A guide to permanent employment contracts

An employment contract is not just a legal requirement—it also plays a key role in attracting, motivating, and retaining the right people for your business. When preparing permanent employment contracts, it is important to balance compliance with commercial practicality. This guide outlines the key considerations.

Employers are legally required to provide employees with a written statement of employment particulars from day one. In practice, this is usually incorporated into a broader employment contract.

Your employment contract must communicate essential information required by law — that’s a minimum requirement.  Beyond that, you have the opportunity to include information that establishes a framework for the future working relationship between your business and individual employees.

This article describes scope and benefits of permanent employment contracts and briefly outlines the differences between them and other types of employment contract.

Permanent employment contract meaning

Before preparing your contract, it’s important to understand the meaning of ‘permanent contract’ and recognise the difference between permanent and other types of employment contract.

There are three main types of contract that reflect the employment status of different employees:

• Permanent contracts – These apply to employees engaged on an ongoing basis with no fixed end date. Employment can still be terminated by either party in accordance with the contract terms and statutory rights.

• Part-time contracts – These apply to employees who work fewer hours than full-time staff but are otherwise employed on a permanent basis.

• Fixed-term contracts – These are used where employment is for a defined period, such as to complete a project, meet seasonal demand, or provide temporary cover.

Why offer permanent employment contracts?

A permanent employment contract is a legal document that you are required to provide to any employees that have permanent employment status.

The contract ensures that both parties understand their rights under employment law by covering all the terms of employment between you and your employees.

It also helps ensure compliance with the Employment Rights Act 1996 and related legislation.

By offering a permanent employment contract, you are offering your employees a degree of certainty and security. At the same time, you are improving long-term business continuity through access to a permanent workforce.

Including permanent employment contracts as well as other types of contract gives you the opportunity to build a more flexible employment strategy that helps meet long-term business goals as well as dealing with short-term contingencies or changes in demand.

Related: A List Of Key Points Of Legislation That Affect Employers In A Business Environment

Related: What is the difference between an employee and a contractor?

Scope of permanent employment contracts

A permanent employment contract must include all the terms set out in the Employment Rights Act 1996, in addition to other information relevant to your business. The contract can be broken down into a number of different sections, which are outlined below.

Preliminary content

This section introduces the contract and covers the general terms of employment. It should include:

• Name of the business and the employee

• Commencement date for the employment

• Location of the workplace

• Expectations for essential business travel

• Normal hours of work

• Flexible and home working arrangements

• Remote and flexible working arrangements

• Requirement for the employee to demonstrate their right to work in the UK in line with Home Office regulations

• Restrictions on holding other employment or outside business interests

• Disciplinary procedures

Job description

This is the most detailed and specific section of the contract. It should cover:

• Job title

• Main duties and responsibilities

• Reporting lines

• Performance review procedures

• Requirements to take on additional duties to meet changing business needs

Pay and expenses

In this section, you provide the employee with information on their salary and any other payments. It should cover:

• Amount of annual salary

• Bonuses and supplementary payments

• Commission structure

• Payment timing and method

• Overtime payment

• Salary review process

• Payment of necessary business expenses

• Deductions for tax, National Insurance and pension contributions

Pensions and benefits

This section sets out the employee’s entitlement to non-salary benefits such as pensions or other ‘perks’. It should provide an explanation of:

• Participation in workplace pension scheme

• Contributions to other company pension schemes

• Summary of company-wide and individual employee benefits

• Taxation of employee benefits

Holiday and paid leave entitlement

In this section you set out the policies on holiday entitlement and paid leave, including:

• Annual holiday entitlement, including public holidays

• Payment for holidays

• Increase in holiday entitlement

• Carry-over of unused holidays

• Payment in lieu for unused holidays at the end of employment

• Paid leave for maternity/paternity absence and other scenarios

• Unpaid leave

Sickness absence

This section explains the employee’s rights and procedures to follow in the event of sickness. It should cover:

• Timelines for reporting sickness, including emergencies

• Self-certification for the first seven working days of sickness absence

• Requirements for a doctor’s certificate after seven days’ absence

• Requirements for medical examination for longer periods of absence

• Payment of Statutory Sick Pay (SSP)

• Absence due to injuries or illness caused by a third party

Related: How To Handle An Employee Off With Work Related Stress

Intellectual property

It’s essential to protect your company’s intellectual property. This section sets out the employee’s responsibilities for creating as well as protecting intellectual property, including:

• Employer’s ownership of intellectual property

• Employee’s responsibility for protecting the company’s intellectual property

• Employee’s duties for developing new intellectual property

• Employer’s ownership of any new intellectual property developed by employee

Confidentiality

• Definition and scope of confidential business information

• Employee’s access to confidential business information

• Employee’s responsibility for protecting confidential information and intellectual property

• Breaches of confidentiality

Data protection

This section outlines the employer’s responsibilities for processing and protecting the employee’s personal data, covering:

• Personal data held by the employer

• Use of employee’s personal data

• Company data protection policy

• Employer’s responsibilities under UK GDPR and the Data Protection Act 2018

• Employee’s responsibilities under the company’s data protection policy

• Transfer of employee’s data outside the UK

Grievance and disciplinary procedures

In the event of a breach of discipline or responsibility, it’s important that employees understand their rights and procedures, including:

• Disciplinary and grievance policies

• Disciplinary and grievance procedures

• Escalation of grievances

• Outcomes and resolution of grievances

Termination and notice periods

Either party can give notice of termination. This section explains the procedures and notice periods, including:

• Notifying termination in writing

• Notice period

• Options for payment in lieu of completing the notice period

• Termination for breaches of conduct or responsibilities

• Procedures for ‘garden leave’

Read More: Redundancy: how to avoid an unfair dismissal claim

Changes to the contract

Although a permanent employment contract is a long-term document, circumstances may require changes to the contract from time to time. This section sets out:

• Process for agreeing and implementing contractual changes

• Procedure for notifying changes

Related: Changes to written statement of employment particulars. What Employers need to know

Customising the contract

The previous section outlined the standard terms that should be included in the contract to maintain compliance with employment law. This can provide a useful template for company-wide permanent contracts. However, you can also include other information for individual employees that demonstrates you value their skills and services.

For example, this might include performance-related bonuses or other forms of incentive. You may decide to offer rewards for contributions to suggestion programmes or invite key employees to take part in employee share programmes. You can also offer selected employees ‘perks’ such as a company car, gym membership, health insurance or other attractive benefits.

Support from Accounts and Legal

This is a brief outline of the requirements for preparing a permanent employment contract. As this is a legal document, professional advice may be required to ensure the contract is compliant and appropriately tailored to your business. If you would like to discuss your contract or would like professional help in preparing a new contract, our team of experienced small business lawyers have extensive experience in employment law and will be glad to help.

To find out more, please contact us on 0207 043 4000 or info@accountsandlegal.co.uk.

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