This guide will provide you with an overview of the key areas that should be included in any employment agreement (“Agreement”) that you enter into with a new employee.
- Probationary Period
The Agreement can include a probationary period (essentially a ‘trial period’ that allows you to assess the performance of your employee before making them permanent additions to your team). At the end of the period, you can then decide whether or not to make the employee permanent, based on whether they have performed to your expectations. While the length of the probationary period will likely depend on the nature of the job being performed, it is usual to see probationary periods of three to six months.
- Salary and Benefits Information
The scale or rate of remuneration or the method for calculating it should be specified, along with the intervals at which it is paid. There is a national minimum wage of £7.05 for workers aged 21 to 24, and £7.50 for workers aged 25 and above. This will increase to £7.38 and £7.83 respectively in April 2018.
Fringe benefits are not a legal requirement, but they are common and may include:
- share options;
- pension contributions;
- private health care;
- permanent health insurance; and
- death-in-service benefit.
There is a sliding scale of income tax payable by employees at 20%-45% of salary. Employers’ National Insurance contribution rates are 13.8% of salary. Employees’ National Insurance contribution rates are 12% on earnings between £157.01 and £866 per week, plus 2% on earnings higher than £866 per week.
- Hours of and place of Work
The Agreement should specify the minimum number of hours that the employee is expected to work per week, the ‘routine’ hours during which time the employee is expected to be in work, and the principal place of work (office location).
There is a 48-hour average maximum working week, but employees are able to opt-out so that they can work beyond the limit. There is a daily rest entitlement of 11 hours, and a weekly rest entitlement of 24 hours.
- Holiday Entitlement
Employees are entitled to a minimum of 5.6 weeks of paid annual leave. This includes public holidays (usually eight per year).
- Disciplinary and Grievance Procedures
The Agreement should set out the company’s disciplinary and grievance procedures stating to whom employees can appeal in respect of a disciplinary decision and with whom they should raise any grievance relating to their employment.
- Confidential Information and Intellectual Property
As an employer, you should protect your confidential information and any intellectual property created by employees during the course of their employment by suitably drafted provisions which restrict the use of confidential information after employment, and ensure that ownership of any intellectual property vests in you as the employer.
- Minimum Notice Period
The Agreement must prescribe the minimum notice period that must be given by the employee or the employer to validly terminate the Agreement. Under current employment law legislation, employers must give at least one week’s notice to employees with more than one month’s and less than two years’ service, and then one week’s notice for each complete year of service, up to a maximum of 12 weeks’ notice. Employees must give at least one week’s notice. You can of course extend these periods in the Agreement.
- Sick Pay Entitlement
Statutory Sick Pay (“SSP”) of £89.35 per week is payable for up to 28 weeks, increasing to £92.05 per week in April 2018. SSP is not paid during the first three days of illness. There is no requirement for employers to pay any further company sick pay, although some do so for anything from two weeks to, say, three months.
- Post-termination restrictions
You can add clauses to the employment agreement that (provided they are proportionately limited in duration and scope – else they risk being unenforceable under English law) restricts leaver employees from joining your competitors, enticing away or dealing with customers or poaching their ex-colleagues.
- Default Normal Retirement Age
While there is no default compulsory retirement age, you can specify a compulsory retirement age if you are able to objectively justify it by showing that it is a proportionate means of achieving a legitimate aim.