It may be your company, you may be the biggest shareholder, which means you may also be the appointed director, but if you are paying yourself a salary then you are also an employee and you are entitled to a contract of employment.
In the early days when it's just you and the cat, it seems like a waste of time. But along come investors, shareholders and a board and more directors, and suddenly you're a minority shareholder in your own business. Then there's a bit of turbulence, you're on your back foot and it's time to see what your rights are - that's when you need your contract.
Note: In this Contract of Employment there is nothing about you being a shareholder. That's contained in a separate Shareholder's Agreement, which is another important document.
So what goes in an Employment Contract are your rights and your obligations. Here's one I made earlier:
Between - who is the contract between? Presumably your company and you. The contract will include your full name and your home address.
Appointment - you are appointed as the ............ You agree to serve in this capacity according to the terms of this contract of employment.
Duration - you are appointed on a defined date and will continue until your appointment is terminated by either party (you or your company) giving a notice period, i.e. a period of time (say 3 or 6 months) during which you will continue to be paid. The company may ask you to leave immediately and place you on gardening leave, which means you can't work for the company or get another job - hence the garden. Normally you will continue to receive the additional benefits you're entitled to, like medical cover, during this time.
Note: Have a think about the notice period you want for yourself and, in the future, for your employees. Longer might sound better, but do you really want to be held to a job you've mentally retired from 6 months ago? And do you really want to pay a guy you've fired an extra 3 months of salary? For me 3 months for execs and seniors, and 1 month for the bulk of the organisation feels about right. I also think the US system of 'Just Go' can work well.
Scope of Employment - what you are being employed to do and the fact that you are devoting all of your working hours to this role and don't have a sideline selling timeshare! You'll need Board approval if you want to, for example, become a director (non-exec or otherwise) of another business.
Hours & Place of Work - usually with an additional clause that the company may ask you to work longer hours and in a different place. Also that travel might be involved, for which no additional salary is paid.
Remuneration - your annual salary, paid in 12 equal instalments, where you receive a net amount after statutory reductions like tax, NI, student loan repayments and so on. When is it paid - on the last Friday of each month, the last day of the month, during the first week of next month and so on. There may be a clause about how often your salary is reviewed, or the future events (like a new round of funding) that might cause your salary to be reviewed. But the company is under no obligation to increase it. Or maybe you want a clause that your salary will increase each year in line with the Retail Prices Index.
Discretionary Bonus - that you're entitled to a bonus, how much that might be (often a % of salary), under what conditions it might be awarded and when it's paid.
Pension & Other Benefits - the company should have a pension scheme into which you may or may not be required contribute. Or you may have your own pension arrangements into which the company will contribute. Other benefits might include a car, medical insurance (for you and your family), special clothing and silly stuff like gym membership, food, volunteering, taking your birthday off.
Expenses - which are incurred by you in doing your job - like hotels and food when you're travelling. This is also the section to add any relocation expenses or the costs of converting your garage into a workspace.
Deductions - simply that the company can claw back any overpayments in salary, bonus, expenses, holiday etc.
Holiday - how many days you are entitled to take as holiday each year in addition to the bank holidays. These are accrued at the rate of so-and-so per month starting in January each year. There may be a clause about giving reasonable notice before taking holiday. Founders are notorious for not taking their holidays, so you might also want to add a bit about the carry-over of holidays from one year to the next, or a payment in-lieu of holiday. My advice is take your holiday.
Sick Leave - the requirement to notify the company if you're off sick, the number of days you continue to be paid full salary and your entitlement to statutory sick pay. Many companies are capping the number of days you can claim sick.
Confidentiality - that you'll keep the company secrets secret.
Intellectual Property - that anything you invent or any intellectual property that you create belongs to the company, not to you.
Data Protection - that the company may hold information about you in accordance with the GDPR regulations. You are entitled to see the information that's held.
Statements - this is optional because it says you won't make derogatory statements about the company. But why would you?
Termination of Employment - this is about your employment being terminated for a number of reasons: breach of the employment agreement including the confidentiality provisions and intellectual property, conduct that is likely to bring the company into disrepute, you become bankrupt, you don't do your job to a satisfactory standard, you've been disqualified from being a director, or being convicted of an offence (except driving and other minor infringements that did not result in jail time). There may be a specific clause about gardening leave, which will say that the company may ask you to stop work immediately and serve your notice period away from the office.
Post-Termination Obligations - these are generally any restrictions that apply for a period of time after you leave the company, regardless of whether you resigned or were fired. The clause may include not working for similar competitive companies, not working with customers and suppliers of the company, not trying to hire employees of the company, not making any statements, even not working in th territory.
Disciplinary & Grievance Procedures and Suspension - that you'll be subject to the procedure the company has and that they have the right to suspend you on full pay while any allegations against you are investigated.
Entire Agreement, Former Service Agreements, Governing Law & Jurisdiction, Third Party Rights and General Terms - these are usually boilerplate clauses put in every contract.
So there you have it. What you might expect in an Employment Contract and things you might want to put in yours.
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