Contracts of Employment: A UK Small Business Guide

"Terry's my mate, he doesn't need a contract"

Famous last words, and the reason a contract of employment matters more than most small business owners think.

Every small business owner has a Terry. The trusted pair of hands you have known for years, who started "just helping out" and somehow became a fixture. No paperwork, no fuss, all very friendly. Then one day you fall out, or Terry works out his hours have been all over the place, and suddenly "we never needed anything in writing" becomes a very expensive sentence.

Here is the good news. Getting contracts right is one of the cheapest, simplest pieces of HR housekeeping a small business can do. Most owners just put it off because it feels formal and a bit awkward. Let's make it simple.

Quick Answer Box

• Do this: give every employee AND worker a written statement of employment particulars on or before their first day. It is a day-one legal right.
• Avoid this: relying on a verbal "we both know the deal", or copying a template you have never actually read.
• Write down: the core terms (names, start date, pay, hours, holiday, place of work, job title, notice, probation) plus the clauses that protect your business (confidentiality, and any restrictions).

Do I actually need a contract of employment?

Yes, and the law is clearer than most people think.

Since 6 April 2020, every employee and worker must be given a written statement of employment particulars on or before the day they start work. This comes from section 1 of the Employment Rights Act 1996, which was tightened up in 2020. You can read the basics on the gov.uk employment contracts page.

Two things trip small businesses up here.

• It is a day-one right. The old rule that let you wait up to two months has gone. The core terms must be ready before someone starts, not "sometime in their first few weeks".
• It applies to workers, not just employees. So your casual bar staff, your zero-hours weekend cover, your occasional helper, if they count as workers, they need a written statement too. Not sure whether someone is an employee, a worker or genuinely self-employed? That distinction matters for tax and rights, and the Acas guidance on employment status is a good place to start.

Contract vs written statement: what's the difference?

People use "contract" and "written statement" as if they mean the same thing. They overlap, but they are not identical.

• A contract of employment is the whole agreement between you and the worker. It exists the moment someone accepts your job offer, even if not a word is written down. It includes things you both said, things you implied, and things the law reads in automatically.
• The written statement of particulars is the legal minimum you must put in writing. It is a defined list of terms the law says you have to set out.

In practice, most small businesses sensibly roll the two together into one document: a written contract that includes everything the statement must contain, plus the extra protective clauses we will get to. That way everything lives in one place and nobody is hunting through emails to work out what was agreed.

What the written statement must include?

The statement has to cover a defined list. The main items are:

• the names of the employer and the worker
• the start date (and, for continuous employment, any earlier date that counts)
• pay, how it is calculated, and how often it is paid
• hours of work, including which days and whether hours or days vary
• holiday entitlement and holiday pay, set out so the amount can be worked out
• the job title or a brief description of the work
• the place of work (or that the role involves working in different places)
• the length of notice each side must give
• how long the job is expected to last if it is fixed-term or temporary
• any probation period, including its length and conditions
• any benefits (not just pay), such as bonuses or perks
• any entitlement to paid training, and any training the worker must do but you will not pay for
• where to find the disciplinary and grievance procedures

A few of these can follow within two months of the start date (for example pensions and collective agreements), but the core terms must be in the day-one statement. The full required list is set out on gov.uk.

Implied terms: the bits nobody writes down

Even with a perfect written contract, the law reads in some terms automatically. These "implied terms" exist whether you mention them or not: a duty of mutual trust and confidence, a duty on you to provide a reasonably safe place of work, and a duty on the worker to do the job with reasonable care and follow lawful, reasonable instructions.

You cannot write these away. What a good contract does is sit on top of them, adding clarity and the specific protections your business needs.

The clauses that actually protect your business

This is where contracts earn their keep, and where DIY versions usually fall short. The legal minimum protects the worker. These clauses protect you.

• Probation period. Lets you assess a new hire properly, often with a shorter notice period during the trial. Note that the upcoming Employment Rights Act 2025 is expected to change unfair dismissal into a day-one right with a "statutory probation" framework, so this area is changing. Treat any reform as expected, not yet in force, and keep an eye on it.
• Notice periods. Set clear notice on both sides so you are not left exposed if someone walks out, and so you are not accused of dismissing without proper notice.
• Confidentiality. Protects client lists, pricing, supplier terms and anything commercially sensitive, during and after employment.
• Restrictive covenants. Clauses that stop a leaver poaching your clients or staff, or setting up in direct competition for a limited period. These are only enforceable if they are reasonable and go no further than needed to protect a genuine business interest. An over-broad "you can never work in this town again" clause will not hold up, so these need drafting with care.
• Intellectual property. Confirms that work created on your time belongs to the business.
• Deductions. A written agreement allowing lawful deductions (for example, recovering an overpayment or a training cost) is far safer than springing it on someone.

If restrictions matter to you, like in a sales business or a consultancy, this is exactly the sort of thing worth getting a professional eye on. A clause that is too greedy is simply unenforceable, which means no protection at all.

A simple step-by-step for getting it sorted

1. List everyone who works for you. Employees, workers, casuals, the lot. Do not assume "self-employed" without checking.

2. Check who already has written terms. You will often find gaps, especially with long-serving staff who started informally.

3. Decide employment status for anyone unclear. Use the Acas status guidance and take advice if it is genuinely borderline.

4. Use a solid, tailored template that covers the full statutory list plus your protective clauses, not a random download. Match it to each role: hours, pay, place of work and any restrictions should reflect reality.

5. Issue on or before day one. Get it signed, keep a copy, and diarise a reminder so new starters never slip through.

6. Review when things change. A pay rise, a promotion or a change of duties is the moment to update terms, in writing.

Common mistakes small businesses make

• Waiting until "things settle down." The statement is a day-one right. There is no settling-in grace period any more.
• Forgetting workers. Casual and zero-hours staff are usually workers and need a written statement too.
• Treating a verbal agreement as enough. It is binding, but you cannot prove the terms when it matters.
• Copying a template without reading it. A contract that contradicts how you actually operate can be worse than nothing.
• Letting terms drift. Promotions, pay rises and new duties that never make it into writing create exactly the disputes you were trying to avoid.
• Over-egging restrictive covenants. Too broad means unenforceable. You get the awkwardness with none of the protection.

What the law says if you get it wrong?

There is no instant fine for not issuing a written statement. The risk shows up later, and it is twofold.

First, the practical cost. Without written terms, almost every dispute becomes a "he said, she said." Notice, pay, hours, holiday, you are arguing from memory, and that is a weak place to defend a claim from.

Second, the tribunal cost. If a worker brings a separate successful claim (say for unfair dismissal or unpaid wages) and you never gave them a written statement, the tribunal can add an award on top for the missing statement. It is not a standalone payout, but it stacks on to whatever else they win, and it signals to a tribunal that the basics were not in order. The general framework sits in the gov.uk employment contracts guidance.

A short manager script

If a long-serving member of staff has never had a contract and you are nervous about raising it, keep it light and positive:

> "I'm tidying up our paperwork so everyone's terms are clear and in writing. It's nothing to worry about, it just protects both of us and means there's no confusion about pay, hours or holiday. I'll get you a copy to read through, and we can have a quick chat if anything looks off."

No drama. Frame it as good housekeeping, because that is exactly what it is.

What to write down?

For every person who works for you, make sure you hold, in writing:

• their full written statement covering the statutory list above
• the role, hours and place of work as they actually are now
• notice periods and any probation terms
• confidentiality and any restrictions relevant to the role
• a signed and dated copy, stored securely
• a record of any later changes to terms, in writing

If it only lives in someone's memory or a two-year-old WhatsApp message, it does not really count.

Where this connects?

Contracts rarely sit on their own. The same conversation usually touches sick pay, disciplinary process and how you handle formal meetings. If you are reviewing terms, it is worth looking at your sick pay schemes at the same time, and making sure your team knows the basics of a fair process, like who can accompany an employee to a disciplinary meeting.

Our HR Protect service keeps your contracts, handbook and policies up to date and legally sound, so you are never the business scrambling for paperwork when something goes wrong. If you just need a quick sense-check on a specific contract question, the HR Advice Line is there for exactly that.

Right, what now?

If reading this has made you realise half your team has nothing in writing, or you are not sure your template still matches the law, that is genuinely the most common gap we find in small businesses.

It is exactly what we look at in an HR Health Check: what your contracts actually say, where the holes are, and what is quietly exposing you. Or if you would rather just talk it through first, book a discovery call and we will point you in the right direction.

Sort the paperwork now, while everyone is still friends. Terry will thank you for it.