5 Things Your Business Contracts Might Have Overlooked

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5 Things Your Business Contracts Might Have Overlooked

11th February 2019 |  Uncategorised

Wouldn’t it be great if all business could be done on a handshake?

“Come work for me and I’ll pay you a handsome wage at the end of every month.”

“You’ve got yourself a deal!”

It would save a lot of hassle for business owners and employees. But we all know that’s not how the real world works. One difference in opinion or a change of heart can blow up into a “who said what” scenario with both parties trying to take the moral high ground.

That’s why we have contracts. So there’s no dispute.

“You can’t do that.”

“Yes, I can.”

“No, you can’t. Look, it says right here in the contract.”

“Ah, yes. So it does. My sincerest apologies.”

Having a contract in place protects your business interests as the employer, as well as the rights of the employee. Unfortunately, in our experience, there are things in these contracts that get missed and it’s usually the business that suffers.   

We don’t want that to happen to you, which is the whole point of this post: covering some of the things we see getting overlooked in contracts so you don’t miss them out.

Before we do that, though, a small public service announcement: please have a contract in writing.

While oral contracts are every bit as legal as written contracts, trying to enforce something that isn’t written on paper is almost impossible. All an employee has to do is deny making an agreement and, unless you can prove otherwise, you won’t have a leg to stand on — in a legal sense.

Please get your contracts down on paper.

Okay, onto the things you shouldn’t overlook.

 

1. The offer letter

 

The offer letter is often an afterthought in business negotiations; nothing more than a list of benefits with a bit at the bottom about looking forward to welcoming the employee to the team.

Not only is this bland and unwelcoming, it misses out what we like to call the “get out jail card” — conditional factors that ensure the employee meets the required standards for employment. These include:

  • The right to work in the UK (hiring an illegal worker can land you with a £20,000 fine)
  • Satisfactory references
  • Point of contact (to ask questions and make arrangements for an induction)
  • Notification of probationary period
  • Completion of a pre-employment medical
  • Hours/days of work
  • Rate of pay
  • Pension

 

Of that list, pension deserves special mention. It’s something that typically gets left out by employers, yet it can be a deciding factor in a person taking a job. If the employee is to earn more than £10,000 a year, you must automatically enrol them in a pension scheme. Briefly cover the details as part of your welcome.

You don’t need to go into great detail with your offer letter as each of these factors can be covered in more depth within the contract and company handbook — keep it concise and easy to read. One side of A4 is ideal, two sides at the most.  

 

2. The probationary period

 

No matter how good of a judge of character you are or how effective your recruitment process is, you’ll never fully know if someone is the right person for the job until they’re actually doing the work. According to social psychologist Ron Friedman, 81% of people lie during job interviews.

A probationary period benefits you in three ways:

  • It gives you the chance to see if the employee is the right person for the job
  • It helps both parties manage expectations (which is why it’s good to include in your offer letter). Both you and your employee know from the outset that if things aren’t working out, the contract can be terminated at short notice.
  • It allows a contract to be terminated for fair reason due to misconduct or poor performance

 

How long should a probationary period be?

 

In most cases, it lasts for three to six months. We recommend going with six months as three doesn’t really give the time needed to fully assess whether the employee is a good fit. More than six months can be excessive as it puts extra pressure on the employee, which may affect performance.

If you think you need more time to assess an employee, make sure the probationary period clause specifically states that you have the right to extend for a further three to six months. Otherwise, the employee can disagree.  

 

3. Employee classification

 

We’ve referred to your new hire as an employee throughout this post but is that the case, or are they in fact a contractor? Uber has been hit with a number of lawsuits and made to pay out for not clarifying this. Don’t make the same mistake.

Employees and contractors are treated differently for tax purposes, employment law, and immigration.

  • Employees pay tax via PAYE; contractors are responsible for their own tax arrangements
  • Employees are insured by employers; contractors need to insure themselves
  • Employers must check if an employee has the right to work in the UK; no such checks are required for contractors

 

Classify employees correctly from the outset so there’s no doubt.

 

4. One size doesn’t necessarily fit all

 

A contract that’s right for one person might not be suitable for another. For example, a marketing manager will most likely command a greater range of benefits than a junior administrator.

Additional clauses such as company car allowance and longer notice periods may need to be added to the contracts of more senior level employees. Depending on the role, you’ll probably want to toughen up on confidential information, invention and intellectual property clauses too. Otherwise, they’ll be nothing stopping an employee making money off the things you’ve created.

 

5. Requirements after termination

 

A contract shouldn’t just cover you during an employees tenure, it should protect your business after they gone. By including restrictive covenants in your contracts you can prevent (for a reasonable period) a former employee from working for competitors or starting a business the same as yours, right across the road, with your clients.

Restrictive covenants that you can add to a contract include:

  • Non-competition clause — preventing a former employee from working for a competitor in a similar role
  • Non-solicitation clause — preventing a former employee from poaching your clients/customers/suppliers
  • Non-dealing clause — preventing a former employee from dealing with previous clients/customers/suppliers, whether they approach them or not.
  • Non-poaching clause — preventing a former employee from taking current employees over to their new business/employer
  • Garden leave — preventing an employee from coming into the office after they’ve handed in their notice.

 

Clearly define restrictive covenants to protect your business and its clients.

Any stone left unturned in your contracts can put your business at risk. Checking your offer letters and contract clauses against the things we’ve mentioned in the post will help improve employee relations from the outset and protect your assets if that relationship ends.

If you’d like an extra pair of (well trained) eyes and some contract expertise to help review your employment contracts, we’re here for you. Contact the HR Alchemy team on 0338 802810 or download our simple Contracts for Small Businesses kit here for further guidance.