Every employment relationship should always be backed up with a formal paper that details the terms and conditions of cooperation. The name of this paper is an employment contract. Nowadays, employers offer an array of employment types, with an employment contract for each of them. Whether you’re just at the beginning of your career path or you’re looking for better employment conditions, you should be aware of the intricacies that different employment contract types include. This knowledge will help you better understand the rights, responsibilities, and employment benefits within your professional journey with a particular organisation.

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Why a Variety of Contracts Matters

The reasons why an employment contract matters for the employee are apparent: it guarantees job security and ensures fairness. What about the employer?

First and foremost, it guarantees an employee’s commitment to the organisation. However, choosing the right type of employment contract for each of the employees brings along other advantages as well:

It helps to avoid legal issues or penalties and ensures compliance with the law.
It prevents any kind of misunderstanding between an employer and employee regarding their cooperation.
Some employment contracts offer labour cost savings.
Some employment contracts allow an employer to assess an employee’s suitability for the role.
An opportunity to choose the type of contract means the company values its employees and their work-life balance. This can attract top talent.
Due to greater flexibility, various contracts allow businesses to adapt to market changes faster and more effectively.

Different types of employment contracts are united in groups according to a common feature: arrangements by employment period, by number of working hours, or by employee role. Here, we explain the most common types of employment contracts and provide lists of advantages and disadvantages each of them has.

Employment Contracts by Employment Period

Permanent employment contracts

This type of contract is also known as an open-ended or indefinite-term contract. Its main feature is no fixed end date for the employment relationship. To terminate it, an employee or employer has to give a notice.

Advantages for the organisation:

A permanent contract ensures that the key positions are consistently filled;
Reduces the need (and costs) for frequent recruitment and onboarding;
Strengthens the sense of belonging among employees and the company’s overall cohesion;
Reduces administrative burden and paperwork associated with new hires;

Disadvantages for the organisation:

Salaries, benefits, and pension contributions make fixed costs higher;
Too many permanent employees may cause overstaffing in the industries with seasonal demand;
A complicated termination process that includes severance pay or other legal obligations;
Having only permanent contracts may affect the organisation’s ability to engage workers with specialised skills required only for short-term expertise.

Temporary Contracts

Having a temporary or fixed-term contract means your employment terminates on a specific pre-agreed date. Fixed-term contracts offer the same or equivalent employment rights as the permanent employment contract, including protection against unfair dismissal.

Advantages for the organisation:

Allows the organisation to respond to changes in workforce demand quickly;
Provides an opportunity to engage workers with specialised skills for short-term projects or tasks;
The benefits package for fixed-term employees may be different;
Less paperwork and administrative burden.

Disadvantages for the organisation:

Temporary workers may demonstrate poorer loyalty and interest in the company’s long-term success;
If temporary workers keep on leaving without transforming into permanent employees, it may result in higher turnover rates and, therefore, higher labour costs.

Employment Contracts by Number of Working Hours

Full-Time Contracts

A full-time contract implies a standard number of working hours per week, which is normally 40. The contract also specifies the number and length of breaks an employee can have, if they are allowed to work flexible hours, how many days per week they can work remotely, and the nuances regarding working extra hours and overtime pay.

Advantages for the organization:

Full-time employees ensure a consistent workforce;
Full-time positions give a sense of security, which improves commitment and engagement levels;
Full-time employees tend to build stronger relations with their colleagues. This improves teamwork and results in higher productivity.

Disadvantages for the organization:

Full-time employees come with higher costs compared to contract or part-time workers;
Full-time employees mean more legal obligations and responsibilities (covering employee benefits, complying with labour and termination laws);
Too much stability and security may sometimes result in lower productivity, quiet quitting, or absenteeism;
Full-time employees result in more paperwork.

Part-Time Contracts

Individuals who work a portion of the standard working hours, usually half of them, have a part-time employment contract with their employer. Similarly to a full-time employment contract, part-time employment contracts usually specify if the working schedule is fixed or flexible if there are core hours, and if an employee is supposed to be paid for overtime.

Advantages for the employer:

Part-time employees may be entitled to fewer benefits compared to full-time employees, which is cost-saving;
Part-time employees provide more flexibility in scheduling;
The reputation of a caring employer who recognises that employees are individuals with personal circumstances;
Lower overhead costs connected with office space, equipment, and other supplies.

Disadvantages for the employer:

Part-time employees may demonstrate less commitment, which results in quitting and increasing turnover rates;
Part-time employees may not be as connected with their co-workers or teams as their full-time counterparts, which leads to lower engagement and productivity levels.
Part-time workers tend to provide limited availability and reachability.

Zero-Hour Contract

Zero-hour employment contracts are also known as casual employment contracts. According to it, an employee works on request when there is a specific task or a staff shortage to fill in. Such contracts give a lot of freedom:

An employee can decline the request if the opportunity isn’t worth it.
This contract doesn’t imply loyalty and allows zero-hour contractors to accept job opportunities from different employers.
According to UK law, employers must provide zero-hour contractors with the National Minimum Wage and statutory annual leave.

Advantages for the company:

Zero-hours contracts provide higher workforce flexibility, especially under conditions of fluctuating demand;
Zero-hours contracts help save costs as an employee is paid for the actual hours worked;
Zero-hours contracts provide an opportunity to engage a larger pool of talent;
Zero-hour workers imply fewer administrative tasks;
If there is a crisis or economic downturn, an employer can stop offering any job opportunities and, therefore, reduce costs.

Disadvantages for the company:

Lack of stability may lead to lower employee morale and limited levels of commitment;
Zero-contractors may be unavailable when you need them due to being engaged in job opportunities with other organisations.

Types of Employment Contracts by Employee Role

Freelance and Self-Employment

When a business needs specific expertise for a limited time, they can hire freelancers and self-employed professionals. They work on a contracted basis: once a task or project is completed, working relations are also over. However, the contract can be renewed if both parties are willing to continue their cooperation.

Advantages for the organisation:

Access to specialised expertise only for the period it’s needed;
Freelancers may bring valuable knowledge and fresh perspectives to existing projects and teams;
Freelancers are responsible for their expenses, including National Insurance contributions, equipment, and tax liabilities;
Freelancers are often ready to get down to work on short notice;
Freelancers don’t require much training or onboarding.

Disadvantages for the organisation:

Freelancers may be engaged in numerous projects simultaneously, which is prone to a lack of commitment or availability;
Freelancers may fail to align with the company’s culture, values, or goals and cause some friction within the teams;
Both parties should communicate the ownership of intellectual property;
An employer has to make sense of all the legal aspects of hiring freelancers, especially those connected with tax and labour laws.

Internship or Apprenticeship Contracts

For individuals who are only at the beginning of their career way, there are two options to gain practical work experience: through internship and apprenticeship. Since both imply work, they should be backed up with an employment agreement. The contract has to outline the following information:

Contract length of the internship/apprenticeship;
How many hours the individual is expected to work;
A clear description of responsibilities;
Information about the supervisor or mentor;
A description of training programmes and learning experiences that will be provided;
Compensation, if applicable;
Termination terms;
A description of performance evaluation and feedback mechanisms.

Agency Workers

If an organisation needs to cover short-term staffing needs or individuals with specialised skills, they can also consider hiring agency workers. Agency workers typically have either a contract for services or an employment contract with the agency they cooperate with. The organisation that wants to hire temporary staff pays the agency, and the agency pays wages to the workers. The worker has to get money for their work done even if the client hasn’t paid the agency. The work is usually temporary. However, if workers stay with the hiring body for more than 12 weeks, they are entitled to the same rights and equal treatment as their permanent staff members. It includes pay rates, bonuses, paid holiday entitlement, parental leave allowances, breaks, working hours, and access to collective facilities. This information has to be outlined in the contract.

Umbrella Contracts

Self-employed specialists who look for temporary work can also cooperate with umbrella companies. An umbrella company doesn’t provide you with work; it’s just a business used by recruitment agencies to pay temporary workers. A worker signs a contract with the umbrella company and becomes its employee. When a recruitment agency has a request for a specific worker, they contact the umbrella company, and they negotiate all the terms and conditions. Once a worker completes an assignment, their umbrella company pays their wages through PAYE (after deducting tax and National Insurance contributions).

For specialists who are employees of an umbrella, it’s crucial to know that they have the same rights as other employees, including a written contract, timely payments (not less than the National Minimum Wage), and paid holidays.

Tips for Negotiating Your Employment Contract

The importance of an employment contract for both parties can be hardly overestimated. Its primary mission is to provide legal protection and prevent misunderstandings, fraud, or unfairness between the employer and employee. That’s why, for an employee, it’s crucial to learn it inside out and make necessary adjustments before signing.

Here are some tips on how to negotiate the employment conditions you strive for:

Do the salary research for similar roles in your industry and location. You’ll have reasonable arguments when negotiating your salary;
Familiarise yourself with the company’s culture and values to provide context for negotiations;
Identify your priorities before the interview. Rigidly stick to them to avoid selling yourself short or accepting the bare minimum;
Showcase your openness to compromise. Consider the alternative terms you could accept before the interview;
Don’t neglect seeking advice from the employment lawyer to find out how to protect your interests on a legal level;
Define your long-term career goals and base your requirements on them. Show the employer that you are severe and far-sighted when it comes to your career.

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