September 21, 2015

Confused about Contract Types?

Do you know which employment contract to use for different categories of employee?

Here’s our handy guide to understanding them all…

Zero Hours, Casual, Temporary or Fixed Term?

Many people are confused when it comes to working out which contract (or Principal Statement of Terms and Conditions) to give to the different categories of employee.

There are many people who will ask for a zero hours contract when what they actually need is a casual services agreement. Find out more about zero hours contracts on our webinar.

So what type of contract do you need for each category?

The simplest category of all is full time, permanent employees, which will apply to most employees in most companies.

Similarly, permanent part time employees are again very straight forward, with benefits such as holiday entitlement being pro-rated to the full time equivalent, based upon the number of days/hours worked.

It can be a little more difficult to decide for some of the other categories.

Temporary Contracts

This type of contract should be used for someone who you bring into the company for a short  period of time, for example when you maybe need additional staff to clear a backlog but you’re not sure how long it will take.

A temporary contract will normally state how long you expect the work to be for, but with a provision to terminate with notice at any time.

Benefits such as holiday entitlement will be pro-rated to the full time equivalent, based upon the length of the actual period of work.

Fixed Term Contract

A fixed term contract would normally be used when you have a specific period you need someone to work, for example, for a particular project or to cover maternity leave.

You would set out the date that the fixed term will finish, with a provision to terminate earlier by giving notice (in cases where the project finishes earlier than expected, or the employee returns early from maternity leave).

If the contract runs for the term specified, it will automatically end on the date given.  It is possible to issue further fixed term contracts if necessary.

However, if the term is extended and runs for four years, the fixed term employee would then automatically become a permanent employee.

Benefits such as holiday entitlement will be pro-rated to the full time equivalent, based upon the length of the actual period of work.

Zero Hours Contract

If an employee is on a zero hours contract, they are permanent employees even though there may be times when they are not at work.  You don’t need to give a minimum number of hours each week.

However, as you are no longer able to ‘tie in’ your zero hours employee to work only for you, it may be wise to offer some hours each week.  You could give a schedule of hours for the following month, for example.

Where hours are given, the employee is expected to work those hours, unless they are sick, other wise you would deal with their absence through your disciplinary procedure in just the same way as a permanent full or part time employee.

Notice is the same as for your full or part time employees. Benefits such as holiday entitlement will be pro-rated to the full time equivalent, based upon the number of hours worked.

Casual Contract

A casual contract or agreement is used when you need to employ someone for a ‘one-off’ shift, for example.  You would normally have a ‘bank’ of people you could call on for such work.

You have no obligation to offer work to the people on your list.  However, if work becomes available, you would contact the first person on the list and offer the work.  There is no obligation on the casual worker to accept the work.

If they refuse the work, you would go to the next person on your ‘bank’ list and so on, until you have someone who can cover your requirements.

It is wise (even though that particular person may be extremely good at the job) that you then call on someone else for the next ‘one-off’ assignment.

To call the same person in on a succession of ‘shifts’ within a short time frame may inadvertently look like continuity of employment and thus constitute them being an employee.

In addition, each ‘one-off’ occasion must be started and ended individually in order for continuity not to be inferred.

Casual workers are entitled to holidays but, due to the nature of the short assignment, they would normally be paid holiday (shown as a separate item on the payslip) with their pay at the end of the assignment.

Annualised Hours Contract

Annualised hours contracts are used when there are obvious variations in staffing needs from season to season or definite, genuine, regular peaks and troughs in production requirements.

Hours are set for the whole year with the employee(s) working more hours at the ‘peak’ time of the year and less hours for the ‘troughs’.

Pay is normally worked out using the set annual hours paid in equal parts either weekly or monthly in line with your normal pay run.  This means that there will be times when the employees work more (or less) hours than they have been paid for.

For these reasons, such contracts are normally set up by using a workforce agreement.  It is also likely that the employees may work more than 48 hours per week at certain times of the year, so an individual opt-out agreement should also be signed.

Holidays would normally be set as hours rather than days, so 5.6 weeks at 40 hours per week would be 224 hours.  If you pay the salary as equal instalments throughout the year, it also makes sense to pay holidays in the same manner.

However, this will need to be agreed in the workforce agreement.

Term Time Contracts

This type of contract is exactly what it says and is predominantly used in educational institutions, but is not used for teaching staff. Employees normally work 38 or 39 weeks in the year, in accordance with school terms.

Holiday is calculated pro-rata to the number of weeks worked, with the remaining weeks (during the school holidays) being unpaid leave.  Due to the nature of the contract, holidays are not allowed to be taken during the school term.

If you are still confused you can always contact us or take a look at our employer resources. Our October Employment law and HR legislation webinar will be covering zero hour contracts, to book your place click here.

By Elaine Pritchard

Want a round-up of stories like this delivered to your inbox?

About the author

Content