The Most Common Contract Mistakes SMEs Make - and How to Avoid Them

For many small and growing businesses, employment contracts are one of those things that feel like a tick-box exercise. Something you download, tweak once, and hope you never have to look at again. But in reality, contracts are one of the most important HR documents you have — and one of the areas where we see the most costly mistakes.

Using a Template That Doesn’t Fit Your Business

One of the biggest mistakes we see is businesses relying on:

• Free online templates

• Old contracts from a previous employer

• Contracts copied from another business

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The problem? Employment contracts must reflect how your business actually operates.

If your contract doesn’t match reality (for example around hours, location, flexibility or overtime), it can be difficult to enforce — and may even work against you in a dispute.

⚙️Fix: Use contracts tailored to your business, your sector, and how your people work day to day.

Missing Key Legal Information

Since April 2020, employees are entitled to receive a written statement of employment particulars from day one.

Common omissions include:

• Hours of work

• Holiday entitlement

• Pay and payment intervals

• Notice periods

• Probation terms

  
  

Missing information doesn’t just cause confusion — it can leave you non-compliant and exposed if something goes wrong.

⚙️Fix: Make sure your contracts include all statutory requirements and are issued on or before the employee’s first day.

Unclear or Outdated Holiday Clauses

Holiday entitlement is one of the most misunderstood areas of employment law, especially for:

• Part-time employees

• Irregular hours workers

• Leavers

We often see contracts that:

• Don’t explain how holiday is calculated

• Are inconsistent with payroll practice

• Haven’t been updated to reflect legal changes

⚙️Fix: Be clear and specific about holiday entitlement, accrual, bank holidays and what happens on termination.

Getting Probation Periods Wrong

Probation periods are useful — but only if they’re clear and properly managed.

Common mistakes include:

• No defined probation length

• No review process

• Assuming probation reduces legal obligations

Probation does not remove your responsibilities as an employer, and vague clauses can limit your ability to manage performance early on.

⚙️Fix: Set clear probation periods, expectations, review points and outcomes — and follow them in practice.

Inconsistent Terms Across the Team

As businesses grow, contracts often get added over time — leading to:

• Different holiday entitlements

• Different notice periods

• Different benefits for similar roles

This can cause employee relations issues and make changes harder later on.

⚙️Fix: Review contracts regularly to ensure consistency and fairness across roles, while allowing for genuine differences where needed.

Trying to Make Contracts “Too Tight”

Some contracts try to cover every possible scenario with restrictive clauses that:

• Aren’t enforceable

• Go beyond what’s reasonable

• Create mistrust with employees

Clauses around restrictive covenants, deductions, or flexibility need to be reasonable and lawful to stand up if challenged.

⚙️Fix: Focus on clarity, fairness and enforceability — not control for the sake of it.

Not Updating Contracts as the Business Evolves

Your business changes — but many contracts don’t.

We regularly see contracts that no longer reflect:

• Remote or hybrid working

• New benefits or policies

• Changes in working hours or location

This gap can cause confusion and legal risk.

⚙️Fix: Review contracts periodically and issue variations when working arrangements change.

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Employment contracts aren’t just legal paperwork — they set the tone for your working relationship and protect both you and your employees.

Getting them right from the start (and keeping them up to date) saves time, reduces risk, and supports a healthier working culture.

If you’re unsure whether your contracts still work for your business, it’s worth reviewing them sooner rather than later.

Here's how we help our clients with contracts at Lilac HR:

• Sign up to the How to HR Toolkit to download our contract templates to amend to suit your business.

• Retained HR clients can get our team to review their contracts every year and do all the updates for them.