What is a Contract of Employment?
An employment contract is a written or verbal agreement between an employer and the employee. It sets out enforceable terms and conditions that govern the employment relationship. Although the employment agreement does not have to be in writing, ideally it will be.
An employee contract must provide for at least the same minimum terms and conditions and wages set by the National Employment Standards (NES) contained in the Fair Work Act 2009 or the relevant award, enterprise or other registered agreement.
Both the employer and employee must agree to any changes to the employment contract.
Types of Employment Contracts
Each type of engagement has different benefits and consequences, but it is preferrable that Employment agreements take written form.
How you engage workers will depend on your business needs. You should also consider industry standards for the role and how different types of employment contracts may affect your business financially.
Below are the most common types of engaging workers:
- Full-time contracts: Ongoing employment, typically 38 hours per week with full paid leave entitlements.
- Part-time contracts: Ongoing employment, less than 38 hours per week with pro-rata entitlements.
- Casual contracts: No guaranteed hours, paid hourly loading instead of leave, flexible termination.
- Fixed-term contracts: Employment for a specified period or project, with permanent entitlements.
- Independent contractors: Self-employed workers engaged for specific tasks, not employees.
For a full breakdown of each employment contract type, including the specific legal obligations, entitlements, and risks for each, read our complete guide: Types of Employment Contracts in Australia.
Step‑by‑Step: How to Write an Employment Contract
Drafting an employment contract means clearly documenting the terms of a role so both parties understand their obligations from day one. Whether it’s for a new hire, a promotion or a change in duties, the contract should set out the key conditions of employment, reflect any award or NES requirements, and protect the business. The steps below outline the essential elements employers need to include when preparing a compliant and accurate contract.
Identify the Parties to the Contract
The contract must clearly state who the agreement is between. This includes the employer’s full legal entity name, ABN and registered address, along with the employee’s full legal name. Accurately identifying both parties ensures the contract is enforceable and correctly reflects who is responsible for the employment relationship.
Define the Role and Responsibilities
Clearly outline the position the employee is being engaged to perform. This includes the job title, a summary of key duties, reporting lines and any core expectations attached to the role. The description should be specific enough to set clear boundaries but flexible enough to allow reasonable changes in duties as the business needs evolve.
Set Out Employment Status and Work Hours
The contract should specify the employee’s employment status and the hours they are engaged to work. This includes whether the role is full‑time, part‑time or casual, the ordinary hours of work, any agreed rostering arrangements and the location where work will be performed. Clearly outlining these details ensures the contract aligns with NES entitlements and any applicable modern award and helps avoid disputes about expected hours or availability.
Include Compensation and Benefits
Set out how the employee will be paid and what entitlements apply to the role. This includes the base rate of pay, any loadings, allowances, bonuses, commission structures or other agreed benefits. The contract should also specify the pay cycle, the method of payment and whether superannuation is paid in addition to or included within the stated rate.
Outline Leave Entitlements (NES Minimums)
Confirm that the employee will receive at least the minimum leave entitlements under the NES, such as annual leave, personal/carer’s leave and parental leave. You can also note any additional leave the business provides, but the contract doesn’t need to restate every entitlement in full.
Add Key Employment Terms
Set out the core conditions that apply to the role, such as probation periods, workplace policies, the primary work location and any flexibility or variation clauses. These terms help define how the employment relationship will operate day‑to‑day and give the business the ability to manage changes where reasonable.
Include Confidentiality and IP Clauses
The contract should include clauses that protect the business’s confidential information and confirm that any work created by the employee in the course of their duties remains the employer’s property. These terms help safeguard sensitive information and ensure the business retains ownership of intellectual property developed during employment.
Add Termination and Notice Requirements
Set out how the employment relationship can be ended and what notice periods apply. This includes the required notice under the NES or any applicable award, whether payment in lieu of notice may be used, and any circumstances where summary dismissal may occur.
Review for Award and NES Compliance
Before finalising the contract, check that every clause aligns with the minimum standards set by the NES and any applicable modern award. This includes confirming pay rates, classifications, hours, leave, allowances and notice periods meet or exceed the legal minimums. A final compliance check reduces the risk of underpayments and ensures the contract reflects the correct legal framework for the role.
What Does an Employment Contract Include? (Requirements & Checklist)
An employment contract is the most effective way to codify the terms and conditions of the employment relationship. It should outline fundamental aspects of the employment relationship including employment status, particularly if the employee is engaged as a part-time or casual basis, remuneration and obligations. Setting out the conditions of employment in writing is likely to reduce the risk of misunderstanding or confusion.
When drafting a letter offering employment together with an employment contract it is useful to have them professionally reviewed to ensure that the terms are sufficiently clear. Doing so will also mitigate the risk of inadvertently incorporating unlawful terms.
Although every employment contract is unique and needs to reflect the specific employment relationship between the employer and the employee, there are specific conditions of employment that should be included in an employment agreement, regardless of your company size or industry. You should include the following terms and conditions in your employment contracts:
- Name and personal details of the employer and the employee
- Commencement date of employment and probation period (if a permanent employee)
- Clause referring to employer policies and procedures
- Clauses referring to essential requirements of the role e.g. Licences, clearances, registrations
- Type of employment (i.e. full-time, part-time or casual)
- Place of work and hours of operation of the business
- Remuneration clause – setting out the method of payment e.g. salary, wage, or piece-rate) and what is included or paid separately e.g. superannuation, loadings, overtime, bonuses, benefits and allowances. Commission is usually set out in a separate scheme.
- Leave entitlements – the NES provides compulsory minimum standards for various types of leave e.g. annual leave, personal leave, long service leave
- Clauses protecting employer property and information – e.g. company vehicle, intellectual property
- Confidentiality agreement making clear what employer information should be kept confidential and setting out the possible consequences of a breach
- Non-disparagement clause preventing the employee from any action which can reflect negatively on the company
- Amount of notice required to be given by the employer and employee to end the employment relationship (there are minimum notice periods under the Fair Work Act)
- Termination conditions including Redundancy
- Clauses regarding Assignment, Jurisdiction, Severability and Variation of Terms
Also consider provisions to deal with potential changes in the employee’s role or their scope of duties (i.e. will the same contract still apply if the employee has to change locations, roles or duties?) and depending on the employee’s position, perhaps clauses preventing them from setting up a similar business close to their former employer for a period of time and/or stealing their clients, though these clauses can be hard to enforce.
Termination of an Employment Contract
An employment contract can be terminated by either the employee (ie through a resignation) or the employer.
Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and carried out in accordance with the workplace procedures. Depending on the circumstances, if an employee is dismissed or resigns, they may be entitled to be paid notice, and must be given their final payment, which includes any entitlements owed to them e.g. accrued but untaken annual leave.
Make sure you clearly outline the terms relating to ending employment in your employment contract and employee handbook.
For more information on Employment Contracts call us for free initial advice on 1300 761 935.
Please note this guide is intended to provide general information only and should not be substituted for the advice of a trained employment relations professional. Peninsula accepts no responsibility for employment contracts that are made based on the information provided. If you are unsure about what to include in an employment contract, Peninsula recommends you seek out professional guidance.