A contract of service defines the employer-employee relationship, including the terms and conditions of employment. The contract must include key employment terms (KETs) and essential clauses, such as hours of work and job scope.
A contract of service is an agreement in which:
- One person agrees to employ another as an employee
- The other person agrees to serve the employer as an employee
The agreement can be in writing, verbal, expressed or implied. It can be in the form of a letter of appointment or employment, or an apprenticeship agreement. However, to minimise disputes on the agreed terms and conditions, the contract should be in writing.
Key employment terms
Employers must issue KETs in writing to all employees who meet all the following requirements:
- Enter into a contract of service on or after 1 April 2016.
- Are covered by the Employment Act.
- Are employed for 14 days or more. This refers to the length of contract, not the number of days of work.
|What to include
Find out the items that must be included in your KETs.
Use KETs verification tool to generate sections on work arrangements and salary.
Within 14 days after the start of employment.
If your employee starts work on 1 January, you must issue the KETs by 15 January.
- Soft or hard copy, including handwritten.
- Common KETs, e.g. leave policy, medical benefits, can be provided in employee handbook or company intranet.
Starting a contract of service
The contract is in effect when the new recruit turns up for work on the appointed starting date.
If the recruit fails to turn up:
- The Employment Claims Act does not apply, as the employee has not started work.
- The employer cannot claim notice pay or any compensation under the Employment Claims Act.
- Any claims for compensation by the employer will have to be made as a civil claim in Court.
Confirmation of an employee
Confirmation depends on the terms in the contract, as it is not covered by the Employment Act.
Note: The length of an employee's service is calculated from the date on which the employee starts work, and not the date of confirmation.
Terminating a contract of service
Either the employer or the employee can terminate a contract of service.
Contract of service vs. contract for service
A contract of service is an agreement between an employer and an employee.
In a contract for service, an independent contractor, such as a self-employed person or vendor, is engaged for a fee to carry out an assignment or project.
This table summarises the main differences between the two:
Contract of service
Contract for service
Has an employer-employee relationship
Has a client-contractor type of relationship
Employee does business for the employer
Contractor carries out business on their own account
May be covered by the Employment Act (Find out who is covered)
Not covered by the Employment Act
Includes terms of employment such as working hours, leave benefits, etc.
Statutory benefits do not apply
There is, however, no single conclusive test to distinguish a contract of employment from a contract for services.
Some of the factors to be considered in identifying a contract of employment include:
- Who decides on the recruitment and dismissal of employees?
- Who pays for employees' wages and in what ways?
- Who determines the production process, timing and method of production?
- Who is responsible for the provision of work?
- Ownership of factors of production
- Who provides the tools and equipment?
- Who provides the working place and materials?
- Economic considerations
- Is the business carried out on the person's own account or is it for the employer?
- Can the person share in profit or be liable to any risk of loss?
- How are earnings calculated and profits derived?
Key terms of engagement template for self-employed persons
Self-employed persons (SEPs) can use the KETs template for SEPs to request your service-buyers to provide key terms of engagement.
Service-buyers can use the template as a guide.
As a service-buyer, if you include all suggested terms in Sections A – E, you are ready to adopt the Tripartite Standard on Contracting with SEPs. You are encouraged to do so.
We also encourage SEPs to get your service-buyers to adopt the Tripartite Standard on Contracting with SEPs.
You can change the template to suit your needs.