Do Small Businesses Need Contracts?

By April Harrington.
30 Sep 2022

Small businesses, like large businesses, need to provide their staff with employment contracts. Do these contracts look different to those given by larger businesses?

Most terms will remain the same—with a few key differences. In this article, we’ll highlight what these differences are while discussing contract requirements and best practice.

For immediate advice on any and all employment documentation, speak to one of HR experts today on 01455 858 132.

Employment contracts – the statutory requirements

In other words—why do I need to provide a contract, and what do I need to include?

A contract is a legal obligation as well as a practical one. From an employment law perspective, it is unlawful not to have a contract of some form when employing an individual.

From a practical point of view, contracts of employment lay out what you expect from your staff. They also state your obligations as an employer. They’ll help you run your business more effectively, and allow employees to work more efficiently. If HR issues do occur, you’ll always have your contract to back you up.

An employment contract is made up of terms. Some of these are express terms. Others are implied.

Express terms are those relating to employment law and statutory requirements. They are stated directly in the employment contract. They include areas such as:

  • Wage / Salary
  • Working hours
  • Duties of the role
  • Staff benefits
  • Holiday entitlement & pay

Implied terms are those that aren’t written down in contracts of employment, but implied by other terms of the contract or the law. They are presumed to be agreed to if the employee enters into the contract. Examples of implied terms include:

  • Duty of mutual trust and confidence between employer and employee
  • Right to receive at least the national minimum wage
  • Right to a minimum period of notice

To make sure your documentation is airtight, you should include as many terms as possible in writing. This means everyone is clear on what is expected from them, and the employee knows their rights and obligations.


person signing employment contract


Small business employee contract

The main differences in contracts don’t come from the size of the business, but the type of employee they’re engaging with. For example, you could utilise:

  • Full-time contracts
  • Part-time contracts
  • Fixed-term contracts
  • Temporary contracts
  • Agency contracts
  • Zero-hour contracts

For more information on these different types of contract, speak to a member of our documentation team today on 01455 858 132.

When do I need to provide a contract of employment?

It’s best practice to provide an employment contract from day one of employment. You must provide a statement of main terms (SMT) from day one, otherwise you’ll be breaking employment law.

If you want to see a template of what to include in the SMT, click here.

As for the contract itself, technically you don’t have to provide a full written contract. However, if you have employed an individual, then there is already a contract in place. The contract is verbal.

Having a verbal contract is risky for many reasons. One of the reasons is that if an issue occurs, it is essentially your word against theirs. If taken to tribunal, this can get very messy and may well rule in the employee’s favour.

To avoid this we would always recommend a full written contract from day one of employment.


small business owner behind counter of cafe business


I have less than 25 employees – do I still need to provide a contract?

Yes, everyone needs a contract, regardless of how many staff you employ. Remember, a contract exists so long as you employ staff. For this reason, it’s better to have a written contract than a verbal one. Employment contracts for small businesses are no different.

If you need support writing, changing, or updating your employment contracts, speak to our legal documentation experts first on 01455 858 132.

About the Author

April Harrington.

An experienced Senior Employment Law Consultant, who has worked for the group for over 9 years. April specialises in discrimination legislation. April has an extensive background in training, as well as recruitment and hospitality.

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