How To Draft An Employment Contract In The UK: Key Clauses & Mistakes

Hiring your first employee (or your tenth) is a big step. It’s exciting - but it also comes with legal responsibilities that can catch small businesses out if you’re relying on “we’ll sort it later”.

That’s where an employment contract comes in. When you draft an employment contract properly, you’re doing more than ticking a compliance box - you’re setting expectations, protecting your business, and reducing the chance of expensive disputes down the track.

In this guide, we’ll walk you through how to draft an employment contract in the UK, what clauses matter most for employers, and the common mistakes we see that can cause real headaches.

Why It’s Worth Getting Your Employment Contract Right From Day One

In the UK, employment rights can arise quickly - and many key terms don’t need to be in writing to become enforceable. Verbal promises, offer emails, and “that’s how we usually do it” can all form part of what your employee thinks they’re entitled to.

Putting things in a clear written employment contract helps you:

• Comply with legal obligations (including providing written particulars of employment).
• Reduce misunderstandings about pay, hours, duties, and expectations.
• Protect confidential information and business relationships.
• Set clear expectations around probation, performance, and exit steps (alongside your statutory obligations and the ACAS Code where relevant).
• Support growth by creating a repeatable, professional onboarding process.

Even if you have a great relationship with your team, having a solid Employment Contract means you’re not relying on memory (or goodwill) when something changes.

How To Draft An Employment Contract: A Practical Step-By-Step For Small Businesses

If you’re trying to draft an employment contract from an employer’s perspective, the best approach is to start with your operational needs and then map them to legal requirements. Here’s a practical process you can follow.

1) Confirm The Working Relationship (Employee Vs Worker Vs Contractor)

Before you start drafting, make sure you’re clear on the person’s status. An “employee” typically has broader rights (like unfair dismissal protection after qualifying service) and you’ll generally have more control over how and when they work.

If someone is genuinely self-employed, they should usually be on a contractor agreement instead - and getting this wrong can create tax, employment rights, and compliance risks.

2) Write Down The Non-Negotiables

Do this before you worry about legal language. For example:

• What hours do you actually need covered?
• Is the role office-based, remote, or hybrid?
• Is there travel? On-call work?
• Will you offer commission/bonus?
• Do you need the ability to change duties as the business grows?

This is the difference between a contract that looks fine on paper and one that works in real life.

3) Build The Core Legal Terms

At a minimum, UK employers need to provide certain written particulars. Your contract usually wraps these up neatly and sets out the wider terms and policies that protect your business.

This is also where it can be worth getting support rather than relying on a generic template. A one-size-fits-all document often misses the practical issues that trigger disputes (for example, commission rules, overtime expectations, or remote working boundaries).

4) Align With Your Policies And Processes

Many “employment contract problems” aren’t really contract problems - they’re consistency problems.

If your business has policies on things like IT use, monitoring, absence reporting, flexible working, or disciplinary procedures, your contract should either reflect them or clearly link to them (without accidentally making policies “contractual” when you don’t want them to be).

5) Check Termination And Post-Employment Protections Carefully

Termination is one of the most common flashpoints for claims and disputes. A well-drafted contract won’t guarantee you never have a problem - but it makes it much easier to manage exits fairly and lawfully (with a fair process and in line with the ACAS Code where applicable).

This is also where confidentiality, IP ownership, and restrictive covenants often sit, so it’s worth taking the time to get it right.

Key Clauses To Include When You Draft An Employment Contract

When small business owners ask what to include in an employment contract, our answer is usually: include the basics and the clauses that reflect how your business really operates.

Below are the key clauses to consider when you draft an employment contract in the UK.

Job Title, Duties And Reporting Lines

This clause sets expectations around what the employee is employed to do and who they report to. For a growing business, flexibility matters - so you’ll often want wording that allows duties to reasonably evolve over time.

Be careful, though: “any duties we ask” can feel unfair and can backfire if it’s used to justify a major change to the role. A balanced approach is usually best.

Place Of Work (Including Remote Or Hybrid Terms)

If your team works remotely or in a hybrid setup, set clear boundaries:

• Is the home address the contractual work location?
• Can you require attendance at the office on certain days?
• Who provides equipment?
• Are there working-from-abroad rules?

These details help avoid disputes later when business needs change.

Hours Of Work, Overtime And Breaks

Hours clauses should be crystal clear, especially where you need flexibility. Consider including:

• Normal working hours (and days of the week).
• Whether additional hours may be required, and how they’re paid or managed.
• Whether the employee can opt out of the 48-hour weekly average limit (where appropriate).

If you’re unsure what’s allowed, it helps to sanity-check against the Working Time Regulations framework so your contract doesn’t promise something you can’t deliver (or accidentally require something unlawful).

Pay, Benefits And Bonus / Commission Structures

Pay clauses are a common source of confusion. Your contract should set out:

• Salary or hourly rate and when it’s paid.
• Any benefits (e.g. allowances, private health cover, car allowance).
• Bonus/commission rules (including when it’s earned, when it’s paid, and what happens on resignation).

If you offer performance-based pay, define the triggers. Vague wording like “discretionary” can help, but only if your practices match the language (and the discretion is genuine).

Holiday Entitlement (And Bank Holidays)

Make sure the contract states holiday entitlement clearly and whether bank holidays are included or on top. This is one of those areas where small wording changes have big impacts on cost and expectations.

For example, the phrase “inclusive of bank holidays” is commonly misunderstood, so it’s worth being specific.

Sickness And Other Leave

A simple clause usually covers:

• How to report sickness (who to contact and by when).
• Evidence requirements (e.g. fit notes).
• Statutory Sick Pay and any contractual sick pay (if you offer it).

If your team is growing, having consistent rules here helps you manage absence fairly.

Probation Period

A probation period gives you a structured way to assess performance early on, with clearer review points and (often) shorter notice periods. It’s not a magic “no rights” window, but it’s still a useful tool when drafted and applied properly.

It’s worth aligning your clause with what you actually plan to do in practice - including review meetings and extension rights - and it can help to check your approach against common probation periods best practice.

Confidentiality And Data Protection

Most small businesses rely heavily on confidential information: client lists, pricing, marketing plans, supplier terms, processes, and know-how.

Your contract should define:

• What counts as confidential information.
• How it must be handled during employment.
• What happens on termination (returning devices, deleting files, etc.).

This should also align with your privacy and security practices, especially if employees handle customer data under UK GDPR and the Data Protection Act 2018.

Disciplinary And Performance Management

You don’t want to be drafting your approach to performance issues in the middle of a stressful situation. A contract can either set out a process at a high level or refer to a policy/handbook (depending on how you’ve set things up).

Whatever approach you take, you’ll still need to follow a fair procedure in practice and consider the ACAS Code where it applies.

For many employers, it’s also helpful to have a consistent approach to formal performance management such as Performance Improvement Plans, particularly where expectations need to be documented and measured.

Termination, Notice And Garden Leave

Termination clauses should cover:

• Notice periods (during probation and after probation).
• Your right to pay in lieu of notice (PILON) if appropriate.
• Garden leave rights (to keep someone away from clients/systems during notice).
• Return of property and handover obligations.

Getting the notice clause right is especially important if the role involves client relationships or access to sensitive systems.

Gross Misconduct And Summary Dismissal

Most employers include examples of gross misconduct to set expectations and support disciplinary processes. It’s important not to treat a list as automatic grounds for dismissal - you still need a fair process - but it does help clarify what behaviour is unacceptable.

If you’re building or reviewing this part of your contract and procedures, a Gross Misconduct checklist mindset can help you stay consistent and reduce risk.

Intellectual Property (IP) Ownership

If your employee creates content, code, designs, training materials, templates, or other IP as part of their role, your contract should deal with ownership. This is especially important for creative agencies, software businesses, marketing teams, and product-led startups.

You want clarity so your business can keep using what’s been created without disputes later.

Restrictive Covenants (Non-Compete / Non-Solicitation)

Restrictive covenants can help protect your client relationships and team stability - but they need to be reasonable and tailored to the role to have a better chance of being enforceable.

For example, a short non-solicitation clause may be more realistic than a long non-compete for many roles. It’s a classic “get advice” area, because overly broad restrictions can be unenforceable (and can make exits harder than they need to be).

Common Mistakes Employers Make When They Draft An Employment Contract

Most contract issues aren’t caused by bad intentions - they’re caused by rushed hiring, copied templates, or trying to solve a complex business problem with a single paragraph.

Here are some of the most common mistakes we see when small businesses draft an employment contract.

Using A Generic Template That Doesn’t Match Reality

Templates often miss the details that matter: commission triggers, overtime expectations, hybrid working rules, and clear probation processes.

If your contract doesn’t reflect how the role actually works, you’ll end up with either:

• a contract you can’t realistically enforce, or
• a contract you’ll quietly ignore (which can create custom-and-practice expectations).

Accidentally Promising Benefits You Didn’t Intend To Offer

Small wording choices can accidentally create entitlements. Common examples include:

• Bonuses that are described in a way that makes them feel guaranteed.
• Overly generous sick pay wording copied from somewhere else.
• Holiday clauses that unintentionally add bank holidays on top.

Once something looks contractual, removing it later can become a negotiation - not a simple update.

Getting Notice Periods Wrong (Or Forgetting PILON)

If you don’t include the right notice and exit tools, you can end up stuck:

• paying someone to work out a long notice period when trust is gone, or
• trying to end employment quickly without the contractual right to do so cleanly.

Notice clauses are a core risk-management tool for employers, so they deserve proper attention.

Not Linking Correctly To Policies And Procedures

Policies can be hugely helpful, but the contract needs to reference them carefully. If you unintentionally make policies contractual, it can become harder to update them later when your business changes.

On the flip side, if you don’t reference key policies at all, it can be harder to enforce them consistently.

Forgetting About Practical Compliance (Not Just The Contract)

Your contract should sit within a wider, compliant employment setup, including:

• right-to-work checks,
• payroll setup and HMRC compliance,
• health and safety,
• data protection and acceptable use rules.

And remember: contracts don’t manage themselves. If you say you’ll do probation reviews, do them. If you say you’ll follow a disciplinary process, follow it (and keep in mind the ACAS Code and broader legal duties around fairness).

Assuming Emails Or Informal Messages “Don’t Count”

Offers and variations can end up being agreed over email in a way that’s hard to unwind later - especially if the employee relies on it.

If you’re ever unsure how binding an exchange might be, it’s worth keeping in mind that emails can form part of enforceable agreements in the right context. The safer approach is to keep key changes documented properly (and signed where appropriate).

What To Do After The Contract Is Drafted: Signing, Storage And Updating

Once you’ve done the work to draft an employment contract, don’t lose the value by handling the rollout poorly. A few simple steps help you stay organised and consistent.

Get It Signed Before The Employee Starts

Ideally, the contract is signed and returned before day one. If you let someone start work without paperwork, you can still have a contract - it’s just much harder to prove what was agreed.

Store It Securely (And Keep Version Control)

Save a signed copy somewhere secure with limited access. It’s also worth saving:

• the contract version you issued,
• any subsequent variations, and
• the offer letter and job description.

This will make your life much easier if there’s ever a dispute, a redundancy process, or a due diligence request.

Update The Contract The Right Way

Businesses change - and employment contracts often need to change too (new working hours, new responsibilities, new pay structures, new reporting lines).

The key point is this: you generally can’t just impose changes unilaterally without risk. Contract variations should usually be agreed and documented properly, especially where changes are significant.

Review Your Contracts As You Grow

What works when you have two employees might not work when you have twenty. As your business evolves, it’s smart to review whether your contracts still match your operations - including remote work, incentive structures, data handling, and termination processes.

If you’re putting new documents in place (or rolling out more structured policies), it can help to get a lawyer to review your setup so you’re protected from day one - and not trying to retrofit compliance later.

Key Takeaways

• When you draft an employment contract properly, you’re setting clear expectations and protecting your business - not just complying with a formality.
• Your contract should reflect how the role actually works in practice, including hours, remote working, pay structures, and flexibility as the business grows.
• Key clauses to get right include pay, hours, holiday, probation, confidentiality, performance management, termination, and (where appropriate) restrictive covenants.
• Common mistakes include relying on generic templates, accidentally promising entitlements, unclear notice/PILON provisions, and inconsistent links to policies and procedures.
• Have the contract signed before the employee starts, store it securely, and document any changes properly rather than relying on informal messages.

This article provides general information only and isn’t tax, payroll, or HR advice. If you need help with your specific situation, it’s worth getting professional advice.

If you’d like help drafting or reviewing an Employment Contract that fits your business, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.