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What is an Employment Contract?

Employment contracts help define an employment relationship and allow both the employer and employee to get on the same page.
Published 14 Jun 2022
5 min read
What is an Employment Contract?

Congratulations! If you’re reading this blog you must be on the verge of hiring your first staff member and writing your own employment contract. 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.

What are employment contracts?

An employment contract is a legally binding document between employer and employee that lays out the agreed terms and conditions and employment agreements 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 written employment contracts are 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. Person reaching out for a handshakeRemember, 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, compared to written employment contracts, 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 contract is worth the extra work up front to minimise risk later on. Not sure what role Fair Work plays in employment 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 contract of employment to each new hire is best practice. It’s all about ensuring terms are clear and understood, and risk is minimised for both parties in the employment relationship.

The good news is, that there are three key questions you can ask to help narrow down the type of employment contract you need. Keep in mind, that 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 employment contracts, HR documents and workplace policies.

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 the minimum requirements set out by the NES.

For example, full-time staff expect ongoing employment, regular hours and paid time off.

Part-time staff, casual staff, and independent contractors 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 are is the flexibility it allows, 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.

An independent contractor or employees under casual employment could resign with a shorter notice period.

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
  • Any minimum period of employment, probationary period, or trial period requirements
  • 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;

  1. Maximum hours per week
  2. Flexible working arrangements
  3. Parental leave and related entitlements
  4. Annual leave entitlements
  5. Personal or carer’s leave entitlements, including compassionate and unpaid family leave
  6. Community service leave entitlements
  7. Long service leave entitlements
  8. Public holidays
  9. Details of termination and redundancy pay
  10. 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 this:

  • A confidentiality clause to protect trade secrets, intellectual property and confidential information
  • A non-compete clause to prevent your employee from 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 on employee’s performance, 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 electronic employment 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.

If you need help staying compliant across your business, download our FREE compliance pack today.

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