flexible working, as well as the workplace location, particularly where employees work remotely or across different sites.
Employers should also consider provisions that protect the business and clarify the parties’ legal rights. For instance, confidentiality clauses protect sensitive business or client information whilst termination provisions should address notice periods and any situations where employment may be terminated without notice. Where employees create work during their employment, intellectual property provisions can establish ownership of inventions, designs, written materials, software or other intellectual property created as part of their role.
Depending on the role and business, contracts may also need to cover issues such as holidays, sickness, pensions, disciplinary and grievance procedures, restrictive covenants and data protection. These terms must comply with relevant employment law and cannot remove statutory rights. A well-drafted contract provides clarity for both parties while protecting the employer’s legitimate interests.
Types of Employment Contracts
The appropriate contract will be determined by the nature of the role, the expected duration of employment, working hours and the employer’s business requirements. Employers should select an arrangement that accurately reflects the working relationship while providing the appropriate level of flexibility and protection.
Permanent Contracts
A permanent contract is an ongoing employment arrangement that does not have a specified end date. It is most commonly used where an employee is expected to have a long-term role within the business. Employment continues until either the employee resigns or the employer terminates the contract in accordance with the relevant termination provisions.
Permanent employees are generally entitled to the complete range of statutory employment rights, subject to eligibility requirements, including paid annual leave, statutory sick pay and applicable family-related rights. The contract should set out key terms such as salary, working hours, duties, place of work and notice periods, alongside appropriate provisions dealing with confidentiality, intellectual property, restrictive covenants and termination.
Fixed-Term Contracts
A fixed-term contract is used where employment is meant to last for a specified period or until a specific event takes place. This can be useful when hiring to cover maternity leave, addressing a temporary surge in workload or delivering a specific project.
Employers should clearly outline the length of the contract or circumstances that will bring it to an end and think about what will happen when the fixed term expires. Repeated use of fixed-term contracts can also give rise to additional legal considerations, so employers should review the arrangement where employment continues over an extended period.
Part-Time and Flexible Working
Flexible working can take various forms, allowing employers to tailor working arrangements around the needs of the business and its workforce. These arrangements do not necessarily constitute separate types of employment contract, but they can form part of the contractual terms agreed between an employer and employee.
Part-time working involves an employee working fewer hours than a comparable full-time employee. Generally, part-time employees should receive the same contractual and statutory treatment as full-time employees on a pro-rata basis, unless a valid justification for a difference exists.
Other options include compressed hours, where an employee completes their usual hours over fewer days, and job sharing, where two employees share the responsibilities of one full-time role. Employers may also agree flexible start and finish times or remote and hybrid working. It is essential that employers clearly document the agreed-upon working pattern, hours and place of work, as well as expectations around availability, confidentiality, data security and equipment.
Zero-Hours Contracts
A zero-hours contract does not usually guarantee a worker a minimum number of working hours, instead allowing work to be provided as and when it becomes available. This can offer flexibility where staffing needs fluctuate, but employers must ensure that the arrangement accurately reflects the true working relationship and that workers receive their applicable rights. A zero-hours contract describes the working-hours arrangement rather than a particular employment status; an individual may be an employee or worker depending on the circumstances.
Employers should also be mindful of the upcoming reforms under the Employment Rights Act 2025, which will establish new rights for qualifying workers on zero-hours and similar contracts concerning guaranteed hours, receive reasonable notice of shifts and receive a payment where shifts are cancelled, moved or curtailed at short notice. The detailed requirements are subject to regulations, and these rights are not yet in force. Employers using these arrangements should keep an eye on developments and review their contracts and working practices ahead of implementation.
Casual Contracts
Casual contracts can be used where an employer needs workers on an ad hoc or irregular basis, without committing to a regular pattern of work. They can be particularly for businesses with seasonal or fluctuating staffing requirements.
Unlike a zero-hours contract, a “casual contract” is not a specific type of contractual arrangement or employment status. It is commonly used to describe an informal or irregular working relationship, which may or may not involve a zero-hours arrangement. Depending on the circumstances, an individual may be an employee or a worker, with different employment rights applying to each status. Employers should ensure that the documentation reflects the reality of the relationship.
Temporary Agency Arrangements
Businesses may also meet short-term staffing needs through agency workers rather than employing individuals directly. The agency typically employs or engages the worker and supplies their services to the business. Agency workers have specific statutory protections, including certain rights relating to equal treatment after a qualifying period. Employers using agency workers should understand both their obligations towards those individuals and the terms of their agreement with the agency. Employers weighing up this option against other short-term arrangements may find it helpful to compare temporary and fixed-term contracts.
Apprenticeship Contracts
Apprentices are employed under a contract that combines paid employment with structured training. Apprentices can provide employers with an opportunity to develop talent while meeting specific skills requirements within the business. Apprentices have employment rights, but the contract and training arrangements must meet the applicable apprenticeship requirements. Employers should ensure that the role provides genuine training and follows the relevant apprenticeship framework or standard.
Choosing the Right Contract
There is no single contract suitable for every role. Employers should consider the practical requirements of the business alongside the individual’s employment status and applicable rights. Most importantly, the written contract should accurately reflect the reality of the working relationship. Employers should therefore review their contractual arrangements regularly, particularly where working practices or business needs change.
Other Contractual Arrangements
While the type of employment contract determines the nature of the working arrangement, employers may also use other contractual arrangements to define particular working relationships. It is important that the terminology and contractual terms accurately reflect the relationship in practice, particularly where individuals are engaged outside a traditional employment model.
Service contracts set out the terms on which an individual provides services to a business. Freelancers or independent contractors will typically provide their services under a contract for services, rather than a contract of employment. This distinction can affect employment rights, tax and other legal obligations. However, the terminology used in the contract does not determine status. This depends on the reality of the relationship and how the arrangement operates in practice. Employers should ensure that contractual documentation accurately reflects the working relationship and seek advice where status is unclear.
Important Points for All Types of Employment Contracts
Alongside choosing the right type of contract, employers should consider whether additional contractual provisions or specific rules apply. Certain clauses require careful drafting to ensure they are effective and enforceable, while particular groups of workers may benefit from additional legal protections.
Non-Compete Clauses
Non-compete clauses seek to restrict an employee from working for a competitor or setting up a competing business after their employment ends. However, restrictive covenants are generally enforceable only where they protect a legitimate business interest and go no further than reasonably necessary. Employers should consider the scope and duration of any non-compete clause carefully and tailor it to the individual’s role and the interests being protected.
Confidentiality
Confidentiality provisions can help protect commercially sensitive information, including business plans, pricing information, customer data, trade secrets and other proprietary information. Contracts should clearly identify the information employees must keep confidential and set out their obligations during and, where appropriate, after employment. Clauses should not prevent employees from exercising their legal rights or making protected disclosures.
Employing Family Members
Employing a family member does not remove the need to comply with employment law. Employers should ensure that family members are treated consistently with other employees and that their pay, working hours, holiday entitlement and other terms are clearly documented.
Particular care may be appropriate where a family member holds a senior or decision-making role, or where the arrangement could give rise to questions around conflicts of interest or employment status.
Employing Volunteers
Employers should take care when engaging volunteers, as volunteer status is not determined simply by the label given to the arrangement. Genuine volunteers generally do not have the same employment rights as employees, but employers should still consider their responsibilities, including:
- Providing appropriate supervision
- Maintaining a safe working environment
- Protecting volunteers from discrimination and harassment
- and complying with relevant health and safety requirements.
An arrangement that involves an obligation to perform work in return for payment or other benefits may create a different legal relationship. Employers should ensure that working practices do not inadvertently create an employment or worker relationship.
Employing Young People
Employers recruiting young people must comply with additional rules concerning working hours, rest breaks, health and safety and, depending on age and circumstances, minimum wage requirements. There are also restrictions on the hours and types of work that children and young workers can undertake. Employers should check the applicable requirements before employment begins and ensure that contracts and working practices reflect these protections.
Do Employers Have to Provide a Written Contract?
There is no general legal requirement for an employment contract itself to be in writing. An employment contract can arise from a verbal agreement, a job offer and acceptance, or the way the parties conduct their working relationship. However, this does not mean that employers can simply operate without providing written terms.
Under the Employment Rights Act 1996 employers must provide employees and workers with a written statement of employment particulars. The principal statement must be provided on or before the first day of employment and must set out key terms such as pay, working hours, holiday entitlement, place of work, job title or duties, start date and, where applicable, the duration of a fixed-term role and any probationary period. Certain additional information, including pension arrangements and disciplinary and grievance procedures, can be provided separately within two months of employment starting.
It is important to distinguish the written statement from the employment contract itself. The written statement summarises the main terms of the relationship, whereas the employment contract can also include other express and implied terms, such as confidentiality obligations, intellectual property provisions and workplace policies.
If an employer fails to provide the required written statement, an employee or worker may raise the issue with their employer and, ultimately, bring a claim to an employment tribunal. However, compensation for failing to provide a written statement is generally available where the individual succeeds in another employment claim. A tribunal may then award up to four weeks’ pay, subject to the statutory limit on a week’s pay.
For employers, the key point is therefore that while a written employment contract is not always legally required, written employment particulars are. Providing clear contractual terms from the outset can also reduce uncertainty and help prevent disputes about what was agreed.
When Should a Written Contract Be Used?
A written contract is particularly advisable where the employment relationship involves specific or complex terms that need to be clearly defined. This may include senior employees, employees with access to confidential information or intellectual property, roles involving restrictive covenants, or arrangements involving flexible working, bonuses or commission. It can also be beneficial where the employer needs to establish clear provisions about notice, termination and changes to the employee’s role.
For straightforward roles, an employer may not need a lengthy or highly bespoke written contract, so long as the required written statement of employment particulars is provided and the relevant terms are otherwise clear. However, the absence of a formal written contract does not mean that the parties have no contractual obligations, as terms may arise from verbal agreements, workplace policies, established practices and the parties’ conduct.
A fuller written contract can therefore provide greater certainty where there is a need to protect the employer’s legitimate business interests or clearly define more complex aspects of the employment relationship. It can help reduce the scope for disputes and ensure that both parties are aware of their respective rights and obligations from the outset.
Key Takeaways for Employers
Employment contracts provide an important foundation for the relationship between an employer and its workforce. Choosing the appropriate contractual arrangement and ensuring that key terms are clearly documented can help employers manage risk, protect legitimate business interests and provide greater certainty for both parties. As employment law continues to evolve, employers should also review their existing contracts and working practices to ensure they remain compliant and fit for purpose.
At Witan Solicitors, we advise employers on the preparation, review and implementation of employment contracts and related contractual arrangements. Whether you are taking on a new employee, engaging freelancers or contractors, or reviewing your existing workforce arrangements, our employment law team can provide practical advice that is tailored to your business. Contact us today on 0300 303 2071 or email us for more information or advice.
