Understanding your contract of employment
It is really important to read and understand your employment contract BEFORE handing in a resignation letter or even giving a verbal resignation
The following section below will explain to you the general terms and conditions relating to both your work and the way you eventually decide to leave your job.
Please note that this is a general guide. If you have any legal questions about your employment contract, you should take advice from the HR department from which the contract comes otherwise you can contact legal professionals.
If you don’t have a written contract of employment
In the case of working with AdoGreen Recruitment, we would strongly advise you to never resign unless you have received and read through your contract of employment. We believe that if you have nothing in writing, you have nothing to fall back on.
However, many people all over the world work without written employment contracts and there are many reasons for this including the nature of the work itself (casual, part-time), infrequency of hours, flexi-time and self-employment. This exceptions need to be taken into consideration
Even where there is no written employment contract, this does not mean that you and your employer do not have duties and responsibilities to each other. Often, a written employment contract is replaced by a company handbook which lists the terms and conditions of your time at work. You should be able to rely on this. So in the absence of an employment contract, you should refer to the company handbook when considering resignation.
What’s in an employment contract?
Most companies offer written contracts of employment and / or company handbooks and these state all of the terms and conditions of your work. The following below are the common subjects covered in that.
Probationary period
Most companies insist on the successful completion of a probationary period as this is a safe guard to them in allowing them time to test your technical competence and culture fit. It is very unusual for one loose his/her job after this period as the client has already assed you suitability at the interview, nevertheless this is preferred as it also encourages staff to give their full commitment in being able to prove themselves.
This shows your boss that you fit in with the company ethos, have shown an aptitude for fulfilling the functions of the job you were hired for, and are able to form satisfactory relationships with your colleagues. Similarly, for you, it’s a chance to assess that you like your job and are happy in the work environment. This is something that is good for both you and the company.
Typically, a probationary period lasts 3 months and requires you to work under more modified terms of employment than usual. For example, should you choose to leave the company (or for that matter, if the company decides to let you go), your notice period will be reduced to say, two weeks, instead of the usual four. Other employers insist that you are not allowed your full holiday entitlement until this initial term has elapsed.
If you decide to leave the company before the end of your probationary period, please read this section of your contract thoroughly to make sure that you comply with all of the relevant regulations.
Salary
In South Africa, your employment contract (if not your company handbook) will normally tell you how much you earn as a basic salary. It will probably also tell you when and how you get paid. For instance, many companies stipulate that your salary will be paid monthly in arrears on the last day of each working month.
Bear in mind then that if you are on a salary paid monthly in arrears and you’re resigning from your job, you will not collect your last salary on your last day of work. As per your contract, you will be paid for that final month (perhaps your notice period), one month later.
You may be able to change the date of your final pay by consulting with your boss or HR department.
Upon receiving you employment contract, this should also state what benefits you are entitled to such as medical, pension, 13th cheque etc. Often times the total cost to company is not clear on the contract. Cost to company meaning the total cost that the company has to pay to cover your salary.
For eg: This will mean your basic salary, + the company’s contribution to medical aid and pension/providend fund if these are benefits they offer, as well as anything else they subsidise like cell phone allowances, car insurance and car allowance, 13th cheque, etc, etc.
Should you not know your total cost to company upon receiving your contract of employment, this can be requested for the agency to obtain from the employer known. This is known as a cost to company salary breakdown.
Holiday entitlement
There is often an uncertainty for people as to whether they are allowed to take all of their remaining holiday within their notice period, whether they will be reimbursed if they have some days outstanding or indeed, if they will lose any days they’ve not been able to take at all.
You need to refer to the terms of your employment contract. You will find the following in your contract:
- The commencement and end dates of your company’s holiday year (e.g. 1st January – 31st December)
- Your holiday entitlement (number of leave days) within the company holiday year
- The notice period you have to give to the company when you want to take a holiday
- Whether any holidays not taken in the first company holiday year can be carried over to the following year (or subsequent years)
- How your holiday entitlement is calculated in the event that you leave the company e.g. if your holiday entitlement for the year is 20 days, this will be allotted to you at 1.66 days for each complete month of service
- Whether you will be entitled to any monetary payment in lieu of any unused company holiday entitlement
- Any provisos to this entitlement such as if you are fired for gross misconduct
- Whether you are allowed any time off for public holidays, how much entitlement you have and whether you will be paid for these. In most cases, public holidays do not form part of your company holiday entitlement and cannot be cited in any final negotiation about how many holidays you have left owing to you
- Although the wording may be different, your contract should cover these major points relating to holidays. If it doesn’t or in the event of any confusion, you should consult with your boss or HR department about the exact meaning of any terms you don’t understand.
Sickness
Contracts of employment will generally have strict clauses regarding sick leave and notice thereof. Usually these provisions will relate to telling your boss if you’re not coming to work, how to account for prolonged absences, and under what circumstances you may be entitled to receive statutory sick pay
Maternity
Your contract should inform you of how much notice you need to give, how much time you’ll be allowed off, and whether (and how much) you will be paid while you are on leave.
The agreement should also tell you whether you’ll be allowed to come back to your old job and resume your normal responsibilities. Finally, it will also deal with the possibility of your not coming back to work at all. If you decide not to go back to work, there are certain to be some regulations to comply with including notifying your employer of this circumstance.
Retirement
Different countries of course have different ages for retirement. In S.A, the normal age of retirement for both men and women employees varies, as some contracts will state what age the company would like their staff to retire at. Sometimes this is not even mentioned in the contact and it up to the candidate to decide
Notice Period
There are various types of notice periods
If you contract stated that you are on a 30 days notice period, if you were to resign on the 3rd February, you could start on the 3rd March as this is 30 days from the exact time that you resigned.
However, if your contract says you are required to give a calendar month’s notice, this will mean that you will have to give a full month’s notice from the 1st of the month up until the last day of that month.
So for eg: if you resign on the 3rd Feb, you will only be able to commence your next job position on the 1st Apr, because you have not given a calendar months notice. In the case of a calendar month’s notice you always HAVE TO resign, latest on the 1st of the month to start on the 1st of the following month.
Before we examine some of the more ambiguous issues, a typical employment contract should refer to the following points:
- the amount of notice you have to give to your employer, usually expressed in weeks or months
- whether your employer can ask you to leave before the end of your notice period and whether they will pay you if this happens
Strictly speaking, you are normally expected to work through your notice before leaving the company. However, in many cases, either you or your employer will want to cut short the notice period so that you can leave more quickly, depending on the situation.
From your standpoint, once you’ve given notice you may be so excited that you want to join your new company as quickly as possible. Alternatively, you may detect some resentment toward you and feel that it is better to complete the handover process immediately so that you can go.
Conversely, your employer may not see you as a team player any longer or in certain situations, feel that it may affect the morale of the remaining staff if you stay. In this scenario, you will soon be asked to leave the office more quickly.
Regarding salary, the general (although by no means universal) rule is that if you ask your employer if you can leave before your notice is up, you should not expect to get paid for the part of your notice you don’t serve. It follows that where your employer asks you to expedite your departure, they would have to pay you for the full notice period. Remember though, that this is a general rule only and you will have to refer to your own contract .
It is advisable to give your full notice so as to do a proper hand over and honour the contractual agreement unless this is not a problem and you are given permission to leave earlier.
Notice and holidays
Regarding holidays, this can be a confusing aspect when giving notice. If your notice period is 4 weeks you have calculated that you have 10 working days (2 weeks) holiday due before you leave the company, what should you do? Will you be forced to take that week’s holiday in your notice period? If you don’t take it, will you lose that holiday entitlement or will you get paid in lieu for the days you didn’t manage to take?
Typically, if you have holidays left over when you hand in your notice, your employer can force you take your holiday in this time. You would not be paid any extra, after all, you’ve taken all your time off now and the holidays have been accounted for. If your boss asks you to take your holiday and you refuse, they may be able to withhold any money in lieu of holiday that you would have been entitled to.
If your boss does not force you to take your holiday allocation, you have 2 options. The first is to take your holiday (if allowed) as part of your notice period. A lot of people who are resigning, book their holiday for the last few days of their notice period especially if they are planning to start their new job as soon as they’ve served their notice. The remaining holidays give you a chance to take a break between your old and new employment.
Alternatively, if you don’t want to take your holidays (or are not allowed to), you may receive a monetary payment in lieu of holiday.
Again, your employment contract should tell you exactly what the procedure is. If in doubt, ask your boss or your HR department for clarification.
Disciplinary and grievance procedures
It goes without saying that if you have been a little naughty, you may be part of a disciplinary procedure which in the first instance should most commonly be a type of verbal warning. If however, you continue to break the company rules whether gratuitously or not, the result will also become more serious. A written warning may follow, then perhaps a suspension, a demotion and eventually, the ultimate sanction; you’ll be fired.
Of course, you may decide that you want to resign from your job before that happens. But to ensure that you’re not going to get into trouble in the first place, take a look at your employment contract to see what sort of behaviour is condoned and what is frowned upon.
What if you’re the victim of someone’s bad behaviour at work? And for that matter, what if you feel that you’re always being overlooked for promotion, being badly treated by colleagues or have a dispute about pay or commission? Of course, you could resign and move to a better job, but the alternative is to use the company’s grievance procedure to air your views and hopefully find a solution. Your contract should state what this procedure is and how you can start the ball rolling.
Expenses
Your company should certainly pay you any outstanding legitimate expense claims that you have when you decide to leave your job. Your employment contract should contain a clause concerning expenses and what expenditure is classed as legitimate and what is not.
Intellectual property
This is something that is not always going to be found in an employment contract. This really will depend on what type of job you are involved in. Some jobs will to some extent involve creating written or other materials, or writing documents as part of the normal course of employment. E.g. an auditor may write a report on the company whose accounts he/she is examining, someone in sales may write a direct marketing mailshot, and a programmer may write a piece of code which allows a web site to take orders. So then, who owns this material commonly known as intellectual property? Your contract of employment will be the first guide. Going back to the programmer above, the contract may state that any code written as part of building web sites for clients belongs to the employer since clearly, the programmer could not hope to stop the web site functioning should he decide to leave the company and take his code with him. Similarly, most employment contracts will have clauses relating to who owns this property whether it be the designer, the employer or the client. Each country also has its own laws relating to ownership of intellectual property which can serve as a secondary guide.
Restrictions
Some companies stipulate certain restrictions in the employment contracts where these govern the behaviour of staff upon leaving the company. e.g, when resigning, your contract might state that you cannot go to work for a competitor for a set period after leaving.
Other contracts may say that you cannot directly (or indirectly) canvass your old clients for business even if they approach you. And similarly, the contract may deny you from taking (or enticing) other employees of your company with you when you decide to leave work.
The restrictions must protect a legitimate business interest of your employer and be reasonable to be deemed to be enforceable.
Again, we strongly recommend that before resigning, and certainly before contacting clients telling them you’re moving on, you read the relevant section of your contract to deduce what you can and can’t do.
Confidentiality
Some employees do not have a written employment contract; however they are still under an implied duty to keep certain types of information learnt at the workplace, confidential.
A written employment contract may go further and stipulate exactly the meaning of the term “confidentiality”. For example, it may state that:
- You may not disclose trade secrets
- You may not disclose the workings of any third-parties you have dealings with (e.g. clients)
- You may not take any sensitive documents or materials home with you without being authorised
- You may have to return or destroy any sensitive documents or materials you have in your possession should you decide to leave the company
Breaking rules on confidentiality is no laughing matter and the potential consequences are hugely detrimental for the development of your career. Dependent upon which country you’re in and its own native laws, you can be either civilly or criminally charged for breach of confidence. And even if no legal proceedings are necessary, if word gets out about your misdemeanour’s, future employers will be much more wary of giving you work. Remember too that you are unlikely to secure a good reference from your old boss.
Bonus payments
Bonus payments are certainly one way for a company to engender loyalty amongst its staff. For example, your employer may run a bonus scheme which is paid relating to the amount of profit the company made in the last financial year. Does this mean that you have to wait until the end of the year before leaving? Even if bonuses are paid out quarterly, should you wait until the end of the next quarter before handing in your notice?
The best way to answer these and other questions is in the first instance, to check your contract of employment. If you need further clarification, talk to your boss and / or HR department about the bonus payment policy.
Stock options
With bonus payments, companies issue stock options to their staff. This often encourages employees to stay with the company for a set period of time, otherwise these stock options are forfeited. This is particularly evident of younger companies dealing in products or ideas that have a high-risk factor to be considered. Stock options are used by various companies to hire (and keep) high calibre staff they would otherwise have had problems getting.
In simple terms, a stock option is a contract that gives an employee the right to buy or sell shares in the company at a set price within a certain amount of time. For example, upon starting employment with Company A, you may receive 2000 stock options. The stock options are each worth say R20. Nominally therefore, you have R40,000 worth of shares in the company.
However, you will not be able to trade or sell these options for a set period (usually 2 or 3 years) until the option to realise the value of those shares matures. And even then, you will still have to be working for the same company to do so.
On the up side, the stock options which were worth R40000 are now hopefully worth a lot more. If one share in the company is now worth R60, then the value of your shares is now R120,000
Your employment contract will tell you how long you need to have to stay with your employer to realise your options. If you are adamant that you want to resign, you may need to negotiate with your boss as to whether you can realise any of the value of your options.
Commission payments
Most staff that are either in business development or sales are on some form of a commission structure, meaning that they are incentivised in that the more products / services they sell, the more money they will make over and above their basic salary.
Within your employment contract, it may detail your initial commission structure however, in most cases, the longer you are with the same company and the more successful you are, this structure is likely to change. Usually when this happens, you should have been informed of these changes in writing without the necessity of a whole new contract. These changes are usually given in writing. You must always keep these proofs because you’ll need them!
Knowing what type of commission you are on
Simple Commission
Commission on sales can be paid in a number of ways. The most common is to pay commission as a percentage of value of the product or service sold. For example, if a water dispenser salesman sells 10 water dispensers for R1500 each and is on a commission of 5%, then he will be entitled to R750.
If one is on a similar “percentage of sale” commission structure then should be relatively easy to calculate how much you are owed at the end of your employment.
Accumulative Commission
if you are on an “accumulator” commission package then it will be slightly more difficult. This is where you are paid for e.g. 3% for the first ten products / services sold in a set period and then a higher percentage for the next ten.
Pyramid commission
To give an example of another form of accumulator commission: The manager of a sales team gets not only his / her own commission for items they personally sold, but also receives a share for the number of items sold by the rest of the sales team. This is also known as “Pyramid commission”. This is common commission structure in many companies and calculating the amount of commission one has earned can be quite a challenge.
Percentage of profit commission
The most tricky: If you are on a “percentage of profit” commission structure. This will be a challenge to work out particularly if the profit calculation is on a given sale and on the company’s overall profit. For example, an Account Manager within a Graphic Design company may be paid commission on any profit made from the building of a client’s website, i.e. profit made from one individual project. It could be that he/she may also receive a bonus on the whole company’s performance over a year. Commission then becomes more a question of trust, using figures that you may have little immediate access to.
Vital to consider
No matter what commission structure you are on, when calculating commission, make sure that:
- Your employment contract is clear to you
- Any new commission structures that you’ve been notified of but may not form part of your original contract is referred to
- Wherever there may be ambiguity or doubt, make sure that you speak to your boss or the HR department
Changes to terms of employment
After the successful completion of your probationary period, the normal terms of your contract of employment will commence. This is expected and so you probably won’t pay too much attention to it.
However, something to take note of is that your contract may also include a clause allowing your employers to change the terms of your employment at any time, sometimes with little or no notice to you.
Don’t be too worried about this though. It really is a worst-case scenario if your boss changes the terms of your contract. The vast majority of employers are scrupulous and will provide you with details of any changes in writing. Always remember to refer to these amended terms if you are considering to resign.