Employment contracts are one of those things many small businesses mean to sort properly - but day‑to‑day reality gets in the way.

You make a hire, you agree the basics, everyone’s excited and you think, “We’ll tidy the paperwork up later.”

The problem is: when something becomes sensitive (performance, absence, a disagreement about hours, a leaver dispute), you’re suddenly relying on memory and good intent. That’s not a great place to be.

A well‑written contract isn’t about being “formal” for the sake of it. It’s about clarity, consistency and protection - for you and for your employee.

A useful test question as you build or review contracts: will this help your people do their best work? If the wording removes guesswork and sets people up to succeed, it’s worth doing well.

This post focuses on: what your employment contracts should include (in plain English) and the clauses that prevent avoidable disputes.

If you need:

• a broader view of HR compliance foundations, read Small Business HR Compliance in Plain English

• a clear guide to essential policies, read The HR Policies UK Employers Need in Place (Mandatory & Sensible)

• a tick‑box audit you can run quickly, read A Practical HR Compliance Checklist for UK SMEs

What an employment contract actually is (in practice)

In simple terms, an employment contract is the written version of:

• what you’re asking someone to do

• what you’ll give them in return

• how you’ll work together day to day

• what happens if something changes or ends

It should reflect reality and not an idealised version of the business.

Why contracts matter more in small businesses

In a small team, relationships and trust are everything. That’s exactly why contracts help.

They:

• reduce misunderstandings (“I thought we agreed…”)

• help managers make fair decisions consistently

• protect the business if you need to rely on process later

• create confidence for the employee (people perform better when expectations are clear)

The best contracts are not heavy. They’re clear.

What you must include (the essentials)

UK employers are required to provide written particulars of employment. Exactly what is required can depend on the role and working arrangements, but in practical small‑business terms, these are the areas you should always cover clearly.

1) The basics: who, what, when, where

• Contract type (permanent/fixed-term/temporary) - and if it’s fixed-term, the end date and reason

• Job title and role (and who they report to)

• Start date (and whether previous service counts, if relevant)

• Place of work (office, site, remote/hybrid expectations)

PeopleWise Solutions tip: include role clarity in plain English - what “good” looks like in this role. A job description can sit alongside the contract and does a lot of heavy lifting.

2) Probation that supports performance - it’s not a waiting game

Probation is most useful when it’s structured. Your contract should be clear about:

• length of probation

• when it may be extended and for how long

A supportive probation period (with clear check-ins, plenty of guidance and the all important feedback), prevents the common trap of hoping things improve without being specific about what needs to change.

3) Pay and benefits

• salary or hourly rate (and how it’s calculated if hours vary)

• when they’re paid

• any commission/bonus (and whether it’s discretionary - ideally detailed in a separate document)

• how a week’s pay is calculated (helpful where holiday/notice pay may need working out, especially for part-timers)

• benefits (if relevant)

Be especially clear if hours vary, if overtime exists or if pay is linked to targets.

4) Hours of work

• core hours and working pattern (including hybrid arrangements)

• breaks (where relevant)

• overtime expectations (and whether it’s paid or included)

• working time limits (and, if you use them, 48‑hour opt‑outs - typically handled as a separate agreement)

This is a common “grey area” in SMEs - and one that can cause friction quickly.

5) Holiday and leave basics

• holiday entitlement (including how it accrues for starters and leavers)

• bank holiday approach (included or in addition)

• carry-over rules (where you allow it)

• family leave signposting (maternity/paternity/shared parental leave - even if the detail sits in a policy)

If you have part‑time staff, make sure holiday entitlement is calculated correctly and explained clearly – it’s often best to convert to hours rather than days of holiday and don’t forget that Bank holidays are pro-rated.

6) Sickness absence and sick pay

• sick pay entitlement (statutory only or enhanced)

• what evidence you require and when

• your right to require your employee to attend a medical examination

This doesn’t need to be strict, it just needs to remove uncertainty.

7) Notice

• notice during probation (if you use probation)

• notice after probation

• what happens if you want someone to work notice vs pay in lieu

8) Other (part of the required written particulars)

These points are easy to overlook, but they’re part of what employers are expected to provide in writing. Even if they don’t apply in your business, it’s worth stating that clearly (rather than leaving it ambiguous).

• Pension: you don’t need to squeeze pension guidance into the contract, but you do need to signpost the arrangement clearly. If it doesn’t apply (rare), say so.

• Training: any training the employee must complete, and who pays for it. If there’s no mandatory training, say so.

• Disciplinary and grievance procedures: you don’t have to copy the whole process into the contract, but your contract should clearly signpost where the procedures can be found.

• Working abroad: if the role involves working outside the UK, your written terms should cover the key arrangements. If it doesn’t apply, a simple “not applicable” is enough.

This is the kind of detail that causes confusion later if it isn’t written down.

What to include to protect the business (without becoming overly restrictive)

This is where templates often go wrong - either they miss key protections or they include heavy clauses that don’t fit the role.

Confidentiality (keep it clear and proportionate)

In most small businesses, you don’t need pages of “data protection” wording in the contract but you do want a clear confidentiality clause that removes guesswork.

The key is defining what confidential information means in your business. For example:

• client/customer information (including pricing and commercial terms)

• business plans, proposals and internal financial information

• supplier arrangements

• internal templates, processes and know‑how

• employee and HR information

Then keep the expectations simple:

• confidential information must only be used for work purposes

• it must be kept secure

• confidentiality continues after employment ends

(You can handle the detail of privacy notices, storage and day‑to‑day data handling in your policies and working practices.)

Intellectual property (where relevant)

If employees create content, designs, processes, training materials or client deliverables, clarify what belongs to the business.

Post‑termination restrictions (only where justified)

Non‑compete and non‑solicitation clauses are not “standard” for every role. They should be proportionate and justified.

In many SMEs, what you really need is:

• a clear confidentiality clause

• a sensible approach to clients and suppliers

If you’re considering restrictions, it’s worth getting tailored advice.

Other useful clauses to consider (depending on the role)

Beyond the essentials, these clauses are often included because they prevent avoidable disputes. Use them where they fit:

• Deductions: what deductions may be made from pay (where lawful and appropriate)

• Variation: how changes to terms will be agreed and confirmed in writing

• Mobility: only if there is a genuine possibility of relocation or multi‑site working

• Lay‑off/short‑time working: only if you may ever need the contractual right to reduce hours or temporarily lay people off due to shortage of work

• Garden leave: useful for some senior/commercial roles where client relationships or sensitive information are at stake

• IT/comms and company property: acceptable use, security expectations, and returning equipment/data

Make sure the contract matches your policies

A contract doesn’t need to include every policy word-for-word (in fact we’d say it shouldn’t), but it should signpost the key policies and align with what you actually do.

At a minimum, ensure your contract aligns with your approach to:

• disciplinary and grievance processes

• sickness absence and holidays

Practical point: many businesses keep policies non‑contractual (so they can be updated as the business grows without needing to reissue contracts). The contract should still clearly point people to where the current policies live.

Consistency is the point - and it makes future conversations much easier.

A practical step that makes everything easier (and is often missed)

Make the contract conditional on the right checks

If you carry out pre‑employment checks (for example, right to work, references, qualifications, DBS or driving licence checks), it’s worth stating that the offer and employment are conditional on those checks being satisfactory.

It’s a simple line that protects you if something isn’t right.

Common mistakes we see (and how to avoid them)

Mistake 1: Downloading a template and assuming it’s “done”

Templates can be a starting point, but if the contract doesn’t reflect reality (hours, flexibility, pay, role expectations), it becomes risky.

Mistake 2: Vague clauses that create arguments later

Words like “reasonable overtime” or “some remote working” can be fine, but only if you define what they mean in practice.

Mistake 3: Contracts aren’t updated as the business grows

What worked when you had five people might not work at twenty.

A simple annual review (and a review when roles change) keeps contracts aligned and prevents painful fixes.

Mistake 4: The contract exists… but nobody can find it

Contracts should be stored securely, version‑controlled and easy to access when needed.

A quick self-check (keep it simple)

If you’re unsure whether your contracts are doing their job, these are the most common red flags we see in SMEs:

• the contract doesn’t match reality (hours, flexibility, pay, reporting lines)

• key terms are vague (holiday, overtime, notice, probation)

• nobody can easily find the latest signed version

If any of those ring true, it’s usually a sign the contract hasn’t been reviewed in a while - and a small update now will prevent bigger headaches later.

FAQ

Can I just use a free employment contract template?

Templates can help you get started, but they’re rarely tailored to your working reality. The risk is that you assume you’re protected, when the contract doesn’t match how you actually operate.

Do I need a new contract if someone’s role changes?

If hours, pay, location, role and reporting lines or other key terms change, you should confirm the changes in writing and make sure all the contract/terms are still adequate, e.g. notice period on promotion.

Should I include probation?

Probation can be helpful, but only if you use it well - with clear expectations, check‑ins, feedback and support. A probation clause without the right management habits doesn’t achieve much.

What’s the difference between an employee and a worker?

Employment status matters because rights and obligations differ. If you’re unsure, it’s worth checking before you issue agreements - especially for casual, zero-hours or contractor-style arrangements.

Want the full contract checklist?

We use a detailed checklist when reviewing SME contracts. If you’d like a copy, just drop us a message and we’ll send it over.

If you’d like support

If you want a practical review of your contracts to make sure they maximise support for you and your managers, we can help you get it clear, lean and workable.

This is general guidance for UK employers. If you’re dealing with something live, the detail matters - get advice before taking action.