Have you ever heard the phrase, “if it’s not written down, it doesn’t exist”? 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.
As we’ve discussed when reviewing contract types, there are three types of contracts: fixed-term contracts for temporary workers who are 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 of contract in the UK, and for good reason: they help employers hold on to skilled workers. Permanent employees do their jobs effectively knowing they have job security and opportunities for career growth.
Here we’ll cover everything you need to know about permanent contracts.
- What is a permanent contract?
- Advantages and disadvantages of a permanent contract
- What does a permanent employment contract cover?
- Further considerations for permanent employment contracts
- Legal Regulations for permanent contracts
- Breaking a permanent contract
- Managing permanent employees
Unlike fixed-term or casual contracts, the definition of a permanent contract is a contract that will not expire but will remain valid until either employer or employee chooses to end the contract. Hence, these are often called indefinite contracts. Some permanent staff may receive contracts valid for one, three, or five years but with the expectation that they will be renewed. Furthermore, good employers tend to invest their resources in their permanent employees. They do so by actively recruiting top talent, training and integrating them into the community and offering substantial benefits.
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.
There are many permanent contract advantages that will appeal to employees and help employers hoping to attract and retain talent. We’ll also touch on some of the disadvantages below.
The stability of having a permanent job is very appealing to employees. It eases their mind and allows them to invest themselves emotionally in the business, improving morale and boosting employee engagement.
Offering benefits like health insurance paid time off, and 401(k) contribution matching is a key opportunity for employers to entice talented workers to join the team. Helping employees to 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 doesn’t stick around, it is better for businesses to invest in people who can build toward the company’s future. Permanent contracts keep top talent around long-term while helping employees to develop new skills and grow their careers. It’s a win-win!
A permanent contract of employment will provide clarity by outlining unilaterally the terms of the agreement. On the other hand, however, it may make employers liable for greater damages should they violate the contract. Employers must be careful not to agree to terms they cannot meet.
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, permanent employees are supplied these through their employer. Growing businesses need to make sure their Human Resources department grows commensurately.
A permanent work contract is meant to lay the groundwork for a long and fruitful relationship. This means that these contracts have a lot to cover! Here, we’ll discuss eight key ingredients of a permanent contract.
1. Job Title
It is conventional though not legally necessary to specify a job title that reflects the work the employee will be doing. 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 useful 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!
It may be worth spelling out whether the position is full-time or part-time and making it clear if employees are or aren’t allowed to engage in other business activities on the side.
3. The Term
How long will employment last? If a contract specifies a limited period of time, employers need to clarify if and when the contract can be renewed. 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 term of the contract expires.
Other permanent agreements have no fixed term but provide provisions for payments in the case of notice or severance.
4. Base Compensation and Bonuses
A permanent employment contract should include the annual salary or hourly rate of the employee, 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. Whereas discretionary bonuses give employers a certain amount of leeway to determine what kind of bonus is 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.
Explain what benefits the plan includes such as medical, dental and eye care, as well as information about the 401(k) plan, stock options and any fringe benefits.
Employers should be sure to thoroughly explain the time off policy. How are paid vacation days allocated or accrued? Can employees 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.
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. 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.
This clause will prevent the employee from sharing the employer’s trade secrets or intellectual property.
An employer may restrict an employee’s ability to work for a competitor with this clause. It cannot be open-ended and must state a limited period after which the employee can do what they like.
This clause will prevent an employee who has resigned from poaching customers or other employees from their previous employer.
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:
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.
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.
Both parties can agree that the written contract constitutes the “entire agreement,” and will not be able to invoke previous implied or verbal contracts.
Not all permanent employees start off with a permanent contract. What are the temporary to permanent employment rules?
To make sure 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, this can vary from 1 month to 6 months, it 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 is able to perform their responsibilities.
Some probation periods are structured so that the employer can terminate the employee without providing reasonable notice or compensation. If the employer would like to hire the employee long-term at the end of the period, the employee will switch from a fixed-term contract to a permanent contract.
Temp to perm 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.
As long as employees are receiving the minimum wage rate, there are few other laws governing 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, that is structured through written and formal contracts. These different contracts will define the conditions for an employment contract to be terminated. Unlike in the US, in the UK employers 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.
Can you leave a permanent work contract? Yes! 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.
It is standard practice that if an employee terminates the contract by resigning, they receive nothing other than their salary. This includes all the days worked plus accrued holiday. The contract may also entitle resigning employees to full or prorated portions of their commission or bonuses.
If an employer ends an employees’ contract, normally they must provide the notice defined in the contract or the statutory minimum notice period. However, they may not always have to provide notice. This occurs in the cases where 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 contract. 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 2 or more years and you’ve been let go. As a former employee, you can request a written statement from your employer, justifying their reasons for letting you go.
Whew! It’s a long journey, but all the effort that goes into making a permanent contract finally paid off: A permanent position has been filled by a talented worker! The next step is to make sure that your business keeps up its end of the bargain. You can do this by providing the salary and benefits promised in the contract. This is not only vital to limit legal liability but will have the added benefit of keeping works invested and engaged.
Human resources departments manage the employee life cycle from recruitment to exit interviews. HR will send out the permanent contract for an electronic signature and then be responsible for keeping its terms. They will track employee working hours, time off and absence requests as well as manage payslips and documents. It’s a lot of work! Factorial’s HR software can make sure your HR department has the resources it needs to keep everything in order– and adherent to the terms of the contracts signed.
A streamlined HR department will improve employee morale and retention, so you can hang on to those permanent employees you’ve worked so hard to sign.
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