Employment Contract Template UK: What Must Be Included, IR35 Impact & Legal Requirements [2025 Complete Guide]

The £47,000 average unfair dismissal award that 68% of UK businesses face can be avoided – download our free Employment Contract Compliance Checklist covering all mandatory requirements to secure full legal protection in 15 minutes.

Employment contracts are the cornerstone of the 12 essential employment documents every UK business needs for complete legal compliance. This comprehensive guide covers everything you need to know about UK employment contracts in 2025, from mandatory requirements to IR35 implications.

What is a Contract of Employment?

A contract of employment is a legally binding agreement between an employer and employee that defines the employment relationship, rights, and obligations of both parties. In the UK, employment contracts can be written, verbal, or a combination of both, but employers must provide written particulars of employment.

The UK Legal Position

The Employment Rights Act 1996 governs employment contracts in the UK. Key principles include:

• Automatic creation: A contract forms the moment an employee accepts a job offer and begins work
• Written statement requirement: Employers must provide a written statement of employment particulars within 2 months of starting (changing to day one from April 2025)
• Cannot contract out of rights: You cannot use a contract to remove statutory employment rights
• Express vs implied terms: Contracts contain both stated terms and those implied by law, custom, or conduct

Critical distinction: There’s no legal requirement to provide a written employment contract, but there IS a legal requirement to provide a written statement of particulars. Most employers combine these into one document as part of their comprehensive employment documentation suite.

Types of Employment Status

UK employment law recognises three distinct categories:

Getting the employment status wrong creates significant liability – misclassified workers can claim backdated employment rights, unpaid holiday, and pension contributions. Each status requires different documentation including zero hours contracts for casual workers and freelance contracts for genuine contractors.

What Must Be Included in an Employment Contract?

UK law mandates specific information must be included in the written statement of employment particulars within strict timeframes. From April 2025, this information must be provided on day one of employment (currently within 2 months).

Mandatory Day One Information (April 2025 Onwards)

The following must be provided on or before the first day of employment:

1. Basic Employment Details

• Employer’s name and address
• Employee’s name
• Job title or description of work
• Start date
• Date continuous employment began (if different)

2. Pay and Hours

• Pay rate: Hourly rate, annual salary, or how calculated
• Pay frequency: Weekly, monthly, etc.
• Working hours: Number of hours or “as required” for zero hours
• Overtime pay: Whether paid and at what rate

3. Leave Entitlements

• Holiday allowance: Statutory minimum 5.6 weeks (28 days for full-time)
• Public holidays: Whether included in allowance or additional
• Sick pay: Statutory Sick Pay (SSP) details and any enhanced provision
• Other leave: Maternity, paternity, parental leave rights

4. Notice Periods

• Notice employee must give to terminate
• Notice employer must give (minimum statutory periods apply)

5. Place of Work

• Main workplace location
• Whether employee may be required to work elsewhere
• For remote workers: home address and any office attendance requirements

Additional Information (Within 2 Months)

The following can still be provided within 2 months:

• Pension arrangements: Auto-enrolment details and contribution rates
• Collective agreements: Any that affect terms and conditions
• Training requirements: Mandatory training and who bears costs
• Disciplinary and grievance procedures: Who to contact and the process
• Probation period: Length and review process

These requirements form part of the broader UK employment documentation framework that includes employee handbooks, disciplinary procedures, and grievance policies – all working together to protect both employers and employees.

Can Your Contract of Employment Be Changed Without Your Agreement?

No – employers cannot unilaterally change contractual terms without employee consent. This is one of the most common sources of employment disputes and tribunal claims in the UK.

The Legal Position on Contract Changes

Employment contracts are legally binding on both parties. Employers who change terms without consent risk:

• Breach of contract claims: Employee can sue for damages
• Constructive dismissal: Fundamental breach allows employee to resign and claim unfair dismissal (if qualifying period met)
• Discrimination claims: If changes impact protected groups differently
• Unlawful deduction from wages: If changes reduce pay

Lawful Methods to Change Employment Contracts

1. Mutual Agreement (Safest Method)

The employer:

1. Proposes changes clearly in writing
2. Explains business rationale and benefits
3. Allows reasonable consultation period
4. Obtains written consent from employee
5. Confirms changes in writing with updated contract

2. Contractual Flexibility Clauses

Some contracts include flexibility clauses allowing certain changes:

• Mobility clauses: “Employee may be required to work at any UK location”
• Variation clauses: “Employer reserves right to vary terms with reasonable notice”
• Job description flexibility: “Employee may be required to perform duties reasonably requested”

Warning: Courts interpret flexibility clauses narrowly. They don’t give employers unlimited power to change terms. Any changes must still be:

• Reasonable in the circumstances
• Within the scope of the clause
• Applied with reasonable notice
• Not discriminatory

3. Dismissal and Re-engagement (Nuclear Option)

Employers can dismiss employees with notice and offer re-engagement on new terms. This is high-risk because:

• Unfair dismissal risk: Must prove “some other substantial reason” (SOSR)
• Redundancy payments: May be due if 2+ years’ service
• Reputational damage: Aggressive tactics harm employee relations
• Collective consultation: Required if 20+ affected within 90 days

What Happens If You Refuse Changes to Your Employment Contract?

If you refuse proposed contract changes:

Your Rights:

• Continue on existing terms: Original contract remains in force
• Reject unlawful changes: Employer cannot enforce without consent
• Claim constructive dismissal: If employer imposes changes anyway (fundamental breach)
• Accept under protest: Work under new terms while reserving right to claim breach

Employer’s Options:

• Withdraw proposed changes
• Continue negotiations
• Follow dismissal and re-engagement route (risky)
• Accept status quo

Practical tip: Always respond to proposed changes in writing. State clearly whether you accept, reject, or accept “under protest without prejudice to your rights.” Proper documentation of contract variations is a key aspect of maintaining compliant employment records.

What is IR35? Does It Apply to Your Contract?

IR35 is HMRC’s anti-avoidance legislation designed to identify “disguised employment” – where individuals work through their own company but are effectively employees. Getting IR35 status wrong can trigger six-figure tax bills.

Understanding IR35 Status Determination

IR35 applies tests developed by UK courts over decades to determine true employment status. The key tests are:

1. Control

Employee indicators:

• Employer controls what, when, where, and how work is done
• Must follow specific instructions and procedures
• Subject to performance management
• Required to attend specific locations/times

Self-employed indicators:

• Control over how work is delivered
• Can decide methodology and approach
• Not subject to detailed supervision
• Flexibility in working arrangements

2. Substitution

Employee indicators:

• Personal service required – cannot send substitute
• Client has right to reject substitute
• Individual chosen for their personal skills/qualities

Self-employed indicators:

• Unrestricted right to send substitute
• Has actually used substitution in practice
• Client accepts any competent substitute

3. Mutuality of Obligation

Employee indicators:

• Ongoing obligation to provide work
• Obligation to accept work offered
• Continuous relationship expected
• Paid during gaps between assignments

Self-employed indicators:

• No obligation to offer work
• No obligation to accept work
• Project-based relationship
• Clear end date or deliverable

How IR35 Affects Your Employment Contract

If Inside IR35 (Deemed Employee):

Your contract should:

• Acknowledge employment taxes will be deducted at source
• State that deemed employment status applies
• Clarify limited expense claims (5% flat rate only)
• Note that dividends cannot be extracted tax-efficiently
• Include Status Determination Statement (SDS) from client

Tax implications:

• Client (if medium/large) or contractor (if small client) pays employment taxes
• Effective tax rate: 30-40% higher than outside IR35
• No dividend extraction benefits
• Limited expense claims

If Outside IR35 (Genuine Contractor):

Your contract must demonstrate:

• Right of substitution: Explicit clause allowing substitutes
• Limited control: Client specifies outcomes not methods
• No mutuality: No obligation to offer/accept work
• Financial risk: Contractor bears costs of poor performance
• Own equipment: Contractor provides tools/resources
• Multiple clients: Working for several clients simultaneously

Understanding IR35 is essential when choosing between different contract types – whether you need a standard employment contract, a freelance contract, or a consultancy agreement depends on the true nature of the working relationship.

IR35 Determination Process (April 2021 Rules)

For medium and large clients (not small):

1. Client determines status using HMRC’s CEST tool or professional advice
2. Client issues Status Determination Statement (SDS) to contractor
3. Contractor has 45 days to disagree and request reconsideration
4. Client reviews and confirms final determination
5. Fee-payer deducts employment taxes if inside IR35

For small clients: Contractor remains responsible for own tax determination.

Penalty for getting it wrong:

• Backdated PAYE and National Insurance
• Interest charges (currently 7.75%)
• Penalties up to 100% of tax due
• Potential criminal prosecution for fraud

How to Write an Employment Contract (With Template)

Writing a legally compliant employment contract requires careful consideration of mandatory legal requirements, best practice provisions, and business-specific needs. Follow this structured approach to create contracts that protect both employer and employee.

Step 1: Gather Essential Information

Before drafting, collect:

About the Employee:

• Full legal name and address
• National Insurance number
• Date of birth (for minimum wage/pension purposes)
• Right to work documentation
• Emergency contact details

About the Role:

• Job title and reporting line
• Job description and key responsibilities
• Location(s) of work
• Hours of work and shift patterns
• Start date and any probation period

About Terms:

• Salary/wage and payment frequency
• Benefits (pension, health insurance, car, etc.)
• Holiday entitlement
• Notice periods
• Any restrictive covenants needed

Step 2: Structure Your Contract

Professional employment contracts follow this structure, which complements other essential HR documents including employee handbooks, disciplinary procedures, and health & safety policies:

Section 1: Parties and Commencement

• Employer name and registered address
• Employee name and address
• Start date of employment
• Continuous employment date (if applicable)

Section 2: Job Details

• Job title
• Reporting structure
• Job duties (summary or reference to job description)
• Place of work and mobility requirements

Section 3: Remuneration

• Salary or hourly rate
• Payment frequency (weekly/monthly)
• Overtime arrangements
• Pay reviews (if any)
• Deductions from pay

Section 4: Hours of Work

• Normal working hours per week
• Working time opt-out (if applicable)
• Shift patterns or flexible arrangements
• Breaks and rest periods

Section 5: Holiday and Leave

• Annual leave entitlement (days/hours)
• Bank holidays treatment
• Holiday year dates
• Accrual during first year
• Carry-over rules
• Payment in lieu rules

Section 6: Sickness Absence

• Reporting procedures
• Medical certificate requirements
• Statutory Sick Pay (SSP) details
• Enhanced sick pay (if any)

Section 7: Pensions

• Auto-enrolment statement
• Pension scheme details
• Contribution rates (employer and employee)
• Opt-out rights

Section 8: Probation Period

• Length of probation (typically 3-6 months)
• Review dates and process
• Notice periods during probation
• Extension possibility

Section 9: Notice Periods

• Notice required from employee
• Notice required from employer (statutory minimum)
• Payment in lieu of notice (PILON) clause
• Garden leave provision

Section 10: Disciplinary and Grievance

• Reference to company handbook or procedures
• Key contact persons
• Right to be accompanied
• Appeal process

Section 11: Confidentiality

• Definition of confidential information
• Obligations during and after employment
• Permitted disclosures
• Return of confidential materials

Section 12: Intellectual Property

• Ownership of work created during employment
• Patents and inventions
• Moral rights waiver
• Assistance after termination

Section 13: Restrictive Covenants (If Applicable)

• Non-compete clause (geographical area and duration)
• Non-solicitation of clients (which clients, how long)
• Non-solicitation of employees (which employees, duration)
• Non-dealing with suppliers

Critical warning: Restrictive covenants must be reasonable in scope, geography, and duration to be enforceable. Courts interpret them strictly against employers.

Section 14: Data Protection

• Processing of employee personal data
• Lawful basis for processing
• Employee rights under UK GDPR
• Data retention periods
• Privacy notice reference

Section 15: Other Provisions

• Benefits (company car, health insurance, etc.)
• Expenses policy
• Training requirements
• Equipment provision and return
• Social media and internet use
• Dress code

Section 16: General Clauses

• Entire agreement clause
• Variation clause
• Third party rights exclusion
• Governing law (England & Wales, Scotland, or Northern Ireland)
• Jurisdiction clause

Step 3: Key Legal Considerations

Avoid These Common Mistakes:

1. Illegal Terms

• ❌ Contracting out of statutory rights (minimum wage, holiday pay, etc.)
• ❌ Discriminatory provisions
• ❌ Penalties or deductions not permitted by law
• ❌ Overly broad restrictive covenants

2. Unclear Terms

• ❌ Vague job descriptions (“other duties as required”)
• ❌ Ambiguous mobility clauses
• ❌ Uncertain pay arrangements
• ❌ Unclear notice periods

3. Missing Mandatory Information

• ❌ No written statement within timeframe
• ❌ Missing statutory information
• ❌ No reference to disciplinary procedures
• ❌ Incomplete pension information

Step 4: Best Practice Tips

Use Plain English

• Avoid unnecessary legal jargon
• Use short sentences and clear structure
• Define technical terms when first used
• Use active voice (“The employee must” not “It is required that”)

Be Consistent

• Use same terminology throughout
• Match contract to employee handbook
• Ensure all employees in same role have consistent terms
• Avoid discrimination through inconsistent terms

Build in Flexibility

• Reference separate policies that can be updated
• Include reasonable flexibility clauses
• Allow for business reorganisation
• But don’t make it so flexible it’s uncertain

Consider the Future

• What if employee gets promoted?
• What if business relocates?
• What if role changes significantly?
• What if employee wants to work remotely?

What Benefits Does a Well-Written Employment Contract Offer?

A comprehensive employment contract provides protection, clarity, and value to both employers and employees beyond mere legal compliance.

Benefits for Employers

1. Legal Protection

A well-drafted contract provides:

• Tribunal defence: Clear evidence of agreed terms protects against claims
• Enforceability: Properly drafted restrictive covenants protect business interests
• IP protection: Clear ownership of work created by employees
• Confidentiality: Legal basis to protect trade secrets
• GDPR compliance: Lawful basis for processing employee data

Real example: Employer successfully defended £50,000 unfair dismissal claim because contract clearly stated probation period terms and performance standards. Without this documentation, claim would likely have succeeded.

2. Clarity and Fewer Disputes

Clear contracts prevent disputes by:

• Setting expectations from day one
• Avoiding misunderstandings about pay, hours, duties
• Providing reference point for both parties
• Reducing informal arrangements that create problems

Statistics: Businesses with comprehensive written contracts report 43% fewer employee disputes than those relying on verbal agreements.

3. Flexibility and Adaptability

Well-designed contracts allow:

• Business reorganisation without contract renegotiation
• Role evolution as business grows
• Reasonable changes to working arrangements
• Policy updates without contractual variations

4. Professional Image

Comprehensive contracts demonstrate:

• Professional approach to employment
• Respect for employees
• Organised business operations
• Investor confidence (essential for due diligence)

Benefits for Employees

1. Security and Certainty

Clear contracts provide:

• Guaranteed minimum terms
• Protection against arbitrary changes
• Clear notice periods
• Defined rights and entitlements

2. Fair Treatment

Written contracts ensure:

• Equal treatment (all employees see terms)
• No hidden terms or surprises
• Clear disciplinary procedures
• Transparent pay and benefits

3. Reference Document

Contracts serve as:

• Proof of employment for mortgages, loans
• Reference for holiday entitlement
• Evidence in disputes
• Record of agreed arrangements

When combined with a comprehensive employee handbook, disciplinary procedures, and grievance policies, employment contracts create a complete framework that protects both parties.

What Are Your Rights to Take Holiday at Work, and for Holiday Pay?

UK workers have statutory rights to 5.6 weeks’ paid annual leave per year (28 days for full-time employees), which must be clearly stated in employment contracts.

Statutory Holiday Entitlement

Full-Time Workers (5 days per week):

• Minimum entitlement: 5.6 weeks = 28 days annually
• Includes bank holidays: Unless contract states otherwise
• Cannot be bought out: Must take minimum holiday
• Accrues from day one: No qualifying period

Part-Time Workers:

Calculated pro-rata:

• 3 days per week = 16.8 days annual leave
• 2 days per week = 11.2 days annual leave
• 1 day per week = 5.6 days annual leave

Irregular Hours/Part-Year Workers:

From April 2024, calculate as:

• Accrual rate: 12.07% of hours worked
• Example: Work 100 hours = earn 12.07 hours of holiday
• Rolled-up holiday pay: Now permitted but must be clearly itemised

How Much Holiday Someone Gets (Enhanced Entitlement)

Contractual holiday: Many employers offer more than the statutory minimum. This might include:

• Enhanced leave: 30-33 days total (statutory + extra days)
• Bank holidays additional: 28 days + 8 bank holidays = 36 days total
• Service-related increases: Extra days for long service
• Buy/sell schemes: Option to trade salary for extra leave

Important: Enhanced contractual holiday cannot reduce statutory minimum. If contract gives 30 days total, statutory rights guarantee first 28 days.

What Does ‘Inclusive of Bank Holidays’ Mean?

“Inclusive of bank holidays” means the 28 days statutory leave includes the 8 public holidays – not in addition to them. This is critical wording in employment contracts.

Inclusive Contracts:

• “28 days annual leave inclusive of public holidays”
• Employee gets: 20 days to take as they choose + 8 bank holidays = 28 total
• If working on bank holiday: entitled to day off in lieu
• If don’t work bank holidays: those 8 days come from allowance

Exclusive Contracts:

• “28 days annual leave plus public holidays”
• Employee gets: 28 days + 8 bank holidays = 36 days total
• More generous arrangement
• More common in public sector

Holiday Pay Calculation

Normal working week: Holiday pay = normal weekly pay

Variable hours/pay: Average of previous 52 weeks (ignoring weeks with no pay)

Includes:

• Basic salary or wages
• Regular commission (from April 2024)
• Regular overtime (from April 2024)
• Regular bonuses linked to performance

Excludes:

• One-off bonuses
• Occasional overtime
• Expenses
• Benefits in kind

Recent changes: From April 2024, rolled-up holiday pay is permitted for irregular hours workers, but must be:

• Clearly itemised on payslips
• Calculated at 12.07% of pay
• Additional to basic pay (not substituting it)

How Can I Make Sure My Employment Contracts Are Compliant?

Ensuring employment contract compliance requires regular review, professional input, and systematic processes. Follow this compliance framework:

Annual Contract Review Checklist

Legal Updates Check

• ✅ Review April and October legislative changes (main change dates)
• ✅ Check recent employment tribunal case law
• ✅ Verify ACAS Code compliance
• ✅ Update for minimum wage changes
• ✅ Confirm pension auto-enrolment thresholds
• ✅ Review GDPR/data protection requirements

Content Verification

• ✅ All mandatory information present
• ✅ Notice periods meet statutory minimums
• ✅ Holiday calculations correct
• ✅ Pension information accurate
• ✅ Restrictive covenants still reasonable
• ✅ Job descriptions current

Consistency Check

• ✅ All employees in same role have consistent terms
• ✅ Contract matches employee handbook
• ✅ No unlawful discrimination in terms
• ✅ Pay equity across protected characteristics

Process Verification

• ✅ Contracts issued within required timeframes
• ✅ Signed copies retained for all employees
• ✅ Changes properly documented and agreed
• ✅ Leavers’ files properly archived

Employment contract compliance is just one part of your overall employment documentation compliance strategy – ensure all 12 essential documents are reviewed annually and kept up to date with legislative changes.

Understanding “At Will” States vs UK Employment Law

Critical difference: UK employment law provides significantly more protection than US “at will” employment.

“At Will” Employment (USA):

• Employment can be terminated by either party, any time, any reason
• No notice period required (usually)
• Very limited employee protections
• Written contracts less common

UK Employment Law:

• Cannot dismiss without fair reason and fair procedure
• Statutory minimum notice periods mandatory
• Extensive employment protections from day one
• Written particulars legally required
• Tribunal system to enforce rights

US businesses operating in UK: Cannot apply “at will” principles. Must comply fully with UK employment law regardless of US parent company policies.

When to Seek Professional Legal Review

Mandatory professional review situations:

High-Risk Scenarios:

• Senior executive contracts (£100k+ roles)
• Contracts with restrictive covenants
• Complex commission structures
• International assignments or secondments
• Innovative working arrangements
• Settlement agreements

Red Flag Situations:

• Employee challenges contract validity
• Considering major contract changes
• Mass redundancy or restructure
• TUPE transfer involved
• Employee threatens tribunal claim
• Complex IR35 determination

Routine Professional Review:

• Annual template review: £500-£1,500 for comprehensive review
• New contract types: £750-£2,000 per template
• Contract disputes: £200-£400 per hour

ROI of professional review: £1,000 spent on contract review prevents average £47,000 unfair dismissal claim.

Employment Contract UK: Frequently Asked Questions

Conclusion: Your Employment Contract Action Plan

Employment contracts are the foundation of the UK employment relationship – getting them right protects both businesses and employees while preventing costly disputes and tribunal claims. As part of your complete employment documentation suite, a well-drafted contract is your first line of defence against legal challenges.

Your Immediate Action Steps

For Employers:

1. Today: Review all current employment contracts against the mandatory checklist in this guide
2. This Week: Identify contracts missing mandatory information or outdated provisions
3. This Month: Update contract templates for April 2025 day-one requirements
4. Ongoing: Implement quarterly contract review process alongside your other HR documentation

For Employees:

1. Today: Locate your employment contract and check it contains all mandatory information
2. This Week: Verify your understanding of notice periods, holiday entitlement, and change procedures
3. This Month: Raise any concerns or missing information with your employer in writing
4. Ongoing: Keep copies of all contract variations and communications

Key Takeaways

• ✅ UK employment contracts can be written, verbal, or combination – but written statement is mandatory
• ✅ April 2025 brings day-one requirement for written particulars (currently 2 months)
• ✅ Employers cannot change contracts without consent – flexibility clauses have limits
• ✅ IR35 status determines whether genuine self-employment or disguised employment applies
• ✅ Well-drafted contracts prevent 43% of employment disputes
• ✅ Missing mandatory information triggers automatic 2-4 weeks’ pay tribunal award
• ✅ Holiday entitlement is 5.6 weeks (28 days) minimum – contracts must specify if bank holidays are included
• ✅ Professional review costs £1,000 but prevents average £47,000 unfair dismissal claim
• ✅ Regular review essential – employment law changes every April and October
• ✅ Employment contracts work best as part of a complete 12-document compliance suite

Why Choose Our Employment Contract Templates?

Our UK-specific employment contract templates provide:

• April 2025 Compliant: Updated for day-one rights and latest legislation
• Professionally Drafted: Created by UK employment law specialists
• Comprehensive Coverage: All mandatory and best practice terms included
• Plain English: Clear, accessible language employees understand
• Industry Tested: Used by thousands of UK businesses
• Instantly Customisable: Edit in Word with your company details
• Full Documentation: Includes guidance notes, schedules, and appendices
• Affordable: Just £10 per template – less than 15 minutes of solicitor time
• Complete Suite Available: Part of our comprehensive 12-document collection

Don’t risk £47,000 unfair dismissal claims with inadequate contracts. Download our professionally drafted UK Employment Contract Template for just £10, or get the complete 12-document employment suite for £120 (save £48!).

Disclaimer: This guide provides general information about UK employment contracts and should not be considered legal advice. Specific circumstances require professional legal consultation. Laws and regulations current as of October 2025. Regular updates recommended as legislation evolves.