What is an Employment Contract?
Congratulations! If you’re reading this blog you must be on the verge of hiring your first staff member. Building a team is an exciting step in growing your business so here’s to you! On the flip side, it can also be a little scary. You’re making a commitment to pay someone a salary for one thing – that’s a lot of pressure! Then there are all the legalities to consider. In that case, let’s start with the first formal document you’ll need to draw up; the employment contract.
An employment contract is a binding document between employer and employee that lays out the terms and conditions that each party will abide by for the duration of the employment term.
It’s designed to protect you (the employer) and your new employee, ensuring there is no confusion on requirements or remuneration for the job that needs to be completed. Here’s what you need to know:
Is a handshake enough?
You might be surprised to learn that a written employment contract is not legally required in Australia. A verbal or “handshake” agreement is fine, and plenty of small businesses successfully employ staff in this way. However, if you’re taking this (albeit handy) shortcut, proceed with caution.
Remember, employment contracts are there to protect you and your staff.
If the terms of your agreement aren’t set out in black and white, how will you prove those terms should something go wrong? Verbal agreements are easily misconstrued and / or disputed, and unfortunately you will experience difficulties in managing staff without a clear set of guidelines. You should also be aware that legislation such as the Fair Work Act is geared towards protecting employees more so than employers. As such, you may find that a written employment contract is worth the extra work upfront to minimise risk later on. Not sure what role Fair Work plays in employee contracts? We’ve written this helpful article explaining who the Fair Work Ombudsman is here.
Keep in mind that all employees are covered by the National Employment Standard (NES), no matter what kind of agreement they have in place, be it written or verbal. This means that no matter what, you must ensure all employees are afforded their basic employment rights, and minimum entitlements, like wages, are met. Read on below for more on the NES.
What type of employment contract do I need?
Just like your employees, every employment contract is unique; a standard employment contract simply doesn’t exist. This probably isn’t what you want to hear as a busy business owner (sorry!) but tailoring your agreements to each new hire is best practice. It’s all about ensuring terms are clear and understood, and risk is minimised for both parties. The good news is, there are three key questions you can ask to help narrow down the type of employment contract you need. Keep in mind, employees may want to discuss or adapt the terms of the contract first. If you need help, we’ve written this handy guide to help you navigate the differences between employee contracts, HR documents and workplace policies here.
1. Is the role covered by an award or enterprise agreement?
Awards are legal documents that detail the necessary conditions for each type of employment. In Australia, there are over 100 industry or occupation awards so it’s likely the role will be covered by one. It’s important to know which award is relevant because it will set out minimum pay rates and conditions. Work out which award applies to your situation here.
2. Is the role full time, part-time or casual?
Clarity around this question is key to ensuring you meet minimum requirements set out by the NES. For example, full time staff expect ongoing employment, regular hours and annual leave. Casual staff rarely enjoy these perks, but will take home a higher hourly pay rate.
3. Is the role permanent or temporary?
The primary differences between these options is in flexibility, and how an employee can be terminated. For example, if your new hire is permanent, they’ll need to give you adequate notice should they wish to resign from their position.
What to include in an employment contract
It might sound obvious, but start with the basics and work from there. Your employment contract should include:
- The full name and contact details of both yourself (the employer) and your new employee
- Job title
- Details of your business location and a commencement date
- A detailed explanation of the role. Ensuring that you break down all duties responsibilities and obligations so your new hire understands exactly what is expected of them
- Who your new employee will report to and what decisions (particularly financial decisions) can they make autonomously
- Set out agreed remuneration and notice of termination requirements
From here, an employment contract must set out and provide the basic ten minimum entitlements outlined in the NES. These are;
- Maximum hours per week
- Flexible working arrangements
- Parental leave and related entitlements
- Annual leave entitlements
- Personal or carer’s leave entitlements, including compassionate and unpaid family leave
- Community service leave entitlements
- Long service leave entitlements
- Public holidays
- Details of termination and redundancy pay
- A copy of the Fair Work Information Sheet
Finally, consider including any specific conditions or clauses to protect and / or benefit you as the employer. These might look like:
- A confidentiality clause to protect your intellectual property
- A non-compete clause to prevent your employee leaving to work for a competitor
- A non-solicitation clause to ensure you maintain full ownership of client relationships
- A trial or probationary period to ensure the employee is the right fit for your business
- A code of conduct and / or dress code that you’d like to see your employee follow
Signed, Sealed, Delivered
A written employment contract is a legally binding document that lays everything out on the table; terms, expectations, contingency plans and more. It’s designed to protect your employee, but also you and your business, so it’s worth putting in the time to get it right. Unfortunately, there is no one template that you can copy and paste because every employment contract will be different. So, start with the basics like a detailed job description and agreed salary. Make use of resources like Fair Work to understand must-have inclusions set out by the National Employment Standard, differences between contract types and ideas on clauses that may be relevant to you.
Employment Hero can help!
Did you know that Employment Hero has an easy Paperless Onboarding feature? This feature can support you in quickly putting together a fully compliant e-contract that can be signed digitally. If having a new hire fully onboarded in a couple of minutes prior to their start date sounds like a dream to you, get in touch with one of our small business specialists today who can walk you through a demo.
If you need help staying compliant across your business, download our FREE compliance pack today.