Contract of service
A contract of service defines the employer-employee relationship, including the terms and conditions of employment. The contract must include certain terms and essential clauses, such as hours of work and job scope.
What is a contract of service
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
From 1 April 2016, all employers must issue key employment terms (KETs) in writing to employees covered by the Employment Act.
Employers must issue KETs in writing to all employees who:
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.
When Within 14 days from the start of employment.
Soft or hard copy, including handwritten.
Common KETs, e.g. leave policy, medical benefits, can be provided in employee handbook or company intranet. Items to include
KETs must include the items below, unless the item is not applicable. For example, if the employee is a PME and overtime pay does not apply, the KETs issued do not need to include items 11 to 12.
Number Item description
1 Full name of employer.
2 Full name of employee.
3 Job title, main duties and responsibilities.
4 Start date of employment.
5 Duration of employment (if employee is on fixed-term contract).
6 Working arrangements, such as:
Daily working hours (e.g. 8.30am – 6pm).
Number of working days per week (e.g. six).
Rest day (e.g. Saturday).
7 Salary period.
8 Basic salary.
For hourly, daily or piece-rated workers, employers should also indicate the basic rate of pay (e.g. $X per hour, day or piece).
9 Fixed allowances.
10 Fixed deductions.
11 Overtime payment period (if different from item 7 salary period).
12 Overtime rate of pay.
13 Other salary-related components, such as:
14 Type of leave, such as:
Outpatient sick leave
15 Other medical benefits, such as:
16 Probation period.
17 Notice period.
18 (Optional) Place of work.
Used if the work location is different from the employer’s address.
Although optional, you are strongly encouraged to include this info.
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 Act does not apply, as the employer-employee relationship did not start
- The employer cannot claim notice pay or any compensation in accordance to the Act
- Any claims for compensation by the employer will have to be a civil claim through a lawyer
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?