Business Category Business: career motivation and tips to move ahead

Key components of a contract of employment

An employee agrees to a contract of employment when an employer hires him.

The employer usually provides the contract of employment and the employee must agree to the contract before starting work.

It is typical for both the employee and the employer to sign the contract of employment. The contract often includes working conditions, dispute resolution, and the rights and responsibilities of the employer and employee, which are the key components of a contract of employment.


Dispute resolution is a key component of an employment contract. Many employers select an arbitrator who has experience deciding disputes between employees and management.

European and UK law regulates disputes that involve civil rights and discrimination complaints, so an employer may not impose mandatory arbitration for these issues. Mandatory arbitration is a common feature of employment contracts for employees at hotels, shops, restaurants and in other industries.


Payment terms are part of a contract of employment. An employee may receive pay for each hour worked, as a weekly or monthly salary, or in exchange for completed work as piecework. All of these payment terms are legal as long as the employer pays enough to meet UK minimum wage requirements. The employment contract may also establish additional payment incentives when the employee performs additional work duties.


An employment contract includes the necessary conditions to terminate the contract. Some contracts are for a specific period of time, so the employer can decide whether to renew the contract or end it.

An indefinite contract does not specify how long the employee will work for the employer. If a contract is at will, either the employee or the employer may end the contract at any time.


Tax authorities use the terms of a contract of employment to define whether workers who provide service to a company are employees or independent contractors.

A company that hires employees has a responsibility to withhold tax payments for its employees, while independent contractors calculate and pay their own taxes.

A contract of employment should be written to ensure that workers are properly classified to prevent an unexpected tax assessment. Independent contractors have more flexibility in their working conditions than employees.