6 different types of employment contracts and when to use them.
Which employment contracts best suit your business needs? We explore several, including full-time, part-time, zero-hour, self-employment, fixed-term and agency.
When engaging workers in your business you will typically need to use an employment contract of some sort. The contract you use will vary depending on the circumstances, such as whether the worker is being employed within your core or contingency workforce.
These days employment contracts tend to be signed electronically using an HR System rather than in print as it’s faster, more practical, and more efficient. Here are 6 different types of employment contracts, with some guidance on when you might ordinarily use them.
1. Full-time or part-time contract for an undefined period
Even in an area of increased self-employment and casual work, the permanent full-time contract is still the most common type of employment contract you’ll see in an HR system. These contracts enable employers to exert much more control over workers than they can if they are self-employed or casual. In return for this increased control, the employees are granted more employment rights and entitlements.
Employees in the UK are entitled to have an employment contract on or before their first day of employment, a copy of which should be retained in your UK HR system, (for GDPR storage location compliance). The contract should include the main terms and conditions of employment, including working hours, job title, job description, entitlements, non-attendance procedures, benefits, disciplinary and grievance procedures, etc…
2. Zero hours contract
Zero-hours contracts, (also known as casual contracts) are to be used for ad-hoc or ‘piece work’, and when you really cannot predict the rate and frequency of work over a given period. According to ACAS, the typical occupations/situations where zero-hours contracts are used include: bank work (e.g., NHS), casual hours (e.g., students who only work during holidays), care work, delivery driving, gig economy work, hospitality work, and warehouse work.
A zero-hours contract has been associated with some bad PR in recent times. A recent poll from YouGov revealed that 64% of adults thought that “zero-hours contracts are normally a bad thing – they don’t provide any security, and all allow employees to exploit their employers”.
Despite the controversy around zero-hours contracts, if used appropriately and in line with the law they can offer a flexible workforce and flexible working benefits to both employer and employee respectively.
- They can be called to work as and when they are needed
- The employer does not have to give them work
- The workers do not have to accept work when asked
- Zeros hours workers are allowed to work elsewhere, and employers cannot prevent this or write a clause in a contract that bans this.
- Zero-hours workers are entitled to statutory annual leave
- Zero-hours workers should also be paid at least the National Minimum Wage
Even though they are flexible, these workers should still be recorded in your HR system.
3. Self-employment contract
A self-employed worker is not an employee of an organisation but works for themselves and you pay them gross without making tax deductions. You can’t prevent them from working for other businesses and they generally supply their own tools and equipment. You can hire and fire as needed, and they are not protected by employment law. They are usually highly skilled, and autonomous, offer specialised skills, and can be great additions to your contingency workforce. Self-employed can too be recorded in your HR system just like permanent employees.
4. Fixed-term contract
In the UK, fixed-term contract employees have nearly all the same rights and entitlement as permanent employees, and you have the same control over them. The main difference is that the relationship between employer and employee is for a defined period, agreed in advance. Fixed-term contracts are often used to cover workers on maternity leave, sabbaticals, or those working on projects or events with a definite endpoint.
Once an employee has been on a fixed-term contract for 2 years they inherit redundancy rights and the right to not be unfairly dismissed just like permanent employees. It’s worth putting a reminder of this date in your HR system.
Any employee on fixed-term contracts for 4 or more years will in most circumstances automatically become a permanent employee. Again, we’d recommend you put a 4-year reminder in your HR system to consult an HR professional on the potential maturation of these contracts.
5. Agency staff
Employers can hire temporary staff through agencies. This means you pay the agency, and the agency is required to ensure the employee is paid and gets their rights under working time regulations. After 12 weeks, agency workers, although still employed via the agency are entitled to the same rights as your permanent employees in your HR system. If you have limited HR and accounting resources, then agency staff are a great low-maintenance option.
6. Apprenticeship agreement
Apprentices who work for you must sign an apprenticeship agreement in addition to an employment contract. This apprenticeship agreement which should also be stored in your HR system must include details of:
- the skill, trade, or occupation the apprentice is being trained for
- the name of the apprenticeship they’re working towards
- the start and end dates for the apprenticeship
- the amount of training you’ll give them
Since the apprentice is typically being employed for a defined period, e.g., until they complete the apprenticeship it is customary to use a fixed-term employment contract.
Although there are quite a lot of contracts to choose from, in reality, permanent full-time or part-time contracts are the most commonly used contracts in the UK. However, the modern, dynamic world has led to the increasing usage of more flexible contracts such as freelance and zero hours to enable organisations to be agile and rapidly grow, change, and pivot if needed.