The Importance Contracts

The importance of contracts is often overlooked. A good employment contract is essential and beneficial to both the employee and the employer. It spells out:

  • the rights and obligations of each party,
  • protects the job security of the employee and
  • protects the employer from certain risks such as the release of confidential employer
  • information after the term of employment ends.

Some jurisdictions require employment contracts for certain positions.

This essential part of employment law is often neglected or underused. Particularly by busy, cash-strapped businesses.

In most businesses, employees are your business.  The business is therefore potentially liable for their actions. As such the employment contract needs to specify what is expected from the employees. If the employee does not adhere to the contract or policy, then they are at fault. But if there is no policy, then the liability may fall on the employer.

The right employment contract can save you thousands of pounds. Assuming that it is drafted in a way that’s specific to your company.


The importance of contracts for Employees

For employees, contracts are very important.

They will state many of the benefits to which they will be entitled to. They will also include the remuneration that they can expect to earn.


The importance of contracts for Employers

While contracts are certainly valuable for individuals, they can be just as essential to businesses.

There are a number of clauses that can be inserted into a contract in order to protect a business’s interests – such as:

  • prevent employees from setting up rival organisations,
  • guard against employees poaching your staff,
  • stop employees stealing valuable trade secrets and even
  • preclude employees from reclaiming accidental over payments.

Also, in the event of an employment tribunal, if a business is found to have not issued a complete contract then it could be fined up to a month’s pay.

employee contracts

Protect your business

A good employment contract will specify exactly what offenses can result in the termination of the employee.

This helps both parties, because it ensures that the employee knows which activities are required and which are forbidden, thus rendering a serious breach less likely.

The labour law of the particular jurisdiction should be consulted to ensure that the terms of the contract do not contradict any legal requirements.

Dispute resolution procedures will also be specified, and these will minimize the time and expense of a courtroom battle that neither party can afford.

Arbitration procedures often reduce time and expense, although appeals from arbitration decisions are typically difficult. Some jurisdictions require that employment disputes be brought to a special employment dispute resolution tribunal, in which case, no dispute resolution clause is necessary.

If an employee leaves their employment to work for a competitor restrictions need to be put in place. This ensures the business is not severely affected.

If it is not specified in the contract, you may be taking a risk if you decide to put someone on “gardening leave”, or pay them in lieu of notice, if your rights to do this are not detailed in the employment contract.


Clarity and avoids disputes

Even without anything written down, when an employee turns up for work and gets paid, there is a basic employment contract agreement between the two parties, whether it be written or just implied.

Without any written terms then either the statutory rights that are in place (which often benefit the employee), or oral agreements which can be open to interpretation, misunderstanding and scope creep (when you end up paying far more for work than initially intended).

Dealing with disputed oral terms can be, at best, time-consuming and at worst can also be financially costly.



By having a written contract which has been thought out, the business controls the terms of the employment, and can stipulate the requirements.

By offering a job with terms and conditions that you have considered and set down, you are not only presenting a professional image, but also setting the tone for the employment relationship and giving clear guidelines of what the employee can expect when working with you.

You can specify working hours, any overtime payments (or not), any requirement to travel and whether this will be reimbursed, the notice period you require from them, how much sick pay they can expect, how much holiday they are due, and when they can or cannot take holiday, amongst many other things.


It’s the law

Despite it being a legal obligation, many business owners think that it’s in their interests to delay giving an employee a contract, or not bothering at all. However, this article explains the importance of having employment contracts in place.

It is a legal requirement to have an employment contract in place within two months of taking on an employee. The benefits to both sides of having an employment contract are far greater than just ticking the box for the legal requirements.

It is often best to use any internet templates or old contracts with extreme caution. You often find that templates are not fit for purpose or tailored to your requirements.

This is a contractual agreement that you are putting in place between you and the employee. As such we recommend that you should consider taking professional advice.  At Simas Accounting & Tax we have professional contacts that can assist in this. We would be more than happy to discuss this with you.

Simas Accounting & Tax

employee contracts