Why working without a contract is a bad idea – for employees and employers

In the UK, it’s not unusual for small and medium-sized businesses to take on staff quickly – sometimes with just a handshake or a quick text. While this might seem like the hassle-free approach, working without a proper employment contract holds major risks for both employers and employees.

Whether you’re a business owner or a new starter, understanding why contracts matter can save legal headaches, misunderstandings or costly disputes.

The legal requirement

Under UK law, employees and workers are entitled to a written statement of terms from day one of employment. This doesn’t have to be a full contract, but it must set out the basics: pay, working hours, holiday entitlement, and notice periods.

Failing to provide this isn’t just risky – it’s unlawful. If an employee takes you to tribunal for another issue, the lack of a written statement could result in additional compensation being awarded against you.

Why employers need contracts

For employers, contracts provide clarity, protection, and flexibility. Without them, you could be leaving your business exposed.

• Clear expectations – Contracts set out working hours, pay, and duties, reducing the risk of disputes.
• Protecting business interests – You can include clauses on confidentiality, restrictive covenants, or intellectual property, which don’t exist automatically.
• Flexibility and control – Well-drafted contracts allow for probationary periods, set notice periods, and make it clear how issues like sick pay or overtime will be handled.
• Reducing tribunal risk – With clear terms in place, it’s much harder for misunderstandings to escalate into costly legal claims.

Why employees need contracts

Many people working in small to medium businesses will take a job without asking about the contract, particularly if they’ve been unemployed for a while, or the role is something they are really keen to do. But working without a contract can leave employees in a very vulnerable position.

• Job security – A contract sets out notice periods and termination rules, so you’re not left in limbo.
• Clarity on pay and benefits – Everything from holiday entitlement to sick pay should be clear from the start.
• Protection of rights – Written terms make it easier to enforce legal rights, such as fair treatment and equal pay.
• Professionalism and trust – A formal contract shows that the employer takes their responsibilities seriously.

Common misconceptions

• “If it’s not written down, it doesn’t count.”
  Not true. Verbal agreements are still binding, but they’re much harder to prove if there’s a disagreement.
• “We’ve worked together for years without issues.”
  That’s great – but it only takes one dispute, such as over redundancy pay or notice, for the lack of a contract to become a major problem.
• “Contracts are only for big companies.”
  Wrong. Even the smallest employer is legally required to provide a written statement, and having a contract makes managing staff far easier.

Why expert HR advice makes sense

Drafting contracts might sound simple, but it’s easy to miss important details or use outdated templates. Employment law in the UK changes regularly, and what worked a few years ago may no longer be compliant.

By getting professional advice, you can:

• Ensure your contracts are legally compliant.
• Tailor terms to your business needs.
• Avoid costly mistakes that come from using “off-the-shelf” templates.

Need help? We create bespoke contracts for your business, its departments and your individual employees. Contact us to stay protected – easily and efficiently.

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