Employment

4 Types of employment contracts explained

Natalia HongNatalia Hong
Last updated on:
August 5, 2022
Published on:
August 5, 2022

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Having written terms and conditions of a new job is not only important, but a legal requirement that not only protects the rights of an employee, but also the rights of an employer. In this article we will explore the different types of employment contracts out there in the job market today.

So, what is an employment contract?

To put it simply, it is a legal document which details all the rights of an employee, including the  duties and responsibilities which are required for the role and the conditions of employment.. For example, it will include the salary and any benefits that an employee is entitled to. It is also a legal requirement for employers to issue a written statement of employment particulars on the first date of employment and a wider employment statement or employment contract to all staff within the first two months of employment.

What are the different types of employment contracts?

The type of employment contract issued would depend on the employment status of an individual. It is therefore important for employers to correctly determine the employment status of the person they are hiring before they start writing an employment contract. There are different types of employment contracts available, and they are:

  • Permanent employment contracts
  • Fixed-term contracts
  • Casual contracts or Zero-hour contracts
  • Freelancers or contractors agreements

What is a permanent employment contract?

The most commonly used employment contract is a permanent employment contract. This contract typically applies to employees who have fixed working hours and are paid a salary or per hour. The duration of this contract usually lasts till it is terminated by the employer or employee and are normally issued for both full-time and part-time jobs. Employees with this contract are entitled to all statutory employment rights.

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What is a fixed-term contract?

These contracts have a stipulated end date, for example for a year or a couple of months and is mostly used for short-term hires or to outsource staff for a project. Fixed-term employees have the same rights and benefits as permanent employees except for paid holiday entitlement, as that would usually depend on the length of the contract. Fixed term contracts can be extended with an agreement but for no longer than four years, because at such time the employee on a fixed-term contract would then become a permanent employee. Employers are also obligated to inform fixed-term employees of any permanent vacancies in the company. Additionally, if the employee continued working beyond the stipulated end date of the contract, there would then be an ‘implied agreement’ that the end date had been amended, this would then require the employer to give a ‘notice period’ before terminating the contract.

What are zero-hour contracts?

With zero-hour contracts, the idea is that the company will only ask the employee to work when there is a business need. The employee is not required to work if they are unavailable and the employer is not required to offer a specific number of hours.

Employees on zero-hour contracts are entitled to at least the national minimum wage. It is also important to remember that people who work under a zero-hour contract can keep their options open to other opportunities of employment.

What are freelancers or contractors?

Depending on the company and the given contract, freelance and contractor agreements may be different. The freelancer or contractor may be given a contract with a set start and end date, or they may be asked to work continuously until the task or project is finished. However, the freelancer or contractor would not have access to the same statutory rights and benefits as full-time employees under this form of contract because they are frequently self-employed. Thus, freelancers and contractors must manage their taxes and National Insurance obligations on their own.

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