Are your employees on the right contracts?

As employment relationships evolve, it can be difficult for Employers to determine employment relationships within their Organisations. Nevertheless, Employers have a responsibility to ensure the employment contract accurately reflects the relationship between the two parties.  In this article, Laura Gillespie, Think People Consulting Ltd, explores the different types of contracts of employment that Employers can utilise.

What do you mean by a Contract of Employment? 

At its simplest, the contract of employment is a legally binding agreement between an Employer and its employees. It begins as soon as the employment relationship begins. The agreement can be bound in a multiplicity of ways, such as a verbal agreement, an employee handbook and or an offer letter but, a written contract setting out employment rights, roles and responsibilities is the best way to formulate this agreement.  

What is the legal stance? 

An Employer has a legal duty to provide all employees with a written statement of employment particulars within two months of commencing employment. A written statement of employment particulars should be incorporated into contracts alongside implied terms, statutory terms, and custom and practice terms.

Save the legal rationale, a contract can manage expectations by outlining the roles and responsibilities of the Employer and the employee. Contracts can help avoid misunderstandings and disputes in the workplace by clarifying the business relationships, agreements and rights of both parties.

Employment Statuses in Northern Ireland? 

Northern Ireland recognises three employment statuses which are an employee, a worker and self-employed. The contracts to facilitate these employment statuses are; permanent contract, fixed-term contract, zero hour contracts, and contract for services. It is imperative that Employers identify the employment status before providing an individual with a contract. As reflected in the UK Employment Appeals Tribunal in Pulse Healthcare Ltd v Carewatch Care Services Ltd & Ors (2012), contracts must always reflect the true nature of the workforce.

What are the types of Contracts?

1. Permanent Employment Contracts 

Most of us are familiar with a permanent contract. The standard permanent employment contract has acted as the predominant model for employment. As the name implies, a permanent contract applies to employees employed permanently and pays a salary or hourly rate. The contact can apply to both a full time and a part time employees. Those employed on permanent contracts are entitled to all statutory employment rights.

2. Fixed-term Contract 

A fixed-term contract applies to employees that are employed for a fixed time or a temporary basis. Fixed-term contracts will have a start date and an end date. Employees may be hired on a fixed- term contract to cover project work, help meet work demands or to cover maternity or sick leave. While it is possible to extend a fixed-term contract, fixed-term contracts should not be extended for more than four years, as at this stage, the employee will legally become a permanent employee regardless of the contract in place. An employee on a fixed-term contract will be entitled to the same statutory rights as an employee on a permanent contract.

3. Zero-Hours Contract

Recent research has found that 2.3% of the UK are on zero-hour contracts and this number is on the rise. While there is no legal definition of a zero-hour contract in Northern Ireland, a zero hour contract refers to an employment relationship based on casual arrangements, in which the Employer is not obliged to give the individual minimum working hours, and the individual is under no obligation to accept the work. A zero hour contract is used for ‘casual working’ in situations where there can be no guarantee of hours and hours can fluctuate quite sporadically.

In most cases, an individual on a zero-hour contract will be a worker and this is typified by there being no mutuality of obligation between the Employer and the Individual. A worker will be afforded some employment rights but not the same employment rights as an employee.

It is important for Employers to carefully consider the status of individuals before issuing a zero-hour contract. If an individual works similar shifts over a duration of time, a zero-hour contract will not reflect their nature of work, and they should be issued with a contract that reflects the working relationship.  

4. Contract for Services

A contract for services relates to a self-employed individual; the service provider is not an employee. A contract for services indicates there is no employment relationship. However, an organisation needs to assess and consider whether an individual is truly self-employed and not an employee - as when disputes arise, the distinction can become unclear. When this happens, it often falls on an Industrial Tribunal to determine the employment status. 

What do I do next?

This process does not end after issuing contracts. Employers must always ensure contracts are up to date and reflect the employment relationship and current legislation. Whilst this is a time-consuming task, it is pivotal in mitigating disputes.