Different types of employment contract

Standard employment contracts

Full-Time Contracts

A full-time contract is the most traditional form of employment, where an employee works a set number of hours per week, typically between 35 and 40. Full-time employees are entitled to statutory benefits such as paid holiday, sick leave, workplace pensions, and redundancy rights. This type of contract provides job security for employees while offering stability for employers who require consistent staffing. Full-time contracts are ideal for core roles within a business that require ongoing commitment and responsibility.

Part-Time Contracts

Part-time contracts work similarly to full-time ones, but with fewer weekly hours. Employees on part-time contracts receive the same legal rights as full-time workers, including paid holiday and pension contributions, but on a pro-rata basis. This type of contract is particularly useful for businesses that need staffing at peak times but not full-time coverage. It also offers flexibility for workers, making it an attractive option for parents, students, or those seeking work-life balance.

Fixed-Term Contracts

A fixed-term contract is used when an employee is needed for a specific period, such as six months or a year. This could be to cover maternity leave, complete a particular project, or manage seasonal demand. Employees on fixed-term contracts have the same rights as permanent employees, including protection against unfair dismissal after two years of service. It’s a great way for businesses to fill temporary skill gaps without the long-term commitment of a permanent hire.

Zero-Hours Contracts

Zero-hours contracts allow businesses to hire staff without guaranteeing them a set number of hours. Instead, employees are offered work as and when needed. They have the right to refuse work without penalty, and they are entitled to holiday pay and other statutory rights. This type of contract is popular in industries with fluctuating demand, such as hospitality and retail. However, businesses must ensure fair treatment of zero-hours workers to maintain good working relationships and avoid potential legal issues.

Apprentice Contracts

An apprentice contract is designed for employees who are combining work with structured training. Apprentices are paid in line with the national apprentice wage and must receive formal training as part of their employment. This contract benefits businesses looking to develop talent from the ground up, providing skilled employees who understand company processes and culture. While apprentices require investment in training, they can become valuable long-term assets to the business.

Contracts for self-employed staff

Self-employed workers, such as freelancers and consultants, operate differently from employees. They manage their own tax and National Insurance contributions and are not entitled to standard employee benefits. Hiring self-employed staff can be a cost-effective way for small businesses to access specialist skills without long-term commitments.

However, it’s essential to clearly define the terms of engagement in a written contract to avoid any confusion about employment status. Misclassifying a self-employed worker as an employee can lead to legal and tax complications.

Agency contracts

When hiring through an agency, the agency itself is the employer, not your business. This means the agency handles pay, contracts, and certain legal responsibilities. Agency workers are entitled to basic employment rights, and after 12 weeks in the same role, they gain additional protections, such as equal pay to permanent staff.

Using agency contracts is a flexible way to fill short-term staffing needs, particularly during busy periods, but can sometimes be more expensive than hiring directly.

Contracts for casual workers

Casual workers are employed on an ad-hoc basis, often with no set hours or guaranteed work. This type of contract is similar to zero-hours contracts but is usually more informal. Casual workers are entitled to basic employment rights, including holiday pay, but may not have the same level of job security as contracted employees. Businesses that require staff for occasional events, seasonal peaks, or irregular work may find casual contracts to be a practical solution. However, it’s important to ensure workers understand the nature of their employment to avoid disputes.

Choosing the right contract for your business

Selecting the right employment contract depends on several factors, including the level of commitment required, budget constraints, and legal responsibilities. Permanent contracts provide stability, whereas flexible contracts like zero-hours or self-employment agreements offer adaptability.

Small businesses should also be mindful of employment law and ensure all contracts comply with UK regulations. A well-structured contract can prevent misunderstandings, protect your business, and create positive working relationships. Seeking legal advice when drafting employment contracts can be a valuable investment in avoiding future issues.

Other considerations for employers

Offering the right contract is only one part of hiring staff—there are several other important considerations that small business owners should keep in mind to stay compliant and create a positive working environment.

Written Statement of Employment

By law, all employees and workers are entitled to a written statement of employment particulars on or before their first day. This isn’t the full contract, but it outlines key terms such as pay, working hours, and holiday entitlement. Ensuring this is provided on time is a legal requirement and helps set clear expectations from the start.

Right to Work Checks

Before employment begins, employers must confirm that the individual has the legal right to work in the UK. This applies to all staff, regardless of nationality, and failure to do so can result in hefty fines.

Pay and Minimum Wage

It’s essential to ensure that all workers are paid at least the National Minimum Wage or National Living Wage, depending on their age and employment status. Regularly reviewing pay in line with government updates helps ensure ongoing compliance.

Pension Enrolment

Most employees must be automatically enrolled in a workplace pension scheme if they meet the criteria (age and earnings thresholds). As an employer, you’ll need to make contributions to their pension unless they choose to opt out.

Health and Safety

Even in small businesses, employers have a duty to provide a safe working environment. This includes carrying out risk assessments, offering training where needed, and putting in place relevant health and safety policies, especially important if staff are working with equipment or in physical roles.

Policies and Procedures

Having clear workplace policies—such as grievance procedures, disciplinary processes, and equal opportunities policies—can help you manage your team fairly and consistently. While not all are legally required, they provide useful frameworks for handling workplace issues.

Employers’ Liability Insurance

If you employ one or more members of staff, you are legally required to have Employers’ Liability Insurance. This protects your business by covering claims if an employee is injured or becomes ill as a result of their work. The minimum level of cover is £5 million, and you could face fines if you don’t have a valid policy in place.

In summary…

Understanding the different types of employment contracts can help small businesses build a strong and flexible workforce while remaining legally compliant. Whether you’re hiring full-time staff, freelancers, or temporary workers, selecting the right contract ensures clarity and fairness for both employer and employee.

As employment laws evolve, it’s worth reviewing your contracts regularly to ensure they meet current legal standards. For further guidance, you can refer to UK government resources on employment law.

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*Disclaimer – This blog has been created as general information and should not be taken as advice. Make sure you have the correct level of insurance for your requirements and always review policy documentation. Information is factually accurate at the time of publishing but may have become out of date.