There are several types of help you can bring on board to help you and your business.....
Deciding what type of help you need
Let's decide what sort of help you need. Once you've done that, you'll be able to identify which document will best capture that relationship.
In a nutshell, your 3 main options are:
(1) an employee
(2) a self-employed contractor
(3) what's called 'a worker'.
You can find the key differences between these 3 options explained here in our guide to the different types of help you can bring on board
You'll need an employment contract if you're hiring an employee...
We've got several employment contracts to choose from, depending on what your employee is going to be doing.
You can access all of these templates below, by clicking on the circumstances that best suit your needs:
All of the above contracts are suitable for employees only.
An employee is an employee, even if it's not written down
If you have an employee, then by law, they're actually already employed under a contract of employment, whether you've put anything in writing yet or not.
But we would strongly recommend putting a written contract into place, so there's no ambiguity about the basis on which you and the employee work together.
If you're hiring for the first time, take a look at our step-by-step superguide to hiring your first employee, containing all the practical, as well as legal steps, key documentation and things to think about.
It's your no-nonsense recipe for a great hiring process.
Not a first-timer?
Then our guide to hiring employees more generally will have you covered.
What's inside our templates?
Our contract templates include all the terms you need from more obvious ones like salary, hours, and holiday entitlement, to how the employee will be expected to manage confidential information, what would happen if they were off sick for a prolonged period of time, of if they make a complaint.
How to choose between them
The key differences between the first employment contract template and the more senior one is that the latter will be a bit longer and contain more detail, typically around:
benefits, rewards and incentives
duties and responsibilities
(e.g. they'll probably be responsible for managing other people)
restrictions that kick in when they want to leave (restrictive covenants)...
...since they may be in a stronger position to persuade other members of staff to leave your business and follow them.
They may also know more confidential and competitively sensitive information about your business that could benefit a competitor or help that employee to become a competitor.
If you're interesting in finding out more about restrictive covenants our guide about restrictive covenants tells you all you need to know.
Directors and non-executive directors
Directors are also employees.
Non executive directors are not.
Every limited company must have at least 1 director. (You do not have to have a non-executive director.)
These are different from casual workers and/or interns, both of whom are not categorised as employees under UK law.
Fixed term employees have the same legal rights as permanent employees.
After 2 years, they may attain the same rights of redundancy as a permanent employee.
And after 4 years, a fixed term employee may automatically become a permanent employee.
There can be a grey line between the definition of a worker and an employee, however. Make sure you understand the difference, which is explained in detail in our guide on the different types of help you can bring on board.
Apprenticeships combine practical training in a specific job with study obligations. They work alongside experienced staff to develop job-specific skills and experience while studying for a relevant qualification.
Businesses employ apprentices and must permit them to attend their courses and take study leave.
Apprentices taken on under this legal regime are entitled to the same rights as employees.
If you’re not intending for the individual in question to be covered by this regime or to have these particular rights and benefits, you should not use this agreement.
If you're hiring a self-employed contractor, you'll need a different type of contract ...
That's because this is a different type of relationship altogether. Again, there are a couple of choices here, depending on how the self-employed contractor has chosen to run their business.
For those running their businesses as a sole trader:
For those running their business as a limited company consultancy:
What's the difference and should you care?
You definitely should care - not least because getting the wrong arrangements can lead to legal and tax liabilities for both you and the freelancer/contractor concerned - a bit more on that in a moment.
The key difference between these two arrangements is that a sole trader business is one and the same with the individual who set up the business. The business has no separate legal identity.
That individual's income, debts, liabilities and responsibilities are entwined with that of their business.
Sole traders pay income tax on all that they earn, in the usual way - there are few tax reliefs available for sole traders.
And if something goes wrong, the sole trader's personal assets could be clawed in to pay off debts or other claims, if the business cannot afford to pay any costs involved.
A limited company is a model where the limited company has its own legal identity, separate from its owner/founder(s).
Any risks or claims experienced by the limited company business is ring-fenced, meaning that the owner-founder has a much greater level of protection in the event of financial problems arising and their personal assets are not at risk (provided they have acted with integrity and lawfully).
They have greater tax benefits and they can raise money in multiple ways. Often making them a business partner who appears more stable, when it comes to pitches for work.
To find out more information on the differences between these two arrangements our guide about which business model to choose could come in handy.
Contractors are not employees.
Never treat them the same way as employees.
Both on paper, and in practice, a contractor must never cross the line between self-employed and employed status. If they do, they acquire the legal rights, such as holiday and sick pay and other rights that belong to employees. You will also need to pay National Insurance contributions and Pay-As-You-Earn tax on them. There may also be penalties for not having paid these when HMRC considers that you should have done, because your contractor was essentially an 'employee in disguise'.
The contractor also incurs tax liabilities and claw-back risks in these circumstances too - and once again, these can be considerable.
Our guide essential facts affecting freelancers and contractors provides some really helpful background on why and how to ensure you keep your contractors at arms-length, to avoid any unwelcome tax and other legal consequences.
You'll need more than a contract for services too
One last thing, if your contractor is running their business as a limited company, you'll also need to put in place: an assignment of property document and what's often called a 'real arrangements', or 'logistics on substitution' letter
How and why...
...you need both of these documents is explained in our guide essential facts affecting freelancers and contractors.
You'll also find lots of pragmatic drafting advice embedded alongside the templates as you compete them too.
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