Employment Contracts for SMEs: What to Include and the Risks of Getting Them Wrong

If you run a small or growing business, the chances are your employment contracts were written in a hurry. Perhaps they came from a template online, were borrowed from a previous employer, or were drafted when the business had three people and have not been looked at since.

That is very common, and it is also one of the first things I look at when I start working with an organisation. A good employment contract sets clear expectations, protects the business and prevents disputes before they start. A poor one can leave you without the protection you thought you had, at exactly the moment you need it.

This guide explains what a UK employment contract should include, what the law requires, and the mistakes I see most often.

Do employees need a written contract?

Legally, a contract of employment exists as soon as someone accepts a job offer, whether or not anything is written down. What the law does require is a written statement of employment particulars.

Since April 2020, employees and workers have been entitled to this written statement on or before their first day. Most employers combine the statement with the wider contract into a single document, which is the simplest approach.

What must a written statement of terms include?

The day-one written statement must set out the main terms, including:

• the names of the employer and employee
• the start date, and the date continuous employment began
• job title or a brief description of the work
• place of work
• pay, how it is calculated and when it is paid
• working hours and days, and whether they can vary
• holiday entitlement, including bank holidays
• any probationary period and its conditions
• notice periods on both sides
• sick leave and sick pay arrangements
• other paid leave
• benefits, including pensions
• any training the employer requires

Some details, such as pension arrangements and disciplinary and grievance procedures, can be set out in another document, like your employee handbook, provided the employee can easily access it.

What else should an employment contract include?

Beyond the legal minimum, a well-drafted contract should protect your business. Depending on the role, that might include:

• Confidentiality clauses covering client information, pricing and business plans.
• Data protection obligations.
• Restrictive covenants, such as non-compete or non-solicitation clauses, for senior or client-facing roles.
• Intellectual property clauses, so work created in the role belongs to the business.
• A clear link to your disciplinary and grievance procedures.

Restrictive covenants are only enforceable if they go no further than is reasonably necessary to protect a legitimate business interest. A blanket clause copied from a template can easily be unenforceable.

Common employment contract mistakes

These are the issues I come across most often in SMEs:

• Outdated or generic templates that do not reflect current law or how your business works.
• Contracts not issued from day one, or not issued at all.
• Terms not updated when roles change, so the contract describes a job the person stopped doing years ago.
• Restrictive covenants that are too broad to be enforced.
• Missing clauses, such as the ability to make deductions from pay, lay-off and short-time working, or the right to change place of work.
• Inconsistency, with different people on the same role holding very different terms for no clear reason.

The risks of getting employment contracts wrong

The cost of a poor contract usually shows up later, at the worst possible time.

• Financial: tribunal claims, and potential compensation where written particulars have not been provided.
• Employee relations: misunderstandings about pay, hours or duties, and a loss of trust.
• Business protection: confidential information or clients you cannot protect when someone leaves.
• Compliance: contracts that no longer match employment law.
• Reputation: disputes that damage how you are seen as an employer.

Employment law is changing

The Employment Rights Act 2025 is being introduced in stages. Statutory sick pay became payable from the first day of absence in April 2026, and from 1 January 2027 the qualifying period for unfair dismissal claims falls from two years to six months. Further changes are planned.

If your contracts and handbook were written before these changes, now is a good time to review them, particularly probation, sick pay and notice clauses.

How often should you review employment contracts?

As a rule of thumb, I recommend:

• a review of your templates at least once a year
• an update whenever employment law changes
• role-specific templates rather than one contract for everyone
• issuing a written variation whenever someone's role, hours or pay changes

Download the guide

The free two-page PDF summarises what to include, the common mistakes, the risks and best practice, so you can check your own contracts against it.

Want your contracts reviewed?

If you are not sure your contracts would stand up if they were tested, I can review them and tell you plainly what needs changing. Book a free 30-minute consultation to talk it through.