Business & Enterprise

Unit 3 / Session 2

Types of employment contracts

Once a job offer has been made and accepted, an employment contract will exist between the employer and the employee. This contract sets out the specific details of the employment – click the numbered icons below to reveal details included in a contract.

  1. The hours of work
  2. The duties that will be carried out
  3. The amount of money that will be paid for the work (this might be paid as a salary or as an hourly rate)
  4. Holiday allowance
  5. Sick pay
  6. Information relating to uniform or dress code
  7. Notice period – This is the length of time that employees must give if they want to resign from (leave) their job. This period of time enables the employer to find a replacement member of staff to fill the role.

The contract starts as soon as an offer of employment is accepted. Most employment contracts do not necessarily need to be in writing in order to be legally binding, but it is better if it is put in writing so that the agreement is documented and can be referred to if need be. Once a contract exists, it can only be changed with the agreement of both the employer and the employee.

There are many different types of contracts that may be offered to employees, depending on the nature of the business and the job role. Click through the slide panel below to explore some examples.

  • Permanent contracts

    These contracts are issued for any job that is offered on a permanent basis. This means that the job holder becomes a permanent member of staff and they will be employed by the company for an indefinite period of time (there is no fixed end date on the contract). Most full-time and part-time contracts are permanent contracts.

    There are a number of benefits associated with being a permanent member of staff, including:

    • Paid time off (whether for holiday, sick, parental or personal leave)
    • Opportunities for career development and advancement
    • Training and certifications
    • Long service leave entitlement
    • Job security and reliable monthly income
    • Contributions from the business towards pension schemes, sick pay, health care, etc

  • Full-time contracts

    These contracts are generally offered for permanent jobs. There is no set guidance for what constitutes ‘full-time’ work, but generally full-time workers will work five or more days (at least 35 hours per week), all year round. A full-time employee is entitled to at least 28 days’ paid holiday leave each year.

  • Part-time contracts

    This type of contract is also generally offered for permanent jobs, but they are for people who are contracted to work fewer hours than full-time employees. Someone working on a part-time basis may, for example, work three days per week. The part-time working hours/days that have been agreed between the employer and the employee should be stated clearly on the contract.

  • Temporary contracts

    Unlike a permanent contract, temporary contracts are issued when a business knows that a job role will only be offered for a set period of time. For example, someone joining a business to work for 9 months to cover for another member of staff who is taking maternity leave would be given a temporary contract – it would have a set start and end date.

    Fixed-term contracts are similar, in that they have a specified duration agreed in advance.

    Sometimes, temporary and fixed-term contracts may be extended (or converted to permanent contracts) if there is demand in the organisation.

  • Freelance contracts

    A freelance worker is someone who carries out work for a company, but they are not an employee of the company. A company may give someone a freelance contract to complete a one-off piece of work or to help with a specialist task – for example, to create a website or an app, to design a logo or to create a promotional video.

    A freelance contract will specify the work that the freelancer is expected to undertake and the period of time that this is expected to take (this could be days, weeks or months depending on the piece of work).

    The contract will create a formal agreement between the freelancer and the company; it will set out the standards and expectations that both parties are required to meet. For example:

    • It will outline what the freelancer and the company can expect during the period of the contract (such as how much the freelancer will be paid for the work, when the company will receive completed work, what level of quality is expected, etc).
    • It provides a useful reference in the event of any disagreements or if someone new joins the company and wants to know what has been agreed with a freelance worker.
    • It helps to keep the freelance work on track – the contract makes it clear for all parties to see the standard of work expected, timescales and deadlines.
    • It protects both parties – the freelancer can be secure that the contract will protect them and make sure they are paid for the work they complete, while the company has a record of what they can expect and when.

    Freelance work can give the freelancer a lot of flexibility – they can work for many companies on multiple projects at the same time, if time allows. They are also free to work in a way that suits them (in terms of hours and location) – they don’t have to fall in line with specific company policies, as they are not an employee of the company. However, the freelancer must adhere to deadlines and project requirements – if they don’t, they could breach their contract and they would be unlikely to receive future work from the company (which could reduce their income).

    Freelance contracts give the company flexibility to engage with a freelancer for a limited period of time, for a specific piece of work. If the project doesn’t quite go to plan, the company can simply choose not to use the freelancer again in future – they are not legally bound to continue the relationship. However, paying for freelance work can be more expensive if the company is paying for a specialist skill or piece of work – the freelancer will often have an hourly or daily rate of pay that they expect for the work they do.

  • Zero-hour contracts

    A zero-hour contract states that the employee only works when required to do so by the employer. This type of contract is also known as a casual contract. The employer does not have to pay the employee for a set amount of hours each week/month; they simply pay for the hours that are worked – if the employee doesn’t work any hours during a week/month, they are not paid anything.

    Zero-hour workers must be paid at least the National Minimum Wage for the hours that they do work.

    Employees on a zero-hour contract are not obliged to accept the work offered to them by the employer, and they are free to work other jobs at the same time – the contract does not restrict them from taking other employment, in the same way that a permanent employment contract would.

    This type of contract offers different pros and cons for both the employee and the employer.

    Pros:

    • The employer can end the employment contract without having to give any notice
    • These contracts give employers flexibility in terms of managing their employment costs (they are only paying for work that needs to be done)
    • These contracts give employees flexibility to work in a way that suits their needs and lifestyle

    Cons:

    • Employees are not entitled to sick or holiday pay
    • Employees can have their contract ended by their employer without any advance notice – they are out of a job without any warning!
    • Employees have no reliable or guaranteed source of regular income – this uncertainty makes managing finances difficult, as income is irregular and variable (they don’t know how many hours they are going to work, how much they are going to be paid, etc)
    • Zero-hour workers are typically paid less than permanent members of staff
    • The need to respond to a request to work at short notice can put extra pressure on employees, especially if they need to arrange childcare, etc
    • An employer may not have staff available when required – giving short notice of requirements means that staff may not be able to work when the employer needs them to
    • An employer offering zero-hour contracts may struggle to attract high quality staff, who know that they can probably secure better and more reliable employment elsewhere

  • Seasonal contracts

    If an organisation needs to take extra staff on in order to cover busy weeks/months of the year, they may employ them on a seasonal contract. For example, businesses such as supermarkets, bars and restaurants may boost its workforce by offering seasonal contracts to workers during particularly busy periods (such as Christmas).

Key point

Any employment contract is a legal agreement between the employer and the employee. If either party breaks any of the terms of the contract (for example, the employer doesn’t pay the employee’s wages, or the employee doesn’t work the agreed hours), then this constitutes a breach of contract. Initially, a breach in contract can be discussed between the employer and the employee, to see if a resolution can be reached. However, if there isn’t a way to resolve the breach, or the breach is particularly serious, then this may result in legal action being taken. This may involve making a claim through an Industrial Tribunal or a court of law.

On the web

You can read more about employment contracts here.