Though some people work without written contracts in the UK, it is safer for employees and employers to have the terms of their agreement down on paper. This is known as a permanent employment contract.
There are three types of contracts: fixed-term contracts for temporary workers working a set amount of time usually to complete a specific project; casual contracts for employees who don’t have a set number of hours; and permanent contracts for long-term employees filling necessary positions.
A permanent employment contract is the most common type in the UK, and for good reason: it helps employers hold on to skilled workers. This article will cover everything you need to know about permanent contracts and what it means to be a permanent employee.
- What is a Permanent Contract?
- Advantages and Disadvantages of a Permanent Contract
- What is Included in a Permanent Contract?
- Transitioning from Temporary to Permanent Contract
- Legal Regulations for Permanent Contracts
- Breaking a Permanent Employment Contract
- Fixed-term vs. Permanent Employment
- Managing Permanent Employees with Factorial
What is a Permanent Contract?
A permanent contract, often an open-ended or indefinite contract, is a type of employment agreement between an employer and an employee that does not have a predetermined end date. In other words, it is a long-term employment arrangement that continues until the employer or the employee decides to terminate the contract, usually with notice.
Key features of a permanent contract include job security and stability for the employee, as the warranty is not limited to a specific project or time frame. Permanent employees typically enjoy benefits such as paid leave, health insurance, retirement plans, and other perks offered by the employer.
Normally, full-time permanent employees work between 35 and 40 hours a week, while part-time employees with a permanent part-time contract work under 35 hours.
Advantages and Disadvantages of a Permanent Contract
There are various pros and cons to consider when thinking about permanent staff.
Advantages
- Job security
The stability of having a permanent job is very appealing to employees compared to a temporary contract. It eases their mind and allows them to invest emotionally in the business, improving morale and boosting employee engagement.
- Employee benefits
Offering benefits like health insurance, paid holiday, and 401(k) contribution matching is a crucial opportunity for employers to entice talented workers to join the team. Helping employees strike a work-life balance will ensure employee satisfaction and effectiveness.
- Career development opportunities
Being offered a permanent contract shows employees that this isn’t just a job but a career. Instead of burning cash by recruiting and training staff that don’t stick around, businesses should invest in people who can build toward the company’s future. Permanent contracts keep top talent around long-term while helping employees develop new skills and grow their careers. It’s a win-win!
- Statutory sick pay
Those in a permanent role are eligible for statutory sick pay (SSP) for the entire length of time that they are incapacitated. The two exceptions are if the employer has given written notice that their contract is ending or they are no longer eligible for SSP.
Disadvantages
- Greater liability
A permanent employment contract will provide clarity by outlining the terms of the agreement unilaterally. On the other hand, it may make employers liable for more significant damages should they violate the contract. Employers must avoid agreeing to terms they cannot meet and risk breaking the Employment Rights Act.
- More administrative work
Someone working as a contractor organises their own health insurance, retirement savings plans and savings for time off. On the flip side, members of a permanent workforce are supplied with these by their employer. Growing businesses need to make sure their Human Resources department produces commensurately.
What is Included in a Permanent Contract?
A permanent work contract has a lot to cover! Here are the eight key ingredients of a solid one.
1. Job Title
It is conventional, though not legally necessary, to specify a job title that reflects the employee’s work. This will determine how employees represent themselves and the company to others.
2. Job Description
While not all contracts contain job descriptions, including one can help to clarify expectations. Job descriptions should be neither too specific (to allow for changes) nor too broad (so that an employee doesn’t end up with more responsibility than they can handle). Stick to the basics, such as to whom the new hire will report and how performance will be evaluated.
This is also a valuable moment to “classify” new hires as permanent employees rather than contract workers to ensure tax and insurance compliance. This may seem obvious, but Uber has faced many lawsuits due to employment misclassification!
3. The Term
How long will employment last? Employers must clarify if and when the contract can be renewed if a contract specifies a limited period. Renewals can be automatic, one-way, or joint. Those negotiating salary from contract to contract must be sure to begin the discussion well before the contract term expires.
Other permanent agreements have no fixed term but provide payment provisions for notice or severance.
4. Base Compensation and Bonuses
A permanent employment contract should include the employee’s annual salary or hourly rate, as well as information about raises, bonuses, or incentives.
There are usually two types of bonuses – contractual and discretionary. Contractual bonuses contain clear performance goals, with a structured set of payments if the target has been reached. At the same time, discretionary bonuses give employers a certain amount of leeway to determine the kind of bonus paid to the employee. A discretionary bonus is usually an indicator of employer satisfaction and could be more based on performance. The contract should contain information on the criteria for receiving discretionary bonuses and specify what will determine if targets have been met.
5. Benefits
Explain what benefits the plan includes, such as medical, dental and eye care, and information about the 401(k) plan, stock options and any fringe benefits.
Employers should be sure to explain the time off policy thoroughly. How are paid holiday days allocated or accrued? Do you know if employees can make up hours? How will overtime be renumerated?
Perks ranging from travel expenses and reimbursements to club memberships and company cars will also need outlining.
6. Termination
A permanent employment contract should contain stipulations for the early termination of the contract. Depending on how the relationship ends, the employer might have different obligations to the employee. Could you explain what is required for either party to terminate the relationship, including the amount of notice required and if it should be written?
7. Restrictive Covenants
In certain industries, like the financial, tech, and pharmaceutical fields, employers may include clauses in employee agreements restricting the information an employee can share and what they can do during and after their contracts.
Confidentiality agreement
This clause will prevent the employee from sharing the employer’s trade secrets or intellectual property.
Non-compete clause
With this clause, an employer may restrict an employee’s ability to work for a competitor. It cannot be open-ended and must state a limited period after which employees can do what they like.
Non-solicitation clause
This clause will prevent an employee who has resigned from poaching customers or other employees from their previous employer.
Intellectual property
Employers may wish to specify that any intellectual property the employee creates during their tenure belongs to the company and not the individual.
8. Legal Boilerplate
Permanent employment contracts should include legal provisions which will ensure their validity. Some useful boilerplate might address the following:
Governing law
This is when the parties agree that the law of England and Wales will determine and govern the interpretation of any agreements and disputes that may arise.
Arbitration
Parties can choose whether to arbitrate any future disputes. Employers often demand arbitration because it is cheaper and faster than courts and is kept confidential.
Entire agreement
Both parties can agree that the written contract constitutes the “entire agreement” and cannot invoke previous implied or verbal warranties.
Transitioning from Temporary to Permanent Contract
Not all permanent employees start with a permanent contract. What are the temporary to permanent employment rules?
Probation period
To ensure a new hire is competent enough to fulfil the role long-term, an employer might ask an employee to sign a fixed-term contract for a probation period, which can vary from one month to six months and is dependent on the company. The employer will use the probation period to determine if the employee is a good fit for the company. The trial term can confirm whether the employee can perform their responsibilities.
Some probation periods are structured so the employer can terminate the employee without providing reasonable notice or compensation. If the employer wants to hire the employee long-term at the end of the period, the employee will switch from a fixed-term contract to a permanent one.
Temporary to permanent jobs
Sometimes, a worker placed through a temporary or permanent recruitment agency or hired as a contractor will impress their boss and win a permanent position. Even if management doesn’t offer a permanent contract themselves, temporary workers can send a permanent position letter asking to change their contract to a permanent one.
Legal regulations for permanent contracts
As long as employees receive the minimum wage rate, few other laws govern employment agreements. There are still several legal factors to take into consideration.
It’s important to note that a contractual agreement provides a term of employment structured through written and formal contracts. These different contracts will define the conditions for termination of an employment contract. Unlike in the US, employers in the UK are legally not allowed to end an employee’s contract for any reason whatsoever. Here, employers have to show a legitimate reason for letting an employee go and give them due notice before their contract is terminated.
Breaking a Permanent Employment Contract
As an employee, you can leave a permanent contract whenever you like; there are no legal penalties for ending a contract early, although there may still be financial repercussions.
Resignation – Can an employee terminate a permanent contract?
It is standard practice that employees who terminate the contract by resigning receive nothing other than their salary. This includes all the days worked plus accrued holiday. The agreement may also entitle leaving employees to complete or prorated portions of their commission or bonuses.
Termination – Can an employer terminate a permanent contract?
If an employer ends an employee’s contract, usually, they must provide the notice defined in the agreement or the statutory minimum notice period. However, they may only sometimes have to provide information. This occurs when an employee is let go due to bad behaviour.
If let go, the employer must provide a valid justification for firing the employee.
If an employer chooses to end the contract, the termination will fall into one of two categories outlined in the agreement. These are “for cause” or “without cause.” Termination can be considered “for cause” if the employee is accused of intentional misconduct, insubordination, job abandonment or breach of contract. “For cause” termination means employees get no additional remuneration.
Imagine you’ve worked for the company for two or more years and been let go. As a former employee, you can request a written statement from your employer justifying their reasons for letting you go.
Fixed-term vs. Permanent Employment
Fixed-term employment involves a contract with a specified duration, commonly linked to specific projects or temporary needs, offering limited job security. Fixed-term employees on fixed-term contracts typically receive benefits that may be less comprehensive than those for permanent staff. The employment terminates automatically at the contract’s end unless renewed.
In contrast, permanent employment has an indefinite duration, providing higher job security and often more extensive benefits. Permanent employees enjoy stability, and termination typically requires notice. While fixed-term contracts suit temporary or project-based needs, permanent employment ensures ongoing job security and a broader range of benefits, reflecting a longer-term commitment between the employer and employee.
Managing Permanent Employees with Factorial
Picture this: a talented worker has filled a permanent position! HR teams are then responsible for managing the employee lifecycle from recruitment to exit interviews, all of which you can do through Factorial.
With our user-friendly, all-in-one software, you can send a customised copy of a permanent contract to your new hire to electronically sign instantly. From that moment on, you can manage administrative tasks related to them through Factorial. This means tracking their working hours, time off and absence requests, performance reviews, payslips and more.
A streamlined HR department will improve employee satisfaction and retention so you can hang on to those permanent employees you’ve worked so hard to sign.
